Pension Audits: Can Trustees Have Faith In Their Team?

Ever since the scandal surrounding the Mirror Group pension fund in the early 1990s

and the sharp rise in defined benefit scheme deficits in recent years, meticulous auditing of company pension schemes in the UK has taken on even greater significance. Fortunately, most of the leading accountancy firms have specialist pension audit teams who can give trustees the cast iron assurance they are looking for.

Pension audit today is more complex today than it has ever been with auditing teams having to communicate regularly with trustees, scheme managers and scheme sponsors as well as monitoring every new directive from the regulator and attending numerous pension fund management related conferences where all the latest issues affecting the industry are aired and discussed in depth.

Trustees and sponsors alike will also expect scheme auditors to supply some or all of the following :

Flexible and focussed covenant reviews to assess the financial strength of the scheme sponsor

Facilitated risk management reviews for trustee boards to identify and address key risk areas

Facilitated governance reviews to ensure trustees are fully aware of their duties

Trustee training and the establishment of internal trustee training mechanisms

AAF01/06 reporting assistance for pension scheme administrators, investment managers and custodians

Taxation recovery, especially from overseas jurisdictions.

VAT recovery to maximise scheme funding

Forensic accounting support to assist in identifying fraud and enabling recovery.

There is no doubt that pension audit teams within the big four firms and leading second tier practices need to be at the top of their game with so many challenges currently presenting themselves. Gilt yields are the lowest they have ever been in most peoples living memory, shares in leading European banks are still of questionable value and poorly performing investment markets combined with steadily increasing longevity are plunging more and more funds into deficit. On top of this, there is the migration from Defined Benefit to Defined Contribution schemes as well as the advent of auto-enrolment to deal with.

A belt and braces approach

In todays ever demanding environment, trustees need the assurance of risk based audit methodology. They want to know that all key risks are adequately covered and will be looking for additional assurance on areas such as benefit calculations, transition between investment managers and the valuation of complex investments. As part of its audit work, a good firm will alert trustees to existing and potential problems, giving positive input into the running of a scheme. Ideally, post audit reports should also provide trustees with details of latest developments in the pensions industry and comment on best practice.

by: Brendan Wilde

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