Early days and the first report
About 40 organisations joined during the first year, providing a membership with skills in all the disciplines involved in pensions work. This multi-professional membership has remained PRAG’s hallmark, together with the working-party system. This was used initially when a number of small groups were put to work to produce PRAG’s first report: Financial Reports for Pension Funds.
This first report appeared early in 1978 as one of the NAPF’s Notes on Pensions series of booklets. A foreword was provided by the President of the Pensions Management Institute, which had been founded at about the same time as PRAG, all this epitomising the continuously good relations that PRAG maintains with other leading pension bodies.
The most important suggestion in that first report was that a pension fund should have a net assets statement rather than a conventional balance sheet, with any information about the scheme’s estimated solvency provided by a separate document. Eventually, in 1986, the Accounting Standards Committee, after due consultation, adopted most of PRAG’s ideas in its Statement of Recommended Practice No. 1, by which time PRAG’s ideas had pretty well taken root anyway. As SORP 1 became practically mandatory by virtue of the 1986 Disclosure Regulations, a large degree of uniformity of practice has been established, even if the idea of showing a scheme’s long-term liabilities on a balance sheet has never gone away.
Setting the standard
When the Accounting Standards Board took over responsibility for setting accounting standards for the UK, it decided to pass over to each financial sector concerned the maintenance and development its relevant SORP. It readily agreed that PRAG should be the lead body for the purpose of revising SORP 1, something the Goode Committee (set up after the Maxwell scandal) had recommended should be done. This culminated in September 1996 in the publication of PRAG’s revised and re-titled Pensions SORP, which had statutory backing by the 1996 Pension Scheme Accounting Regulations under the Pensions Act 1995. Thus, ironically perhaps, PRAG became a standard-setting body some twenty years after it was founded in reaction to that very process!
SORP revisions
2002 saw the publication by PRAG of a revision of the Pensions SORP. Having recently promulgated Financial Reporting Standard 17, which introduced a measurement of future defined benefit pension liabilities in company accounts, the Accounting Standards Board asked PRAG to consult on doing something similar in scheme accounts. Old PRAG hands experienced a distinct feeling of déjà vu! The consultation exercise in 2003 produced responses that were against including long-term liabilities in scheme accounts, while the SORP Working Party started to explore ways of giving scheme members a clearer picture of their scheme’s solvency. While, over the years, the desirability and practicality of defined benefit pension schemes showing the long-term liability for future benefits in their accounts has continued to be advocated in some quarters, both the 2007 and the 2014 revisions of the Pensions SORP retained the concept of having a net assets statement rather what is sometimes termed a holistic balance sheet. For the first time, the 2014 SORP contained compulsory elements, deriving from Financial Reporting Standard 102.
Related areas of interest
Apart from the subject of pension scheme accounts, over the years PRAG has published many more reports, covering topics such as insurance policies and derivatives, as well as practical administration matters such as VAT and scheme governance. One early initiative was to publish a glossary of terms. In view of its direct need and interest in the matter, the PMI was given the copyright in this publication, on the footing that the two organisations would continue to co-operate in the updating of what has become the pensions industry standard, now regularly reissued under the title of Pensions Terminology.
Another field in which PRAG, for some years, played a significant part relates to accounting for pensions in the employer’s accounts, particularly defined benefits. When, after a considerable effort over many years, the Accounting Standards Committee produced Statement of Standard Accounting Policy 24, PRAG formed an influential working party that on a number of occasions issued guidance and also submitted suggestions to the Accounting Standards Board for the revision of SSAP 24.
PRAG later made a submission to the International Accounting Standards Committee in relation to its exposure draft E54 on the same subject, but it is fair to say that PRAG had little influence in the developments that led to either the revision of International Accounting Standard 19 Employee Benefits or, in the UK, to the ASB’s Financial Reporting Standard 17 Retirement Benefits, published in November 2000.
Networking
Over a number of years, an attempt was made by PRAG to collect useful data on the benefits administration costs of UK pension schemes, but the wide diversity of size of schemes and the uneven nature of their data on the subject prevented any useful outcome. However, as a consequence, a number of PRAG members representing larger schemes got together, with the Group’s blessing, to form the PALS (Pensions Administration for Large Schemes) Network, which for a decade or so did excellent work on a private basis for its 50 or so members.
