Whatever type of pension scheme you may be a member of, whether it is a Master Trust or a single trust-based arrangement (managed by a board of trustees) or a contract-based arrangement (managed by a provider, such as an insurance company), good governance is extremely important and is critical to achieving good member outcomes.
Although I am writing this during Pension Awareness Week 2022, a campaign designed to simplify pensions and promote the importance of saving for the future, whilst encouraging engagement, good governance should not be a simple tick box exercise, thought about just once a year.
Why ongoing governance is important
The importance of good governance has become much more prominent in recent years, particularly since the introduction of automatic enrolment, which has resulted in the number of workers saving into pensions rocketing. As at the end of December 2021, over 10.6 million workers have been automatically enrolled, and as such, ensuring workplace pension schemes are delivering value for money has become somewhat of a hot topic.
For members of defined contribution schemes, good member outcomes will be dependent on a number of factors, primarily the level of contributions that are paid, investment choices and the decisions made at retirement. Following a recent survey conducted by the Pensions and Lifetime Savings Association (PLSA), it was found that just over a quarter of savers surveyed (26%), who have a workplace pension, think that their current amount of pension saving will not be enough to get by on when it comes time to retire. I think this highlights and stresses the importance of achieving good governance and monitoring member outcomes.
Although these are factors that are influenced by members, it is also important that schemes establish strong governance structures to also oversee their pension scheme from other perspectives (including administration services and record keeping, investments and funding, and communications with members) and to also help members make informed decisions, as well as to identify and manage any risks to a members’ retirement savings. These are all areas that can make a significant difference to members’ outcomes at retirement and a member’s experience.
The industry bodies and regulators clearly state the importance of governance and I believe it ensures members are on track for better outcomes, whether they are in a Master Trust, single trust-based or contract-based arrangement.
How can members track how well their pension schemes are governed?
There are a number of ways that a member can review how a pension scheme has been governed, either through the scheme’s annual Chair’s Statement (for trust-based arrangements), which should be published on a publicly available website, or through an Independent Governance Committee’s (IGCs) annual report (for contract-based arrangements), typically accessible via their scheme provider’s website.
In addition to those regulatory requirements set out by The Pensions Regulator and the Financial Conduct Authority, employers who offer workplace pension schemes may also operate their own oversight committees, which provide an overarching governance framework above and beyond that provided by trustees and/or IGCs but with a particular focus on their employees. This is not a mandatory requirement, but these committees enable companies to ensure the ongoing suitability of the pension provision they provide their employees.
How can members influence good governance?
Members should be comforted by the level of governance and oversight that trustees, providers and some employers give to the pension schemes to which they are members, but members should also take action, ask questions, and provide their views on the running of their pension schemes. This information is vital to ensure that any pension schemes we are offered as members have our interests in mind.
More in the series:
Three core principles to good financial health