|
The trm Report - May 2007 What is pension scheme governance? Short and simple: The first principle of good governance is to provide transparency towards the pension scheme’s stakeholders: the scheme’s sponsoring employer and the beneficiaries. They have a right to know how the trustees’ act and how the trustees motivate their decisions. It is the scheme sponsor’s reputation and the beneficiaries’ financial future that is at stake and a scheme’s governance arrangements must attract confidence. The Pensions Act 2004 requires that pension schemes should have adequate internal controls in place. In The Pension Regulator’s Code of Practice on Internal Controls, the core objectives of trustees include the obligation to ensure that the scheme is administered and managed in accordance with the scheme rules and the requirements of the law. Subsequent guidance from the regulator complements the code of practice and expands on the code’s concept that the establishment of adequate internal controls depends on a robust risk management approach. Implementing and applying internal controls will help trustees to monitor the management and administration of their schemes. Internal controls should also improve the safe custody of assets and help to protect the scheme from adverse risks which could be detrimental. Trustees must determine their policy with respect to internal controls and assess what constitutes a sound and manageable system of internal control for the circumstances of their scheme. Although trustees should always be aware of the expertise available from their appointed external advisers, it is up to the trustees to decide how they address the internal control requirements as they are the people ultimately responsible for the scheme. However, trustees can use all the knowledge available to them. For example, many trustees can use the knowledge and skills applicable to their ’day jobs’ with the sponsoring employer to help them to carry out risk assessment and risk management. Once completed, a risk assessment review has to have an output and an action plan should be put in place. Realistically, the process has to be manageable and not all risks can be considered at the same time. The process of risk management is an ongoing matter and should be reviewed on a regular basis. Trustees should not look on internal controls as a compliance chore, but as an opportunity to discuss and agree how they want their scheme to be run in the future, in addition to meeting the regulator’s aim of raising standards in scheme governance. Brian Holden MBE |
|||||
|
