FRS102
30 June 2026
By Daniel Martin
June 2026
On 30 June 2025, the combined impact of changes in bond yields, inflation expectations and life expectancies resulted in lower liabilities. Investment experience varied significantly by class, meaning the overall impact was less clear but an improvement was likely. With equity investments performing strongly, schemes that were heavily exposed to equities tended to fair better.
But how does 30 June 2026 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 have increased over the last few months. On 31 May 2026 bond yields were higher than on 30 June 2025. Overall, between 30 June 2025 and 31 May 2026, bond yields increased by approximately 0.4% 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 7%.
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.
Like bond yields, Inflation expectations have fluctuated through the year but have increased in recent months. On 31 May 2026 inflation expectations were slightly higher than on 30 June 2025. Overall, between 30 June 2025 and 31 May 2026, inflation expectations increased by just over 0.1% pa. 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 an increase in liabilities of around 1%.
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 and CMI_2025 put full weight on data for every year and introduce 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_2026 model is expected to be released in 2027.
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_2025 projections would be 21.64 for males and 23.89 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 between 30 June 2025 and 31 May 2026.
In summary
Liabilities are likely to have decreased slightly, with the increase in bond yields having the biggest impact. Investment performance has been generally positive, particularly for equity investments. An overall improvement in the balance sheet is therefore expected, with schemes that have significant exposure to equities 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 this analysis is based on market conditions on 31 May 2026 and there is still a month until the year-end and a lot can happen in that time.