One of the most fertile areas where trustees of UK pension schemes administered by third party providers could be at risk of suffering damage to their reputation is when errors occur. The cost impact of such errors could also be significant for the trustees and the scheme’s sponsoring employer (not to mention the provider!).
Trustees are in a position to mitigate this risk by paying close attention to key provisions in their third party provider service contracts and in their internal control and governance procedures. In addition, new draft Guidance issued by the Pensions Administration Standards Association (PASA) also has the aim of raising standards amongst providers by encouraging administrators to meet PASA’s standards for identifying, recording, reporting and acting on errors.
To meet PASA’s standards, administrators are required to report errors to trustees and demonstrate their processes for identifying and resolving errors. The draft Guidance is intended to establish a consistent approach to defining and dealing with errors and to prompt trustees and providers to actively consider measure to reduce the occurrence of errors.
The PASA definition of an error is “an inaccuracy in a financial amount quoted or paid to or on behalf of a member” and the Guidance sets out examples of the types of error which should be measured, including where the cause of the error was outside the provider’s control. There are also recommendations for providers’ internal audit process and the contents of error reports which are presented to trustee boards.
Given the complex nature of pensions administration, PASA’s approach is realistic and it acknowledges that mistakes do happen. Nevertheless, the draft Guidance offers a reminder to trustees of the importance of limiting reputational risk by improving error management and reviewing the key provisions of provider contracts.
The consultation on the draft Guidance closes on 30 June 2014.