The start of a new year always helps us to stop, think, and set new goals. Research conducted by Strava predicts that the day most people are likely to give up on their New Year’s resolutions is 19th January.
Let’s hope this does not apply to pension scheme governance!
We know there is an awful lot of work to do to prepare for the introduction of an effective system of governance; the first step being to carry out a gap analysis. We are still expecting the new code of practice to be effective from this summer. “That’s six months away,” I hear you say. “We have plenty of time. And even then, we will most likely have a year to prepare for the first own risk assessment.”
Unsurprisingly, I would challenge this view for several reasons:
- You need to understand your current position and this takes time
In order to know what you need to improve, introduce or do differently, you need to be absolutely clear on your starting position and what policies, processes and procedures you currently have in place. Carrying out a gap analysis over the next few months will help achieve this. If done thoroughly (albeit based on the draft code of practice), it should distinguish between those areas which will form part of the own risk assessment and those which will sit outside it. This will help you prioritise your actions.
- A proportionate approach is essential
The Pensions Regulator talks about trustees operating an effective system of governance which is “proportionate to the size, nature, scale and complexity of the activities” of the scheme. The process of thinking through and agreeing what ‘proportionate’ looks like should not be overlooked. Clearly the threshold of 100 members is relevant, particularly in relation to the own risk assessment, but proportionality is more than this. It’s about recognising what you have in place already, what can be adapted and how everything fits together in terms of wider strategic objectives. Completing a gap analysis now will support your discussions around proportionality.
- A common sense, pragmatic approach is needed
Improving levels of governance is not an overnight change. It’s a long process and one which, quite honestly, will continue to evolve and adapt. It’s also not about perfection – it will be entirely acceptable to say, as part of your first own risk assessment, that certain policies have been considered but deemed unnecessary or will be introduced in the future. Completing a gap analysis and agreeing the priorities will help you determine a pragmatic approach to building your effective system of governance. It will also help structure any trustee training plans for the year.
- By failing to prepare, you are preparing to fail
Understanding the level of work involved in successfully preparing for an effective system of governance will help shape priorities for the next few months. This means securing sufficient resource, allowing enough time in subcommittee or trustee meetings to consider the issues and lining up necessary support from advisers if required. The results of the gap analysis will feed into the preparations and planning stages of the project and by completing it, will form the baseline for your effective system of governance.
Agreeing a clear action plan with timescales and designated responsibilities will ensure that you are as fully prepared as you can be to demonstrate that you have an effective system of governance in place.