Maximise value from your pension scheme audit

As a pension scheme trustee, the audit of your financial statements should be seen as an opportunity for insight and improvement, not just another tick-box chore.

The annual audit is the only regular complete overview of all the processes encompassing your scheme’s operations. This includes a review of:

• controls and procedures over contributions at the sponsoring employer’s
• outsourced administration
• fund management and custody of investments
• higher level controls operated at trustee board level

What will the pension scheme auditor do?

An effective and valuable scheme auditor should possess a wide range of pension sector experience. Through this they can apply flexibility in approach, a keen eye for detail and the ability to communicate accounting issues to trustee boards of various compositions. This might range from a sole professional trustee to non-accountant member-nominated trustees.

Pension schemes vary enormously in size and structure ranging from defined benefit (DB) to defined contribution (DC), varying in investment types, and sponsored by different entities - be it corporate or charity, single or multi-employer. Therefore, the emphasis of the audit work undertaken needs to focus on the risks and activities most relevant to your scheme. An experienced pension scheme auditor will demonstrate good knowledge of pensions law and regulations, and will ask pertinent questions of the trustees when planning the work. This will focus attention and scepticism towards potential misstatement of key figures in the accounts or towards potential weaknesses of internal controls.

Planning a pension scheme audit

The audit should be properly planned and delivered to meet all your needs within the agreed reporting timetable. Effective planning discussions should enable the relevant associated risks to be identified at the earliest opportunity. This will minimise any surprises during the remainder of the work.

Auditing procedures will differ depending on the type of benefit provision. This is particularly true when comparing an in-house DB arrangement with a similar sized fully outsourced DC scheme. Taking the former as an example, verification of the total investment assets, total contributions and transfers and benefit payments would go a long way to confirming that the accounts show a true and fair view.

The auditor will also consider:

• the trustees’ expectations regarding the role of the auditor in examining internal controls operated at the providers
• how the trustees are assured, for example on larger DC arrangements, how they are assured that funds have been applied to the correct investment choice of the members 
• if the trustees are aware of how often individual policies are reconciled to the overall funds under management
• how discrepancies have been dealt with

Trustees should be looking for clear and pragmatic solutions that work in the real world, rather than just theoretical best practice.

What will your pension scheme audit achieve?

Your annual audit is necessary to ensure the accuracy of your financial statements and that they comply with legal and financial reporting standards, however, the auditor’s application of relevant and practical experience, which focuses on the trustees’ key issues, will also add value.

There will, inevitably, be areas which assist with establishing and demonstrating an Effective System of Governance - as required by The Pensions Regulator’s new Code of Practice (March 2024) around regulatory and compliance matters - that trustee boards of a given scheme may not yet be considering, where we can help. The whole process will work through the informed auditor gaining a deep and thorough knowledge of their pension scheme clients (and their sponsors) and developing and applying a range of tools to the scheme’s situation.