Essential Insights on Pension Scheme Audits in Malta

A pension scheme audit is crucial for ensuring that the scheme is managed effectively, complies with local regulations, and serves the best interests of its members.

Regulatory Compliance: Maltese pension scheme trustees are legally obligated to ensure their schemes meet the standards set by local authorities and financial regulations. An audit confirms that the scheme’s financial statements are accurate and compliant, helping to avoid legal complications and maintain the scheme’s credibility.

     Maltese Legislative Framework:

• The Retirement Pensions Act, Chapter 514 of the Laws of Malta.
• Retirement Funds​​ Act V of 2020, with amendments the Retirement Pensions Act to transpose Directive (EU) 2016/2341 (the “IORP II Directive”) and new regulations: Cross-Border Activities and Cross-Border Transfers, General Provisions of Supervision,
• Transitional Provisions on Back-Office Administrators.

Pension Rules issued by the Malta Financial Services Authority (MFSA): Glossary to the Pension Rules; Pension Rules for Occupational Retirement Schemes; Pension Rules for Personal Retirement Schemes; Pension Rules for Retirement Funds; and Pension Rules for Service Providers.

Financial Integrity: The audit provides an independent evaluation of the scheme’s financial health, confirming that the records are accurate and the scheme is financially sound. This is vital for trustees in Malta to make well-informed decisions and to assure members of the scheme’s ability to deliver their benefits.

Risk Identification & Management: By identifying potential risks or discrepancies, an audit allows trustees to address issues before they become problematic. This proactive approach reduces the risk of financial mismanagement and ensures that the scheme can meet its long-term obligations.

Transparency and Trust: Conducting a pension scheme audit in Malta demonstrates transparency and responsible management to members and stakeholders. This fosters trust and confidence in the scheme, reassuring members that their pensions are secure and well-managed.

In Malta, the following pension schemes are legally required to undergo an audit to ensure they adhere to regulatory standards and maintain financial accuracy: Occupational Pension Schemes, Personal Retirement Schemes, Voluntary Occupational Pension Schemes, and

Retirement Funds and Collective Investment Schemes. The audits are mandated by the MFSA and are designed to ensure that these pension schemes operate in a transparent, compliant, and financially sound manner, safeguarding the interests of their members.

• Pension Scheme Auditor: A qualified independent auditor is essential for conducting an effective audit of the pension scheme. The auditor reviews the financial statements, ensures compliance with legal and regulatory standards, and evaluates the scheme’s internal controls. Their independent assessment helps trustees and other stakeholders gain confidence in the schemes financial accuracy and integrity.
• Pension Scheme Trustees: Trustees are legally responsible for ensuring that the pension scheme is managed in compliance with regulations and in the best interests of its members. An audit helps them fulfill these obligations by providing an independent verification of the scheme’s financial health and compliance.
• Pension Scheme Administrators: Administrators who manage the day-to-day operations of the scheme need audits to ensure that their financial reporting is accurate and that the scheme is being managed properly. This helps maintain the integrity and stability of the scheme.
• Pension Scheme Members: While members themselves may not directly require an audit, they benefit from it as it ensures their pensions are secure and managed transparently. The audit reassures them that their future benefits are protected.
• Regulatory Authorities: Maltese regulatory bodies require pension schemes to undergo regular audits to ensure compliance with local laws and regulations. This oversight helps maintain the overall health and reliability of the pension system in Malta.
• Employers: Companies that offer pension schemes to their employees need audits to demonstrate that they are fulfilling their fiduciary duties and managing the scheme responsibly. This also helps build trust with employees regarding their future benefits.

A pension scheme audit is needed in Malta on an annual basis as part of regular financial reporting and regulatory compliance, as well as in response to significant changes in the scheme or specific requests from trustees, regulators, or members.

Annual Financial Reporting: All pension schemes in Malta must undergo an audit as part of their yearly financial reporting obligations. The audit ensures that the financial statements are accurate, complete, and comply with Maltese accounting standards and regulations.

Regulatory Compliance: Pension schemes are subject to oversight by the MFSA. An annual audit is mandatory to verify that the scheme adheres to all relevant laws and regulations, including those related to financial reporting, governance, and member protection.

Changes in Scheme Structure or Management: If there are significant changes in the structure or management of the pension scheme, such as a merger, acquisition, or major amendments to the scheme rules, an audit may be required to assess the financial and operational impact of these changes.

Trustee Requirements: Trustees may request an audit at any time to gain assurance about the scheme’s financial health, internal controls, and compliance with regulatory requirements. This is particularly relevant if there are concerns about the scheme’s performance or risk management.

Regulatory or Member Requests: In certain cases, the MFSA or scheme members may request an audit outside of the regular annual cycle, particularly if there are concerns about the scheme’s governance, financial stability, or adherence to regulations.

1.  Pre-Audit Planning:

• Engagement Letter: The auditor and the pension scheme trustees sign an engagement letter outlining the scope, objectives, and terms of the audit.
• Understanding the Scheme: The auditor gains an understanding of the pension scheme’s structure, operations, and internal controls. This includes reviewing scheme documentation and previous audit reports.

2. Risk Assessment:

• Identify Risks: The auditor identifies areas of potential risk or concern, such as compliance with regulations, financial reporting accuracy, and internal control weaknesses.
• Plan Audit Procedures: Based on the risk assessment, the auditor plans specific audit procedures and tests to address identified risks.