Undoubtedly PRAG membership has been of most benefit to those who have enrolled for one or other of its working parties, of which there have usually been three or four in operation at any one time. Reports of their progress have been given to the membership at large at the well-attended one-day annual meeting each November and, in recent years, at a Summer afternoon meeting. These general meetings have also covered current matters of interest.
Financing PRAG
Another feature that, for most of its history, made PRAG unlike other pensions industry bodies, is that it existed with comparatively small financial resources (until 1989, the annual subscription was just £10 a year). For that, members have always received a free copy of PRAG publications. Previously, this meant a printed booklet but in more recent times, it has meant access to a free electronic copy through the PRAG website.
For most of its existence the Group heavily subsidised the lunch at the AGM, thus making active membership a very good financial proposition! Moreover, the pricing policy adopted in relation to publication of the Group’s reports was always designed to disseminate the information rather than make a profit. Despite these things, the Group prospered financially, the explanation being the generous provision of staff time and facilities by the member organisations in producing the published reports and in hosting management meetings. PRAG has never had a secretariat as such, relying, until 2004, on entirely unpaid secretarial and technical officials. In the decade or so since then, through the good offices of PRAG Executive members, a modest amount of administrative cost has been incurred, using the facilities of the firms concerned.
After 1996, a significant driver of PRAG’s finances was the royalty income arising from the publication of the Pensions SORP, but with the advent of electronic publishing, the Group experienced a sharp reduction in all its publishing income. To meet what was an existential threat, in 2014, PRAG asked for and received financial support on an annual basis from a number of leading pensions organisations by way of Professional Support. This is in recognition of PRAG’s public role.
The necessity for this new source of income has been underlined by the variation in PRAG membership in recent years, with membership tending to bounce back after SORP revisions. Responding to the changed financial climate, the PRAG Executive has diminished the subsidy relating to the AGM and has shown a greater inclination to look at the membership subscription level more frequently than in the past. The idea of having corporate membership has been looked at on a number of occasions but not pursued.
Knowledge and experience
PRAG has never seen itself as a campaigning or lobbying organisation, although it has always joined in public consultation processes on subjects about which it believed it had useful experience. It has not seen itself, either, as an educational body in the academic sense, such technical meetings as it has organised being truly in the nature of seminars.
PRAG Executive
A simple but comprehensive constitution was adopted in PRAG’s first year of life but in view of PRAG’s rather more official status as a standard-setting body, it became a private company limited by guarantee, with the PRAG Executive Committee first meeting as a board of directors on 10 February 1998.
At the very start, in 1976, the Committee numbered seven persons but, with the greater activity of the Group and the increased pressures on members in their working lives, the load was gradually spread wider so that there are nowadays at least a dozen directors. The first Chair served for five years, his successors mostly for three or four years.
As the business world moved from postal correspondence to faxes and then to the internet, PRAG has followed the trends, launching its website in 2000, refreshed at intervals since then. That year also saw another innovation: the first PRAG Awards to promote best practice in pension schemes’ summary accounts and report, a competition that ran for over a decade.
PRAG marked certain milestones in its history with a variety of functions. The 21st birthday celebration in 1997, for instance, actually involved attending an evening open air Rock and Roll concert, with a buffet meal in a private marquee, while the 25th anniversary saw a lunch at the Royal Over-Seas League, when no fewer than 22 former Executive Committee members accepted the Group’s invitation to enjoy, in effect, a reunion. In 2006, a buffet reception was held after the Summer Meeting at the Royal Over-Seas League to celebrate the 30th Anniversary.
Celebrating its 40th birthday, PRAG continues to be at the forefront of developments and, as the 2014 updating of the Pensions SORP (with several concomitant publications) confirmed, continues to play an important part in the way UK pension schemes, be they defined benefit or defined contribution in nature, are accounted for and administered, just as when the Group was first founded.
Last updated: September 2016