Pensions Governance - why you should consider setting up an internal governance vehicle

As part of our drive to assist clients with their pensions issues, we are seeing an increased number of businesses setting up their own internal pensions governance vehicles, the purpose of which is to monitor and report on the performance of their chosen pension provider.   Essentially, the idea here is that by establishing their own pensions management committees, businesses are able to identify problems in how their pension schemes are being operated in terms of both administration and investment performance.  Over time, this will deliver better value for your members and ensure that any risks are being effectively managed.  This may be particularly relevant for you if you are either at, or just past your auto-enrolment staging date and if you have been required to put a scheme in place for the first time, as well as if you have a more established pension arrangement.

Why should you do this?

There is a general move in the UK pensions market towards companies taking a more hands on roles with their pension arrangements, and the Pensions Regulator views it as good practice for employers to operate this type of arrangement.   The structure is quite simple – the committee meets a few times a year to review the provider’s performance against an agreed Service Level Agreement and KPIs, review fund performance (particularly how the default fund is performing) and make any other recommendations about how the scheme should be run.   

A concern many employers have is whether, by setting up these committees, they could open themselves up to any future liability - so it should be emphasised is that the role of the committee is purely to monitor any issues which come up with your pension scheme and then suggest ways to manage them.    The committee does not have any decision making functions and is not there to provide financial advice to members.    Putting in place a pensions governance committee does, however, deliver a number of clear benefits to a business.

• Early identification of administration problems.  A growing theme we are seeing with many pension providers is the late payment and remittance of contributions, with the consequence that members are missing out on investment returns.  The management committee can help establish clear timeframes around the payment of contributions, as well as movement of funds on member retirements, transfers out and the payment of death benefits so that the business can identify whether these targets are being met.  
• Value for money.  By regularly reviewing the costs and charges in place under their scheme, employers can help ensure that their pension plan’s cost structure is competitive with other schemes offering similar funds, that the default fund is performing in line with agreed benchmarks and that they are also complying with the various legal requirements on member charges. 
• Member engagement -  broadly, this involves giving members a greater understanding of their pensions savings, ensuring that members are getting access to the right information on their pensions, and that the information being provided is in a clear, easy to understand way.   Taken together, the idea is that greater member engagement will in turn improve member outcomes at retirement as well as helping to reduce the risk of member complaints against the business in relation to pensions in the future.  

How can Doyle Clayton help? 

As always, Doyle Clayton’s objective is to provide you with commercially sound advice at a sensible rate.   We can assist you in establishing a pensions management committee by providing you with draft objectives and terms of reference, KPIs and a draft service level agreement between your business and the pension provider, which will govern how the scheme is run.  We will also spend time with you to understand your current pension arrangements so that committee is suited to your requirements and will deal with any questions that you and your pension provider may have, as well as being on hand to assist with the running of the committee and any issues which do arise going forward.   

If this would be of interest to you or your business, then please contact our Head of Pensions, Andrew Campbell (acampbell@doyleclayton.co.uk), who would be happy to discuss your requirements further.