FRS102
30 September 2025
By Daniel Martin
September 2025
On 30 September 2024, lower bond yields compared to a year earlier resulted in lower discount rates and an increase in liabilities. This was partially offset by lower inflation expectations and life expectancies. However, investment experience was likely to have been the most significant cause of change in the balance sheet with equity investments performing particularly strongly.
But how does 30 September 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 generally increased since 30 September 2024. Overall, between 30 September 2024 and 31 August 2025, bond yields have increased by approximately 0.85% 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 15%.
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 remained reasonably stable since 30 September 2024, falling slightly, and on 31 August 2025 they were approximately 0.15% 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 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 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 21.44 for males and 23.71 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 30 September 2024.
In summary
The increase in bond yields and resulting fall in liabilities is likely to lead to an improvement in the overall balance sheet position. With changes in life expectancy and inflation expectations less significant, the level of improvement in the balance sheet will be determined by the mixture of assets held. 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.