As noted before, there’s plenty trustee boards can be doing now to begin the next stage of the pension governance evolution. There is time to get it right though, so the important thing is just to start!
Pension trustees need to make sure any steps taken to comply with the code should benefit the pension scheme and the governance practice in place. Proportionality is referenced throughout the final code (much more than in the draft) so there’s clearly little benefit in spending time and money and adding multiple policies to an already growing list of existing scheme documentation in order to tick some boxes. If there’s value in it however, then it’s worthwhile. Getting the principles straight will go a long way to ensuring compliance and best value for the scheme.
In some instances, the value is compliance itself – without certain details documented, pension trustees may fall short of certain regulatory requirements. Having policies in place can help trustees run their scheme effectively and this is where advisers can definitely add value. This will also be of great benefit to new trustees who are faced with a large amount of sometimes complex and often unfamiliar work to get to grips with.
By noting down certain procedures, for example, trustees are able to follow a process when the time is right – whether that’s an induction for a new pension trustee, a member nominated trustee election or documenting how breaches should be reported. These policies can then be viewed as a quick reference for a range of situations to ensure trustees are taking the correct action and making informed decisions.
Here are some steps to help pension trustees on their way to complying with the code:
1. Request training
Most trustees will have had some training but now is the time to refresh/catch-up and get to grips with changes in the final code. Use the expertise of your professional scheme secretary or other advisers to help understand what the code covers and what you are required to do. The final code is 171 pages, so it can be beneficial to get help breaking it down into bitesize chunks. It’s probably also worthwhile deciding early on whether the code requirements will be addressed by the full board or a sub-committee.
2. Undertake a gap analysis
Have a look at what the pension scheme already has in place (or update any analysis you have done previously) and identify whether a new policy is really required or perhaps just an update to an existing policy is sufficient. Complying with the code may just be a matter of evidencing certain considerations and decisions or checking your advisers are following the correct procedures.
3. Prepare an action plan
Once you identify what needs to be done, draw on expertise around you. Consider who is best placed to complete the various actions – this may be pension trustees themselves, your scheme secretary, the employer, scheme actuary, pension administrator or other advisers. Draw up a plan and assign tasks with a completion date.
4. Remember proportionality
There will be valid reasons for trustees to decide not to adopt every suggestion in the code. Each scheme is different and will have varying needs and requirements. Trustees should be practical when considering good governance. If trustees have given due consideration to the suggested actions, but decide it would not be beneficial to follow them, keep a log of these decisions and the rationale behind them.
5. Consider risk management and the ‘Own Risk Assessment’ (ORA)
Risk management is going to form a large part of ensuring ongoing compliance with the code. Your first ORA is likely to take a lot of time as it will be the first analysis of the ‘effective system of governance’ (ESoG). It would be helpful to have the ORA in mind already when drafting or updating any documentation, particularly the risk register. Again, it comes back to making documents as useful as possible so they serve a real purpose.
6. Update the business plan
There’ll be several areas that will require regular reviews going forward. It’s important to ensure these are captured and the business plan seems the obvious place. We recommend documenting how frequently the trustee board plans to review policies and procedures too.
7. Don’t panic
Whilst the code is more than just a consolidation of existing requirements – and it can seem daunting, given the number of areas the code covers – trustees not only have time on their side, they also have expertise around them. However, to ensure work can be completed in bitesize chunks with no last-minute panic, take action to start the process and get a plan together sooner rather than later.
If you have any questions, or want to find out more on these topics, please get in touch with the author Kat Gruenewald.
