Pension Commission Empowers Fund Administrators to Appoint Auditors and Actuaries Amidst Compliance Lapses
The National Pension Commission (PenCom) has taken decisive action to bolster oversight and ensure the financial health of pension schemes by granting Pension Fund Administrators (PFAs) the authority to appoint external auditors and actuaries. This significant directive applies to Approved Existing Schemes (AES) and Additional Benefits Schemes (ABS), aiming to rectify a persistent issue of non-compliance by scheme trustees and sponsor companies.
The move, detailed in a recent circular issued by the pension industry regulator and signed by A. M. Saleem, Director of the Surveillance Department, underscores PenCom’s commitment to safeguarding the interests of pensioners. The circular was addressed to all licensed PFAs, highlighting the critical need for independent financial assessments of pension funds.
Addressing a Regulatory Gap
PenCom’s intervention stems from its supervisory oversight, which revealed a widespread failure by Trustees and Sponsor Companies to appoint the mandated external auditors and actuaries. This lapse directly contravenes the provisions of the Pension Reform Act (PRA) 2014. Specifically, Section 50(2) of the PRA 2014 mandates that employers operating Defined Benefits Schemes conduct an actuarial valuation annually to ascertain the adequacy of their pension fund assets. Furthermore, Section 2.1(3) of the Framework for the Establishment of ABS explicitly requires Trustees/Sponsor Companies of AES/ABS to engage an actuarial firm and an external auditor for valuations and audits, respectively, in line with Sections 50(2) and 66(2) of the PRA 2014.
The commission observed that a significant number of AES/ABS schemes were in default, with their Trustees/Sponsor Companies neglecting their statutory duty to appoint these crucial financial professionals.
Implications of Non-Compliance
The failure to secure independent audits and actuarial valuations poses a substantial risk to the viability of these pension schemes. According to PenCom, this non-compliance jeopardizes the schemes’ ability to meet their future obligations to members and represents a clear violation of both the PRA 2014 and the regulations established by the commission. Such omissions can lead to a lack of transparency, potential financial mismanagement, and ultimately, a diminished capacity of the schemes to provide promised retirement benefits.
New Guidelines for Enhanced Compliance
To rectify this situation and ensure adherence to regulatory requirements, PenCom has introduced a clear set of guidelines for PFAs:
- Proactive Notification: Two months prior to the end of each financial year (December 31st), the PFA, or the Lead PFA for AES/ABS, must formally notify the Trustees/Sponsor Companies of their obligation to appoint an external auditor and an actuary.
- Escalated Reminders: If a Trustee/Sponsor Company fails to make the necessary appointments within 21 days of receiving the PFA’s initial notification, the PFA is required to send a reminder. This reminder must clearly state that if no formal response is received within five working days, the PFA will proceed with appointing an external auditor and actuary. The terms of engagement for these appointments will then be forwarded to PenCom for approval.
- Commission Approval and Notification: Upon receiving approval from PenCom for the appointed auditor and actuary, the PFA will formally notify the Trustee or Sponsor Companies of the agreed terms of engagement.
- Fee Allocation: The PFA will also inform the Trustee or Sponsor Companies that the associated audit and actuarial fees will be charged to the relevant scheme under the PFA’s management, contingent upon the commission’s prior approval.
Pension Increases for Retirees
In a related development, PenCom has also issued directives concerning pension adjustments for retirees. All federal government self-funded agencies whose salary structures have been officially documented in circulars from the National Salaries, Incomes and Wages Commission (NSIWC) are now mandated to implement the various pension increases applicable to their eligible retirees.
For agencies not explicitly mentioned in NSIWC circulars, they are advised to engage directly with the NSIWC. This consultation will help them determine the appropriate pension increases that should be applied to their respective retiree populations, ensuring equitable adjustments across different government entities. This measure aims to ensure that retirees benefit from salary reviews and economic adjustments in line with their service contributions.
