Walking through Reading Railway Station and seeing the advert ‘Why don’t bald men use combs?’ triggered me to question, “Why don’t trustees use their service organisations internal controls reports?”
Knowing that Internal Controls Reporting is lagging other continents we found an interesting paper, SAS 70 Reports: Are they useful and Can They Be Improved? by AGA – Thought Leaders in Government Financial Management. This research paper addresses the usefulness to governments of the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards (SAS) No.70, Service Organizations, and whether improvements to the implementation of the standard could increase its usefulness.
It was comforting to find that while there are issues in the UK pensions market, we are not alone. However, some traditions or methods of doing things are not conducive to lifestyle, productivity or good governance.
While international standards have moved on since the publication of the document above, many of its recommendations are applicable to pension scheme service organisations and trustees in the UK. Here are the recommendations we advise following:
- Understand the difference between the various audit guidelines and how they can help you obtain an understanding of an entity’s system of internal control;
- Obtain training, if necessary, in the use of reading of AAF 01/06 reports, and understand where AAF 01/06 reports can help you;
- Service organisations (Investment managers, administrators, payrolls and Independent Trustees, when applicable) should provide outreach programmes to educate their clients and other interested parties as to the content of the AAF 01/06 report and the reasons for the particular report’s scope.
If you would like to discuss the above further please contact Gareth Burton or Terri Jarvis on 020 7917 2987.
This month we would like to thank Tony Woodward of Strategic Alliance Partners for the following article.
“Rule No.1: Don’t lose money. Rule No.2: Never forget rule No.1”
For decades a flawed approach has been prevalent in the City, and is still widely used by many Pension Funds and Investment firms. I am referring to the allocation to equities when investors decide to apply risk to generate higher returns. But, consider the following:
- The NASDAQ – Composite: the world’s second largest exchange - all-time high 12 years ago - 5,048.62, on 29/02/2012 close was 2966.89, a fall of 41%. This requires a 70% rise to get back to breakeven.
- The Japanese Nikkei – 225: the world’s 3rd largest exchange- all-time high 22 years ago - 38,915.87, on 29/02/2012 close was 9723.24, a fall of 75%. This requires a four-fold rise to get back to breakeven.
- The FTSE 100 and the S&P 500 are down 15% (12 years) and 12% (nearly 5 years).
The key factor in these examples is that mathematically an investor requires a 100% gain to recoup a 50% loss. The converse is the mathematical beauty of compounded returns, building profits upon profits. The table below illustrates the comparison between a spread of absolute return funds over a 6 year period from the beginning of 2006 to the end of 2011, and the FTSE-100 over the same period:
You will see that the FTSE 100 beat the absolute return portfolio in 3 of the last 6 years but suffers a devastating meltdown of 38.4% in 2008 requiring the FTSE to make a 62.3% rise to breakeven.
The facts speak for themselves, equity markets are just too volatile, decades can go by while markets struggle to regain losses and this is time when compounding returns could be delivering healthy returns and healthy pensions.
Tony is the Senior Partner at Strategic Alliance Partners, an investment consultancy specialising in sourcing alternative investments with a proven track record of delivering consistently positive annual returns in all market conditions. Tony is a Chartered Fellow of the Chartered Institute for Securities and Investment, a Freeman of the City of London in the Worshipful Company of International Bankers and Regulated by the FSA.
If you enjoyed this paper please visit the white paper section of Strategic Alliance Partners’ website.
PPF levy invoices for the current year are just starting to land on the doormat and may cause quite a thud. These are the first levies to be calculated using the new levy framework, which was under consultation last Autumn. The key changes to the framework are that:
- Scaling factors will be fixed for three years and will only be adjusted in limited circumstances – meaning greater predictability regarding the levy bill, but conversely being “stuck with” a levy amount which you may not be satisfied with
- Risk measurement in setting the levy will take account of investment risk for the first time, and for insolvency risk, they will take an average score over the past 12 months, so that the levy is less affected by short term dips
- Employers will be placed into ten PPF levy bands, rather than 100 failure scores
- The largest 100 schemes will be required to submit additional information leading to a bespoke calculation of their levy. Other schemes may request this bespoke approach.
If you have received your levy bill and want to question any of the factors used, it’s important to do so as a matter of urgency in order that you have the best chance of influencing the bill you will face for the next three years. One of our clients is doing just that and may be able to reduce their levy bill by up to £120k per annum. Not exactly small change, we’re sure you’ll agree.
If you would like any further information please contact Terri Jarvis on 020 7917 2987.
Ash Shaw are proud to be short-listed for Professional Pensions’ Pension Scheme Accountants of the Year 2012 for the sixth year running.
Thank you for your help and support. We are approaching our tenth birthday and our 100th recurring client, and are making plans for the next ten years. Don’t worry, we have agreed that the way we will work will not change, so expect:
- good service from our experienced team;
- value for money with no nasty surprises; and
- a proactive style.
Business is good and we are looking for more. So if you do know any pension scheme trustees in need of a fresh perspective please share this email, since our business grows by your recommendations.
If you have a set of pension scheme accounts and would like unbiased feedback from a specialist pension scheme auditor, simply email Ash Shaw with your pension scheme accounts for a free review with "Request for free pension scheme accounts review" as the Subject. In return, we will send you a one-pager with our key observations. If you would prefer a more comprehensive review, please email Ash Shaw.
To help us help you more swiftly, please send us a brief description of your situation (or a copy of last year's signed accounts if you are looking for new auditors) to Sally Tasker and let us know when would be a convenient time to call you.
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