Two-thirds of DB schemes think there will be major changes to governance practices over the next two years as a result of The Pension Regulator’s new code of practice.
TPRs new single Code of Practice is due to come into force later this year. It will require all schemes with 100 or more members to adhere to new risk, governance, and effectiveness practices.
Willis Towers Watson’s latest research shows that many of these scheme are concerned about their ability to meet the requirements of the new code. Nearly two-thirds (61 per cent) think it will take significant time and resource to become compliant, while less than a quarter (22 per cent) think the new requirements will add value to their scheme’s governance.
Just one in four schemes (25 per cent) have undertaken training on the new single code’s requirements, and even fewer (13 per cent) have yet undertaken a gap analysis to discover where their own scheme governance is lacking relative to the code requirements. However four out of five schemes (79 per cent) are planning, or considering, a p gap analysis.
Willis Towers Watson pensions governance lead Jenny Gibbons says: “It’s clear that pension schemes are concerned about the time and resource that could be involved in meeting the requirements of the code.
“However, of the schemes that have undertaken a gap analysis so far, we are seeing that many have realised that their current governance framework is closer to the level required by the code than they first thought.
“There is more flexibility in the new code’s requirements than many think, but at the moment it’s a fear of the unknown that seems to be driving anxiety around it. That’s why we would urge all schemes to identify their governance strengths and weaknesses sooner rather than later, so they know the length of their ‘to-do’ list and can plan in good time before the new code comes into effect.”
WTW’s survey also found that the number of hours spent on governance matters by trustee boards is substantial. Trustee board chairs spend an average of 53 hours per year on governance related activity, while chairs of sub-committees spend an average of 47 hours, and regular trustees spend 37 hours.
But these figures hide significant variation according to the size of the scheme, with large schemes devoting significantly more time to governance activities.
The expanding role of the trustee is also making it harder to fill vacant trustee roles. Nearly two-thirds (62 per cent) of those surveyed say it is becoming harder to find members to act as trustees.
The survey also found that almost half of schemes (42 per cent) said that had taken action over the last year to encourage diversity on their board, when it comes to recruiting new members.
A quarter of schemes (26 per cent) have actively promoted the role of trustee as a career development opportunity in order to encourage applicants from a broader range of backgrounds, an increase from the 14 per cent who had done so last year.
Meanwhile one-in-five schemes have encouraged member-nominated trustee applications from underrepresented groups, and the same proportion have undertaken training on diversity and subconscious bias, an increase from 14 per cent and 13 per cent, respectively, in 2021.
Furthermore, in a move that could encourage more applications for trustee roles across the board, over half (53 per cent) of the respondents thought that member, or lay, trustees should be paid in order to compensate for the increasing time commitment required.
Currently it is less frequent for anyone other than Independent Professional Trustees (IPTs) to be remunerated for their time, and the number of IPTs is continuing to rise steeply as a result of this need for dedicated professional resource on trustee boards. Currently two-thirds (65 per cent) of trustee boards include at least one IPT and this is expected to rise to nearly three-quarters (73 per cent) in the next two years.
Gibbons adds: “Remunerating more trustees for the time they spend on their duties could be one of the most effective ways to open up opportunities to a broader, and larger, base of applicants who would not otherwise be able to make the commitment.
“The increasing professionalisation of trustees’ roles is evident as more schemes appoint IPTs, so extending some payment to all trustees could benefit scheme governance in the long-term.”
