Ensuring your scheme governance framework is fit for purpose and facilitates effective decision making

Ensuring your scheme governance framework is fit for purpose and facilitates effective decision making

Every aspect of a scheme is impacted by the governance framework in place to ensure it runs smoothly. Proactive decision-making is a function of a pension plan’s governance framework, as well as trustee training, provision of good quality advisers and it is key in ensuring regulatory requirements are met.

An integral part of the governance framework is its structure. How the trustee organises its board and committee structure will be specific to its own particular needs and ways of working, but there are a number of generic principles that will help trustees ensure it is fit for purpose:

• It is important to make sure there is a clearly agreed trustee strategic mission statement. This should detail the scheme’s objectives across funding, investment, member administration, communication and risk management to make clear the trustee’s objectives and how they should be met. The statement will feed into the governance framework and will be supported by detailed governance documents such as an annual business plan and risk register which the trustee’s executive team can draft and manage.
• Furthermore, there should be a trustee organisational structure at board and committee level. The roles and terms of reference should be clearly defined and appropriate delegations in place to ensure decisions can be made at the appropriate level. The executive team can efficiently put in place these governance requirements and keep them relevant.
• There should also be sufficient resource in place. This relates to both having an experienced executive team and budget for advisers who can support the trustee, maintain momentum with projects and general scheme business between meetings and ensure governance and regulatory requirements are met.
• Clarity of roles and responsibilities and the extent of any delegations in place that facilitate ongoing management of scheme business is also required and can be managed by the executive function.
• Trustees should make sure there is a conflict of interest policy. The executive team can ensure all stakeholders are aware of the process to properly manage conflicts where they cannot be avoided.
• A trustee evaluation framework is also needed, because it allows the trustee to critically assess its own performance. Here again, a good executive function can effectively deliver a value-add exercise based on experience and knowledge of best practice.
• The right governance framework can help ensure that the scheme has quality actuarial, legal, investment and covenant advisers in place to support the management and goals of the scheme.
• Diversification of trustee skills, knowledge and ongoing training are imperative to good decision making. Pensions is a very technical area that is subject to a material amount of legal and regulatory oversight which a good governance framework and an executive team can assist with.
• Lastly, application of a framework for sponsor interaction is important. This should drive regular communication and feedback with the sponsor to ensure a healthy dialogue is maintained and the sponsor informed and consulted on key decisions.

Decision-making is complex, but getting the right governance framework and Executive in place will help drive good outcomes. Better informed, experienced and well-organised trustees are more able to challenge advisers where necessary and typically make better decisions.

Action Points

• Make sure you have a mission statement for your scheme
• Put in place a governance/executive team with the required skills and experience