For the last 18 months the Pensions Regulator (our friends in Brighton) has been talking up the importance of good governance in running pension schemes. This is included confirmation of who would fall in scope as a professional trustee and implications for this.
So far, three themes have been announced;
Theme 1: good governance
This is essential to the effective management of the pension scheme. If it ever was a ‘nice to have’ those days are gone. Good governance is about having appropriate structures and processes in place for the running of the scheme. Key to this is ensuring that the trustee has the right skills and experiences to do their job.
This really ought to be bread-and-butter for trustees since it includes basic scheme administration such as completing scheme returns and paying levies on time and engaging with our friends in Brighton when they ask questions. In TPR’s eyes, schemes that fail these basic legal duties are symptomatic of wider and more serious failings. The financial and reputational damage of being named and shamed and paying substantial fines are key weapons in Brighton’s armoury.
Theme 2; Clear roles and responsibilities
We have said before and we say again that trustee boards need to look like company boards, that is with the right skills experience and knowledge to do the job properly.
Trustees need to be clear about what they’re doing and use their time on the big picture stuff, the strategy, and ensure that when they delegate tasks they monitor the results. In our view, this needs to be documented and then subject to at least annual review by the trustee board to reflect to reflect changes in both personnel and skill sets.
Theme 3: clear purpose and strategy
Following on from 2, this is all about having a business plan to ensure that there is a clear understanding of the purpose and strategy for the scheme, such as a buyout in X years or a measure of self-sufficiency in Y years. The business plan for the scheme needs to underline with that of the scheme sponsor in order to avoid any disconnect come the next round of funding discussions. Once again the latest plan needs to be kept under regular review by the trustees at least annually and certainly following any change in management at the sponsoring company.
Our friends in Brighton have made no secret of their intention to be ‘clearer, quicker and tougher’. We may take issue with them sometimes about exactly how they go about this but we do recognise that there are some schemes out there where the trustees are, if not failing their members, certainly not working as effectively as they need to. Trustees therefore need to be fully engaged with scheme governance. This is not a tick box exercise and treating it as such will undoubtedly end in tears.
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