Governance – the gift that keeps on giving
As I was ironing and naming the seemingly never-ending pile of school shirts for my son this week, I was thinking to myself that they were like the gift that just keeps on giving!
Pension scheme governance seems a bit like this at the moment.
We are hearing a lot of messages about the new requirements of the new code of practice and the onerous nature of the own risk assessment. The Pensions Regulator’s interim response to the consultation gave us an insight into the (unsurprisingly) high level of industry engagement and also the likely timescale of summer 2022 for the code to become effective. This is good news. We can use these next few months to really prepare for the changes coming.
All trustee boards view governance differently. They have different objectives, approaches and priorities. Some are set up with subcommittees who deal with the detail; others tackle governance collectively as a board. Some rely completely on their advisers and independent trustees to support them; others have inhouse specialists who guide them through. Whatever the approach, two things are clear. One: there is a lot to do; and two: we need to break down the tasks into bite size pieces, so it does not become unmanageable.
We also need to start this journey towards building an effective system of governance with the overall goal of continuous improvement in mind. Perfection is unlikely, if not impossible. Trustees need to think about their wider objectives and consider what success will look like. Is compliance with the code good enough, or are there other strategic objectives which can be met as part of this? Having strong governance is not a tick-box exercise; we should not just be doing it because we are told we have to. It genuinely does makes life easier, trustee decision making more effective and it will lead to a better run pension scheme.
Understanding your current position has to be the starting point. The next few months provide a great opportunity to critically assess your existing policies and procedures. When were they last reviewed? Do they add value? Do you know where they are stored? Do they meet the needs of your members? Can any be consolidated? Do they effectively promote diversity and inclusion? For me, it’s simple – the policy or document, whatever it may be, needs to do more than just exist, it needs to work on a practical level and be useful.
With all this in mind, here are my top 7 tips for what trustees need to be focusing on over the next few months:
- Understand the requirements and the timescales for compliance. Be aware that further changes may be made to the code so keep abreast of developments.
- Consider the impact on your pension scheme, bearing in mind the Regulator talks a lot about proportionality relative to the size, nature and complexity of the scheme.
- Agree the resources for how this work will be completed. This may include engaging with the sponsor to agree a plan.
- Discuss and agree as a Board what success looks like. Agree key milestones and add these to your wider business plan.
- Carry out a gap analysis based on the requirements of the new code.
- Agree a roadmap for reviewing your existing policies and procedures and introducing any new ones, such as a remuneration policy.
- Regularly check in to make sure that progress is being made against the roadmap.
By following this approach, the prospect of preparing the first own risk assessment seems less daunting and a natural way of demonstrating that you have an effective system of governance in place.
Elizabeth Bostock - Senior Benefit Consultant, Retirement Consulting