Pension Audits Explained: Staying on the Right Side of the Law

For employers, managing workplace pensions is more than just making contributions on time. Ensuring compliance with legislation and regulations is vital to protect both the business and employees. One of the key ways this is achieved is through a pension audit. But what exactly does a pension audit involve, and why is it so important? 

What Is a Pension Audit?

A pension audit is a formal review of a company’s pension scheme, usually conducted by a qualified auditor or pension specialist. Its purpose is to ensure that the pension arrangements comply with all relevant legal and regulatory requirements. This includes checking contributions, governance processes, and documentation, and verifying that the scheme operates in the best interests of employees. 

Audits can apply to both defined benefit and defined contribution schemes. While the focus may differ depending on the scheme type, the overarching goal remains the same: to ensure accuracy, transparency, and legal compliance. 

Why Do Pension Audits Matter?

Pension audits are essential for several reasons. Firstly, they help employers stay compliant with legislation such as the Pensions Act 2008 and regulations enforced by The Pensions Regulator. Non-compliance can result in penalties, fines, and reputational damage. 

Secondly, audits provide peace of mind to employees. Workers need to trust that their pension contributions are being handled correctly and that their retirement savings are secure. A thorough pension audit reassures employees that their benefits are protected and managed responsibly. 

Key Areas Covered in a Pension Audit 

A typical pension audit covers several critical areas: 

• Contribution Accuracy: Ensuring both employer and employee contributions are correctly calculated and paid. 
• Scheme Governance: Reviewing trustee decisions, policies, and oversight mechanisms to ensure they meet regulatory standards. 
• Member Records: Verifying that employee records, including entitlements and service history, are accurate and up to date. 
• Financial Statements: Examining the scheme’s accounts and investments for accuracy and proper reporting. 
• Compliance Checks: Confirming the scheme adheres to legislation, including auto-enrolment duties and minimum contribution levels. 

By addressing these areas, a pension audit helps prevent errors that could lead to financial loss or legal complications. 

Benefits for Employers

Undertaking a pension audit brings clear advantages for businesses. It identifies potential issues before they become major problems, reducing the risk of fines or enforcement action. It also demonstrates that the employer takes pension governance seriously, which can strengthen employee trust and engagement. 

In addition, audits can uncover opportunities to improve the efficiency of pension scheme management. For example, payroll integration issues, contribution errors, or outdated records can be flagged and corrected, saving time and resources in the long term. 

When Is a Pension Audit Required?

Not all schemes require an annual audit, but many defined benefit schemes and larger defined contribution schemes do. Even if not legally required, some employers choose to conduct regular pension audits as a proactive measure. This is especially common for businesses with a significant workforce, multiple pension arrangements, or complex contribution structures. 

A pension audit may also be triggered by specific events, such as a change in scheme provider, mergers, or regulatory updates. Regular audits help ensure continuity and consistency, preventing compliance gaps. 

How Howden Group Can Help

Navigating pension audits can be complex, but Howden Group provides expert support for employers at every stage. Our team helps businesses understand their obligations, prepare for audits, and implement any necessary changes. We offer guidance on scheme governance, compliance checks, and reporting requirements, ensuring that your pension arrangements remain robust and legally compliant. 

With Howden’s support, pension audits become more than a compliance exercise, they’re an opportunity to strengthen pension management, improve efficiency, and reassure employees that their retirement savings are in safe hands. Get in touch with the team today to learn more.