The 5 crucial mistakes pension funds make with valuations
It’s rare to find a company which publishes its audited results more than a few months after its financial year ends.
It seems odd, then, that company pension schemes – which often pose a drag on corporate balance sheets – should take so long to publish their accounts.
Pension schemes have a statutory timeframe of 15 months to complete their audited results, increasing the costs to complete them and distracting pension scheme managers from the current market environment.
This may seem a minor technicality but it has a big impact on pension schemes and the companies and employees which funnel hundreds of millions of pounds into to them every year.
Pension schemes are effectively large investment vehicles, and the lag in running the rule over the schemes often hinders their ability to navigate constantly shifting markets.
Now, with corporate pension schemes in such bad shape (often due to their inability to navigate the market successfully), auditors PwC has called for the process to be shortened from 15 months to five months, bringing it closer into line with corporate auditing practices and helping cut the costs and boost efficiency of valuations.
But how are pension schemes getting it so wrong? Here are five mistakes funds make on their valuations that PwC has pinpointed:
1. The reams of statistics and figures on pensioners and investments are only prepared once the 15-month valuations commences. Funds should already have this data ready before the valuation begins.
2. Businesses should plot their fund investment strategy separately from the valuation process, which is effectively just a budgeting process. It is too often tied intrinsically to the 15-month valuation process.
3. Initial analysis on the profits and loss of the fund normally take three months to put together – instead this should be conducted within one week at the most, helping shed some of the months it currently take to complete a valuation.
4. Funds are failing to make use of the increasingly sophisticated technology on offer to estimate how the funding level is likely to look when the valuation ends. Pension schemes are putting too much emphasis on face-to-face meetings to comb through the data much later down the line.
5. All the advisers who help pension scheme managers run their fund should use the same platform to calculate how well the fund is doing – this avoids duplication of the work being done.