13 March 2012
Auditors have provided feedback to the Pensions Practice Executive Committee regarding Schedules of Contributions. They have noted that some Schedules are written in a way that makes it difficult or impossible to audit the contributions paid in relation to the Schedule. In other cases, Schedules may not appear to comply with the relevant legal requirements. Particular areas causing difficulties to watch out for include:
- The omission of some or all contributions to DC sections. Regulation 10 of the Scheme Funding regulations is clear that all contributions to a scheme (other than voluntary contributions) must be included in a schedule.
- Payments in respect of expenses not set out sufficiently clearly (e.g. any split between payment by the employer and by the scheme).
- Incorrect timing of the introduction of new schedules (e.g. a scheme demerger in October 2010 with the actuary recommending changed contribution rates and no new schedule until March 2011).
- Revisions of schedules, where the dates of changes to contributions have not been given with sufficient clarity, including cases where the schedule backdates contributions to the date of the valuation instead of going forward from the date of agreement and signing. Auditors ignore the backdating as the schedule is only valid from the date of its completion.
- The situation where provisional investment performance calculations were made, but the schedule was not revised when final investment figures were known.
- The process for external calculations not being put in place at all until accounts preparation time, rather than at the time of the schedule being agreed.
- The introduction of salary sacrifice arrangements without corresponding changes being made to the schedule of contributions.
- Changes in group structures, where a new employer joins a group and its staff join the scheme on different contribution rates from existing employers without corresponding changes being made to the schedule of contributions.
- A schedule may include contributions which are not fixed but are instead dependent on certain conditions, such as investment performance or company profitability. In such cases the schedule must be completely clear as to when such payments are to be made and what the amounts should be. A process should be put in place for the required calculations and this process must be auditable.
If drafting a schedule, the actuary should take care to consider the auditor’s point of view and should ensure that it will be possible to audit the scheme’s actual contributions compared to the schedule. In unusual cases, the actuary could consider contacting the auditor before finalising the schedule.
Members are reminded that the Actuaries’ Code states that: Members will take care that the advice or services they deliver are appropriate to the instructions and needs of the client, including the legal and other rules which may govern the matter, having due regard to others, such as policyholders of an insurer, members of a pension scheme, or any analogous persons whose interests are affected by the work of the member.
Chris Craig on behalf of the Pensions PEC Communications Group