Review of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) (Amendment) Regulations 2016

The Pensions Research Accountants Group (PRAG)  believes that these regulations have not kept pace with the significant changes within the pension industry – Like the SORP, they need a refresh!

PRAG Have published a letter they have sent to the DWP, they state:

“Unless regulations are very broadly worded to allow the flexibility to develop specific requirements within the SORP as the industry changes, they can quickly become irrelevant.”

Areas that they focus on are:

Concentration risk

Acknowledging that when the disclosure requirements were written, many schemes were invested directly in equity investments, whereas many now are invested in pooled funds (PIV). These are generally more diversified, therefore disclosure of concentration in a PIV does not identify a concentration risk.

PRAG has suggested an amended, broader regulation which is less likely to become outdated.

Employer related investments

More than 5% of the current market value of pension scheme assets may not at any time be invested in employer related investments, (some exceptions apply).

The rule was derived from the Maxwell scandal, when most pension schemes were DB and most investments were equities.  Nowadays it’s extremely unlikely to identify employer related investments and if so, it’s often trivial.

PRAG suggests that disclosure addressing how trustees manage limiting employer related investments, may be more meaningful than a statement that there were no employer related investments.

Annual report

PRAG acknowledges that this is getting longer and longer. Additional requirements over the years include the DC Chairs Statement, Implementation statements, and Climate reporting for larger schemes. Some include the SIP in the Annual Report.  When all this information is available to members on a website, PRAG asks whether the Annual Report is the right place for this information?

Earmarked schemes

Although no audit is required for these, an auditor’s statement about contributions is required – even if no contributions are being paid!

Audit report on contributions

The auditors’ report on contributions, confirms that contributions  reported in the ‘summary of contributions’ and payable under the [schedule of contributions]/[payment schedule] have, in all material respects, been paid at least in accordance with the [schedule of contributions certified by the scheme actuary on [ ]/ payment schedule.

PRAG considers that this statement about contributions, which is retrospective, adds little value, given there is already a requirement for trustees and their advisers to report unpaid contributions to the Pensions Regulator.

PRAG concludes its letter with an offer to review these in more detail with the DWP and to assist them in updating the regulations to keep them relevant, and to reflect the current risks to pension schemes.

We will watch to see how this unfolds…