FRS102
31 December 2025
By Daniel Martin
December 2025
On 31 December 2024, the combined impact of changes in bond yields, inflation expectations and to life expectancies likely resulted in lower liabilities. Investment experience varied significantly by class, meaning the overall impact was less clear but an improvement in balance sheets was likely. With equity investments performing strongly, schemes that had significant exposure to equities were likely to fair better.
But how does 31 December 2025 compare?
The key drivers of your balance sheet are ultimately out of your control. Bond yields, inflation expectations, longevity trends and asset performance.
Discount rate (the higher the discount rate the lower the liabilities)
FRS102 requires that the discount rate be based on the market yields on high quality corporate bonds. So how has the bond yield moved?
Bond yields have fluctuated through the year but are currently at a similar level to on 31 December 2024. Overall, between 31 December 2024 and 30 November 2025, bond yields have increased by approximately 0.1% pa. The impact of this on your liabilities will vary depending on their duration, but for a scheme with a 20-year duration you could expect a decrease in liabilities of around 2%.
Inflation (the higher the inflation the higher the liabilities)
The difference in yields between fixed interest bonds and index-linked bonds may be used to give an indication of the expected future rate of inflation and this is likely to be how your inflation assumptions are derived. The Bank of England produces statistics for future inflation derived in this way.
Inflation expectations have fallen steadily since 31 December 2024, and on 30 November 2025 they were approximately 0.3% lower. The impact of changes to inflation expectations on your liabilities will vary depending on their duration but also the proportion of them that are inflation linked. For a scheme with a 20-year duration with half of its liabilities linked to inflation you could expect a decrease in liabilities of around 3%.
Longevity (life expectancies increase, liabilities are higher)
The Continuous Mortality Investigation (CMI) produce improvement tables each year. It is common to update mortality assumptions to reflect the latest version either each year or in line with the valuation cycle (every 3 years).
Versions of the CMI Model from CMI_2020 to CMI_2023 addressed the impact of the pandemic by placing no weight on data for 2020 or 2021 and reduced weight on data for 2022 and 2023. In contrast, CMI_2024 puts full weight on data for every year and introduces a new “overlay” term to explicitly model the initial increase in mortality caused by the pandemic as well as the fall in the following years.
The CMI_2025 model is expected to be released in 2026.
Please note that the analysis above is based on the standard S3 mortality tables. The S4 series tables are also available. If the analysis was repeated using the standard S4 tables, the equivalent figures at 65 for the CMI_2024 projections would be 21.45 for males and 23.72 for females.
Assets
The performance of your assets will vary depending on the mix of asset classes you hold along with the performance of the specific underlying assets. However, as an indication, here is a look at the performance of some of the key asset classes since 31 December 2024.
In summary
With only small changes to bond yields and inflation expectations, investment performance is likely to have the most significant impact on your balance sheet. Equity investments have performed strongly, so schemes that have significant exposure to equities are likely to fair better.
This is clearly a very high-level look at the factors that drive your balance sheet, in reality the specifics of your scheme, such as asset portfolio, liability duration, age profile and benefit structure, will all change the relative impact of each of the items discussed. Scheme experience, like contributions paid during the year, will also be reflected in the final figures.
Please also note that there is still a month until the year-end and a lot can happen in that time.