3. Fieldwork and Data Collection:

• Review Financial Records: The auditor examines financial records, including contributions, investments, and benefit payments.
• Test Internal Controls: The auditor tests the effectiveness of the scheme’s internal controls and processes.
• Verify Compliance: The auditor checks compliance with Maltese regulations, scheme rules, and financial reporting standards.

4. Detailed Testing:

• Substantive Testing: The auditor performs substantive testing on financial transactions, balances, and disclosures. This may include verifying supporting documentation and recalculating financial figures.For schemes with investment portfolios, the auditor will review the processes for valuing investments and test the accuracy of the investment valuations at the reporting date. This may involve confirming investment holdings with third parties and assessing the methods used to determine fair values.In defined benefit schemes, the auditor works closely with actuaries to understand the assumptions and methods used in the scheme’s actuarial valuations. The auditor assesses whether the actuarial assumptions are appropriate and whether the scheme’s liabilities are accurately reported.
• Sampling: In some cases, the auditor uses sampling techniques to test a representative subset of transactions or balances.

5.  Evaluation and Analysis:

• Analyze Findings: The auditor evaluates the results of testing and assesses whether financial statements present a true and fair view of the scheme’s financial position.
• Discuss Issues: The auditor discusses any significant issues or discrepancies with the scheme’s management and trustees.

6.  Preparation of Audit Report:

• Draft Report: The auditor prepares a draft audit report, including an opinion on the financial statements and any identified issues or recommendations.
• Review with Trustees: The draft report is reviewed with the pension scheme trustees to address any comments or corrections.

7.   Finalization of Report:

• Finalize Report: The auditor finalizes the audit report, incorporating any feedback from the trustees.
• Opinion Statement: The report includes the auditor’s opinion on whether the financial statements are presented fairly and in accordance with relevant regulations and standards.

8.   Submission and Communication:

• Submit to MFSA: The final audit report, along with the audited financial statements, is submitted to the Malta Financial Services Authority (MFSA) within the regulatory deadline.
• Communicate with Members: The final report is also typically shared with scheme members and other stakeholders to provide transparency.

9.   Follow-Up:

• Address Recommendations: The scheme trustees and administrators address any recommendations or issues highlighted in the audit report.
• Monitor Compliance: Ongoing monitoring ensures that any corrective actions are implemented effectively.

Unqualified Opinion: This is the most favourable outcome; it means that the auditor has reviewed the financial statements and found them to be accurate and in compliance with the relevant accounting standards and regulations. The auditor concludes that the financial statements provide a true and fair view of the scheme’s financial position, and the scheme’s financial records are considered reliable, and there are no significant issues or discrepancies.

Qualified Opinion: A qualified opinion indicates that the auditor found some issues or limitations in the financial statements, but these do not significantly affect the overall accuracy and fairness of the statements. The qualification is usually related to specific areas of concern.

Adverse Opinion: such an opinion is issued when the auditor finds significant discrepancies or misstatements in the financial statements that materially affect their accuracy and reliability. The auditor concludes that the statements do not provide a true and fair view.

Disclaimer of Opinion: it occurs when the auditor is unable to form an opinion on the financial statements due to a lack of sufficient evidence or other significant limitations. This might be due to restrictions imposed by the scheme or other factors beyond the auditor’s control.

Identification of Weaknesses: During the audit, the auditor may identify weaknesses in the scheme’s internal controls, financial processes, or governance structures. These weaknesses are noted separately from the audit opinion and usually come with recommendations for improvement.

Compliance Insights: The audit provides insights into how well the pension scheme complies with relevant laws, regulations, and accounting standards. This may include observations on regulatory adherence and areas where compliance can be improved.

Operational Recommendations: Based on the audit findings, the auditor may provide recommendations for improving the scheme’s operational practices, financial management, or internal controls. These recommendations aim to address identified issues and enhance overall efficiency.

 Griffiths + Associates is one of the few MFSA approved Auditors to audit retirement schemes. Griffiths + Associates has been auditing retirement scheme administrators and personal retirement schemes since 2019.  This is a testament to our unwavering commitment to excellence and compliance with standards.

• Pension scheme auditing is a niche area that requires expertise and an understanding of the sector. Griffiths + Associates has experts with a full range of specialist in-house expertise in all pension-related fields such as risk management and governance, internal audit, investment valuation services, de-risking solutions, and the full range of tax services.
• Our pension scheme specialists carry out audits of the financial statements of retirement scheme administrators and personal retirement schemes in accordance with IFRS’s as adopted by the EU and the requirements of the Retirement Pensions Act, 2011.
• Pension scheme clients at Griffiths + Associates are also assisted with the preparation of half-yearly financial statements of personal retirement schemes.
• Our pension scheme specialists also provide tax compliance services including the submission of Global Tax Reports and scheme tax returns.
• Our opinion on the fair presentation of the scheme’s financial statements includes following:
• Compliance with the legislative framework.
• Multi-factor risk assessment.
• Anti-fraud check.
• Assessing the robustness of the internal control.
• Objective and unbiased view on:
• the financial transactions of the pension scheme during the scheme year and of the amount and disposition, at the end of the scheme year, of the assets and liabilities of the scheme.
• whether contributions have been paid in accordance with the schedule of contributions or payments schedule.

After the pension scheme auditing, we will make sure you are kept in the loop about any pension legislation changes, and we will be on hand to answer any queries you may have.

© By Olga Saliba