A report by the supervisory authorities gives an overview of the challenges in auditing pension funds. It also makes specific suggestions for improving audit procedures and quality.

The Federal Council had already determined in 2018 that there was a need for legislative action in the area of the audit of pension funds. In addition, the Federal Audit Supervisory Authority (RAB) repeatedly uncovered serious breaches of due diligence obligations between 2016 and 2021. The supervisory commission for occupational pensions (OAK BV) also found significant deficiencies in audit reports during inspections. The Federal Council has therefore instructed the Federal Department of the Interior (EDI) in 2022 to work with the audit supervisory authority and OAK BV to clarify how the quality of the audits can be improved and thus the stability of the pension system can be safeguarded in the long term.

Report confirms identified need for action

The present report to the Federal Council analyses the role of the auditors of pension funds, their duties, conditions for admission and their integration into the supervisory system. It also compares the supervision of auditors in the field of occupational pensions with that of the OASI and financial market regulation. The report confirms the identified need for action and focuses on the challenges and proposed solutions for improving inspection quality.

Challenges in auditing

The current legal provisions do not lay down any special requirements for professional practice and further training for senior auditors of pension funds. However, a qualitative audit requires sound expertise and experience. In their supervisory activities, the direct supervisory authorities rely heavily on audit reports confirming the conformity of the annual financial statements and the audited items specific to the OAG. In recent years RAB and OAK BV have repeatedly found breaches of the due diligence obligations of auditors.

Various measures to improve inspection quality

Pension fund auditors need to be approved by the RAB, but they are not subject to ongoing supervision. The RAB can therefore verify the audit quality of pension fund auditors only in cases of suspicion and in the context of warranty proceedings against senior auditors. A new supervisory structure could be implemented to ensure that occupational pension fund auditors perform their duties in an independent, quality-oriented manner, and in accordance with legal regulations. This structure could consist of case-by-case reviews and ongoing supervision.

Balance sheet total could be used as a criterion for size

One possible approach would be risk-based segmentation, which places different requirements on auditors depending on the size and risk profile of the pension funds they audit. Quantitatively, the balance sheet total could serve as a criterion for the size of a pension fund. It is simple and unambiguously measurable and has a direct connection with the number of insured persons.   

Collective and community facilities could form a special segment

Qualitatively, pension funds in competition with each other (particularly collective and collective institutions) could form a special segment which would require ongoing supervision. A special authorization for the verification of pension funds could also be introduced in order to lay down specific requirements. These requirements should ensure uniform and reliable verification. Periodic inspections should also verify the adequacy of the quality assurance systems of the auditors and compliance with the applicable auditing standards.

Implementation of these measures requires legal changes

The implementation of these measures presupposes legal changes, which will be pursued in the context of a future legislative project in the area of audit and audit supervision law under the auspices of the EJPD.