A Commentary on Pension Scheme Accounts by Trigon Pensions

The Annual Report and Accounts should represent a vital element in the management of risk for pension fund trustees, identifying any problem areas which come to light as a result of the preparation of the accounts and independent audit.

Judy Stevens from Trigon Pensions points out that the Annual Report and Accounts is the one annual document which looks at:-

1. Regular and correct payment and allocation of contributions.
2. Investment of scheme assets in line with Statement of Investment Principles.
3. Correct attribution of interest and dividend payments on assets.
4. Membership history with audit trails backing up numbers recorded of pensioners, active members and members with preserved benefits.
5. Calculation of benefits and payment of benefits plus accounting for any tax due.

In these days of the “Health and Safety” culture, the annual report and accounts can provide the trustees and members with a risk assessment document which is both practical and regular. It does not mean that smaller size schemes have to run the expense of getting “risk maps” drawn up or having to write long winded governance statements to which very few will ever refer, once they have been written down.

The contents of Scheme Annual Reports and Accounts are dictated by Statements of Recommendation Practice (SORP) as well as regulations.

However, Judy Stevens, Trigon Pensions outlines that there are major risk areas which do not have to be covered currently in the scheme annual reports and accounts. These include:-

1. The financial covenant offered by the sponsoring employer.
2. The knowledge and understanding gained by the Scheme’s trustees.
3. The pensions expertise of the auditor.

The Pensions Regulator has already suggested that a statement on the level of security offered by the sponsoring company should be included in the accounts and in these difficult economic times this seems to be even more relevant. Company auditors or Boards of Directors could be asked to supply a few paragraphs on the financial health of the sponsor for inclusion in the Accounts. This would offer more comfort to members, especially of Defined Contribution schemes who unlike their counterparts in Defined Benefit schemes do not receive annual funding statements to give them any news on the financial health of the scheme or the employer.

The experience and expertise of the Scheme’s trustees is becoming ever more critical. As companies struggle to survive, the likelihood of trustees having to take a tough stance in response to requests from the employer. Refusal may offend but trustees cannot afford to be drawn into negotiations with the employer which leaves the scheme assets – and the trustees themselves - exposed.

Finally, Trigon’s Judy Stevens outlines that the audit needs to be conducted by an auditor familiar with pension schemes. Pension schemes are not businesses and the auditor needs to appreciate this. It also helps if he has a grasp of a Scheme’s essentials such as its benefit calculations. How many administrators have complained over the years that they have to “teach” the audit professional how to calculate a refund of contributions?

In summary closer regard should be paid to the Scheme Annual Report and Accounts and copies should be filed automatically with the Pensions Regulator.

Please find out more on the Trigon Pensions Web site

Other Pensions articles

» Read article on the Pensions Protection Fund levy