What is Pension Expense?
Pension expense is the cost recognized in profit or loss for a defined benefit pension plan during the period. Under IAS 19, it has three main components: service cost (current and past), net interest on the net defined benefit liability or asset, and any settlement gains or losses.
How It Works
- Compute current service cost from the latest actuarial valuation.
- Add net interest equal to the discount rate times the opening net DBO.
- Add or subtract past service cost from plan amendments and settlement effects.
- Push remeasurements (actuarial gains/losses) to OCI, not profit or loss.
Saudi Context
Saudi companies recognize pension expense for their end-of-service liability and disclose service cost and interest cost separately in line with IAS 19.
Example
If service cost is SAR 5 million and net interest is SAR 2 million, the pension expense reported in P&L is SAR 7 million; actuarial losses of SAR 1 million go through OCI.