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Three common pension contribution deduction pitfalls

Last updated: Wednesday June 05th 2013

Three common pension contribution deduction pitfalls

In Assure UK’s capacity as external auditor and adviser to a number of company pension schemes we have been involved extensively in testing pension contributions deducted from payroll to ensure they have been made accurately. If you are a Pension Scheme Trustee or HR / Payroll Manager here are  some key questions you should consider:

Do you know the definition of Pensionable salary; is there a definition of pensionable salary?

It is of vital importance that the payroll department are aware of the definition of pensionable salary. This will be disclosed in the Trust deed and Rules for occupational pension schemes and scheme booklet for stakeholder schemes. This clearly states the different pay elements that make up pensionable salary and the periods covered. They can often be very complex and difficult to understand. However, it is crucial that they are understood else it could result in incorrect pension scheme contributions being made.

Are the payroll picking up the correct elements and applying these to pension deductions?

Once the definition of pensionable salary is clearly understood it is important that this information is communicated with the payroll provider to ensure they can apply this definition and pick up the correct pay elements. Failure to communicate this effectively could result in certain pay elements not being assigned as pensionable and could lead to over/under payments of contributions.

Is there a recognised system or procedure in place whereby members can change the percentage of contributions they wish to make? How is this communicated to payroll to ensure the change is made in a timely manner?

Where a Scheme has different contribution scales and the member can change their percentage rates or an updated Schedule of Contributions / Payment Schedule has been executed, it is important that a system is in place to record these changes and communicate them to payroll to ensure they are accurately applied. For example, where a member wishes to increase contributions from 5% to 7% or a new schedule of contributions has been executed increasing Employee contributions. It is important that this change gets communicated to the payroll department to allow them to apply this increased deduction to the member’s pensionable salary. Failure to communicate entirely or communicate in a timely manner will obviously lead to over/underpayments of contributions and could lead to a material breach of the Schedule of Contributions / Payment Schedule.

Assure UK specialise in providing pensions assurance which ranges from checking pension payroll deductions to reporting on internal controls for industry wide pension scheme administrators. For further information, please contact us on 020 7112 8300 or email info@assureuk.co.uk