|
The trm Report - November 2006 A phrase that is currently receiving a lot of column inches in pension publications is “good governance”. It joins phrases such as “trustee knowledge and understanding”, “risk reviews”, “benchmarking performance” and “compliance with the Myners’ principles” on the ever growing list of things that trustee boards need to be thinking of when managing their schemes. So what is good governance and what are the expectations of those who are setting the agenda? There are some clues within the questions posed by the report sponsored by the Pensions Regulator on Occupational Pension Scheme Governance. The full report can be downloaded here. Whilst this does not cover all of the areas that must be managed well to ensure good governance, it does provide an outline of those that will be benchmarked by the Regulator as part of an ongoing survey. So what is governance all about? Well, trustees manage the scheme on behalf of the beneficiaries. Governance is the management of the scheme in every aspect. This means management not just in planning but in doing. Aristotle said that “Well begun is half done” and that principle applies to pension schemes. Trustees must have explicit and agreed processes and principles in place to control, manage and organise all available resources to achieve the required end. At a basic level this might be “How are meetings relating to the scheme managed?” Meetings should be planned and those attending should be made aware well in advance of the meeting date. Details of time and location as well as the meeting papers should be issued to all invitees, whether they are attending or not, well in advance of the meeting (two weeks if possible). This will allow those attending to ensure they are well prepared and those not attending to raise any points that they wish to be covered in the meeting. The use of shared websites makes the dissemination of information easier but if any trustees do not have access, they need to be given papers in printed format. At the meeting, the Chairman should encourage all attendees to raise questions and contribute to discussions in order that the decisions taken are clearly understood by all. This is also helped when the trustees receive regular training to help their understanding. A unanimous decision may not always be possible, but the process should ensure that all relevant facts have been considered. It is also important that any conflicts are well managed. If a particular trustee has an interest in a case, this should be declared and they should remove themselves from the decision making process where appropriate. Comprehensive minutes that record the discussion held, points considered and all decisions made should then be circulated, where possible within a week of the meeting, so that everyone present can review the minutes and make any comments while they still have a fresh recollection of the discussion. It also ensures that actions agreed are clear to all and can be followed up between meetings. The management of material is also core to good governance. Communication with members is vital and the quality of that is dependent on the trustees. If a trustee does not understand a document that is being issued to the members, how is the member going to understand it? They should be involved in the process, even if it is just to review any documents that they receive as members and provide feedback. Document checklists for new trustees can be daunting, but they ensure that everyone is clear what documents exist and which ones that they should have for reference purposes. Even more importantly, they should be able to lay their hands on them when required. New trustees should always have access to old copies of the scheme rules as it is often with cases where previous rules applied that problems occur. Everyone should know where the minutes and all supporting documents are stored and who is responsible for their safe-keeping. The role of the Secretary to the Trustees is a critical one in terms of good governance - working with the Chairman, the Secretary will drive the management of the scheme, the annual business plan and help set the governance agenda. The Secretary will also often be the link through to the scheme administrators. Decisions made at trustee meetings should be quickly communicated to the administration team (and other relevant parties), but in some instances this is where things fall down. Service monitoring, including review of performance against service level agreements (SLAs) will often also be the responsibility of the Secretary. The recent report from the Pensions Regulator indicated that 15% of schemes outsourced to a third party administrator still do not have an SLA in place, with two thirds of schemes with their administration in-house not having an SLA. In these cases, how can it be possible to assess the performance - is it just down to the number of complaints received? Putting in place an SLA or ideally a broader performance management framework is crucial if the trustees are going to demonstrate “good governance” as this allows them to monitor performance as well as identify risks and issues. It should cover more than just the timeliness of the service as quality and member experience should also be monitored. The Information Commissioner emphasised in a recent paper on good practice that compliance with the Data Protection principles is the responsibility of the trustees. At a time of increasing outsourcing of back office services both within and potentially beyond the UK, this is another issue that needs to be monitored. Ideally this should be evidenced based monitoring rather than purely a verbal or written assurance that the Act is being complied with from the administrator. Benchmarking of professional advisers is also an area where more formal reviews and monitoring processes are becoming common place. Around two thirds of schemes surveyed had formally reviewed investment consultants and actuaries in the past three years, but around 15% had never reviewed these appointments. Benchmarking all advisers is very useful as this ensures that the trustees are aware of the different approaches used by different organisations as well as ensuring that the services being provided represent value for money. Finally, if trustees need to be able to demonstrate good governance, it is important that they understand the issues that are facing them. Expecting someone who knows nothing about a pension scheme to assess their advisers, or monitor the performance of their administrator is not realistic. Trustees need to be well trained and given the time to undertake their work. As well as formal training, trustees can join local pension groups and attend external training not specific to their scheme. Having a network of people who you can refer to is always useful when you come across those odd situations Governance is an area which will be come under the spotlight more and more, and trustees will not only need to look after their schemes and members well, they will need to be able to demonstrate that they are adopting a robust approach to good governance. Ian McQuade
|
 |
|
|||||||||
|
|||||||||||
