Getting the priorities right on pension governance

It is vital that those representing the interests of pension scheme members are equipped and supported to do the job properly, writes Yvonne White.

Pension scheme trustees and administrators look after about €80 billion of retirement savings on behalf of members. The challenges facing pension scheme trustees have increased in recent years, with legislative change, funding difficulties, new requirements under the EU Pensions Directive, and changes in accounting standards affecting the trustee role and pension scheme governance.

The security of people's pensions relies on good governance, so it is vital that those charged with representing the interests of pension scheme members are equipped and supported to do the job well. In this context, the Minister for Social and Family Affairs Seamus Brennan asked the Pensions Board to undertake a detailed review of the trust model of pension scheme governance and an examination of the role of trustees in occupational pension schemes.

The review was undertaken by board members representing the social partners and other stakeholders and drew on the results of consultation with industry bodies and NEW research.

The main objectives of the review were to:

• evaluate the trust model of pension scheme governance;

• identify potential regulatory and governance improvements that can be made to enable the trust model to perform more effectively;

• examine the supports in place for trustees.

A guiding principle surrounding the review was that any outcomes should facilitate competent performance of trustees' duties, and increased governance standards, while minimising any additional compliance burdens on trustees, schemes and employers. Having considered all the issues involved, the review has concluded that the current trust model should be retained as it continues to offer protections to pension schemes that justify its retention.

The report's recommendations aim to enhance governance of pension schemes, and member protection.

Key recommendations include:

• Pension scheme administrators should be registered and supervised.

• Service level agreements between trustees and administrators should be made compulsory. Guidance on the appropriate content of service level agreements should be introduced.

• Employers should automatically arrange trustee training for all trustees within six months of their appointment and at least every two years thereafter.

• The potential of new means of trustee training such as e-learning should be explored.

• The trustee annual report should state what training has been received by trustees during the year and trustee trainers should be encouraged to hold regional courses.

• The Pensions Board should have the power to appoint a trustee or authorise an administrator to carry out wind-up procedures, where appropriate.

• Each scheme should have a copy of the Pensions Board's trustee handbook, and a "trustee checklist" should be appended to the next edition of the handbook.

The report outlines the main recommended actions, allocates responsibility for their implementation, and suggests an appropriate timeline for their introduction, where appropriate.

The solution to many of the problems faced by pension schemes is to foster strong and effective governance and administration to enable trustees to minimise risk and maximise value.

While the trust model continues to offer robust protection, some improvements can be made to the regulation and governance of trust-based occupational schemes to enhance member protection.

Legislative changes will be necessary regarding the regulation and supervision of pension scheme administrators and associated disciplinary powers for the board, including a regulatory impact assessment which will be a standard feature of this process.

Yvonne White is head of research and technical services at the Pensions Board.