Pensions auditors face challenging year as UK PRT reaches record transactions

Recent market analysis estimates that the UK defined benefit (DB) pension risk transfer market (PRT) is set to achieve £80bn in pension de-risking transactions in 2024. 

WTW’s annual ‘Pensions De-risking’ report revealed that insurers are ready to purchase £60bn in bulk annuity transactions and £20bn in longevity swaps this year, following significant DB pension scheme funding improvements in 2023. 

Andrew Aston, audit director at RSM UK, highlights the wider complexities of surging market volumes for pensions trustees, advisors  and scheme auditors. 

Andrew Aston, audit director at RSM UK, comments: ‘The pension scheme funding improvements that occurred from late in 2022 are going to drive another further major uptick in pensions de-risking transactions this year, bringing welcome news from a member and risk perspective, as more insurers are attracted to the pensions market. However, I anticipate that it’s going to be a challenging year for trustees and auditors, as deals continue to become more and more innovative in nature and therefore more and more complicated, especially from an audit and accounting perspective. 

‘Complexities in the deal market typically mean considerable legal documentation which can be difficult for auditors and accountants to interpret, especially as many of these deals consist of clauses linked to moving cashflows post-deal which can present additional challenges. This requires auditing processes to develop and become more sophisticated, as well as ensuring trustees are conscious of these complexities from the start, tackling bespoke disclosures at the start, rather than bringing in advisors at the last minute to review and input into accounts. 

‘In many cases, bringing in advisors post-deal to review transactional activity may not be feasible. To mitigate these risks where possible, trustees need to take care in documentation and communication to accountants and auditors during the transaction, ensuring all advisors are well-informed and in the strongest position to ensure the reporting to members is complete and accurate.’