Financial transactions

General code in force: 28 March 2024

This module forms part of our expectations for trustees of those schemes required to operate an effective system of governance, see Systems of governance.

1. Financial transactions are activities that involve the processing of money. Every pension scheme will perform financial transactions. These will include receipt and investment of contributions, transfers and benefit payments. Governing bodies of all schemes should make sure financial transactions are managed as part of their internal controls¹. Governing bodies of certain defined contribution (DC) schemes must ensure that core financial transactions as defined in legislation² are processed quickly and accurately.
2. Under section 249A of the Pensions Act 2004³, governing bodies of certain schemes must establish and operate an effective system of governance (see Systems of governance) including internal controls (see Internal controls) however, there are certain exemptions⁴. The system of governance must be proportionate to the size, nature, scale, and complexity of the scheme activities.
3. The Public Service Pensions (Record Keeping and Miscellaneous Amendments) Regulations 2014⁵ sets out the records that governing bodies of public service pension schemes must maintain. Under section 249B of the Pensions Act 2004⁶, scheme managers of public service pension schemes⁷ are required to establish and operate internal controls, which are adequate for the purpose of securing that the scheme is administered and managed in accordance with the scheme rules⁸, and with the requirements of the law.
4. The management of financial transactions should be proportionate to the nature, complexity, and activity of the scheme and governing bodies should:

Governance processes and IT systems

1. understand the procedures and controls the administrator operates to ensure that financial transactions are processed promptly and accurately (see Receiving contributions)
2. annually review processes and systems for financial transactions, and identify opportunities to improve them (where the governing body can influence this)
3. make sure that any authorisation processes for financial transactions do not cause undue delay
4. seek to ensure that separate duties exist for administration processes to prevent financial transactions without the right authorisation
5. use electronic means to process financial transactions wherever feasible, for example only accept payments by cheque in exceptional circumstances
6. have service standards or service level agreements (SLAs) in place which are specific to the scheme and administrative tasks (see also Managing advisers and service providers)
7. review performance against SLAs to maintain the processing of financial transactions, and be prepared to make a judgement as to whether this is satisfactory
8. where appropriate, maintain a dialogue with participating employers to facilitate the flow of legally required and necessary information
9. seek to improve processes for receiving and transmitting transaction information where needed
10. make sure scheme data is complete and accurate, so that core financial transactions can be processed accurately (see Record-keeping).

Investing contributions (if applicable)

11. If the scheme operates a daily dealing cycle, contributions to the scheme, including sums transferred into the scheme, are invested within three working days following receipt and after completion of a reconciliation exercise.
12. If the scheme operates a less than daily dealing cycle, contributions to the scheme should be invested at the next available dealing date, and within five working days and after completion of a reconciliation exercise.
13. During reconciliations that identify discrepancies, only hold unreconciled contributions pending resolution and invest the remaining amount as usual.

Glossary

Dealing cycle

The frequency that the fund allows money to be added to or taken out of it.

Internal controls

• Arrangements and procedures to be followed in the administration and management of the scheme,
• Systems and arrangements for monitoring that administration and management, and
• Arrangements and procedures to be followed for the safe custody and security of the assets of the scheme.

Reconciliation

The process of checking that the money received in respect of contributions matches what was expected.

Service level agreement

An agreement between a service provider and governing body setting contractually binding service levels that are to be met by the service provider in providing the service.

Legal references

¹ Section 249A Pensions Act 2004 [Article 226A Pensions (Northern Ireland) Order2005] Section 249B Pensions Act 2004 [Article 226B Pensions (Northern Ireland) Order 2005]

² Regulation 24 Occupational Pension Schemes (Scheme Administration) Regulations 1996 [The Occupational Pension Schemes (Scheme Administration) Regulations (Northern Ireland) 1997]

³ Articles 226A of The Pensions (Northern Ireland) Order 2005

⁴ Section 249A(3) of the Pensions Act 2004 (Article 226A (3) of The Pensions (Northern Ireland) Order 2005)

⁵ Public Service Pensions (Record Keeping and Miscellaneous Amendments) Regulations (Northern Ireland) 2014

⁶ Articles 226B of The Pensions (Northern Ireland) Order 2005

⁷ As defined in section 318(1) of the Pensions Act 2004 (Article 2(2) of The Pensions (Northern Ireland) Order 2005)

⁸ As defined in section 318(2) of the Pensions Act 2004 (Article 2(3) of The Pensions (Northern Ireland) Order 2005)

Related content

• Administration: detailed guidance