The vast majority of DB trustee boards are already operating with robust governance frameworks that meet the new General Code, according to new research.
WTW latest trustee governance survey examined the impact of this new regulation, which came into effect in March this year. It sound just 1 per cent of respondents expect significant changes to comply with this code. The survey also found the different approach schemes are taking to risk management, with a big increase in the number of trustees now addressing cyber risk issues.
The survey focuses on understanding how pension schemes are adapting governance strategies to meet both the new expectations and the proportionality flexibilities of the code.
WTW head of trustee governance Jenny Gibbons says: “Despite some trepidation before the final Code was published, in fact the majority of schemes are well on their way to compliance, with most requiring only minor to moderate adjustments. This is a testament to the strength and adaptability of the existing governance frameworks within these schemes.”
The General Code, which has been in development for nearly five years, emphasises the importance of proportionality in governance practices. This approach allows schemes to tailor their governance efforts based on their specific circumstances, size, and complexity.
Gibbons adds: “This flexibility is essential for schemes to effectively manage their unique risks and opportunities. But it should not mean that smaller schemes should always do less than their larger counterparts and there are some governance challenges, for example cyber risk, that need tackling irrespective of the size of the scheme.”
When it comes to risk management WTW found that while two-thirds (67 per cent) of larger schemes consider risk management a priority, fewer than one-in-five (19 per cent) of smaller schemes do.
Meanwhile while nearly half (43 per cent) of larger schemes have already appointed a Risk Management Function (RMF), almost no smaller schemes (1 per cent) had done so yet.
WTW says that while the assignment of responsibilities for risk management functions and the management of internal audit frameworks remain undecided in many schemes, it is interesting to see a clear trend in larger schemes towards delegating these responsibilities to specialised sub-committees or external parties. This allows the trustee board to retain oversight by harnessing specialist risk management skills to take on the ‘heavy lifting’.
WTW also found scheme were looking more closely at cyber risks, with 65 per cent of schemes now equipped with the appropriate skills and resources to manage this growing threat, up from 55 per cent in its previous survey.
It also found that annual training for trustees on cyber risk and adoption of a formal cyber governance framework has increased significantly.
Nearly half of the schemes are also reviewing the effectiveness of their trustee boards with a further 30 per cent planning to do so in the next 18 months; a crucial component of governance that directly contributes to the overall resilience and adaptability of pension schemes.
Similarly, almost half (45 per cent) of larger schemes have already reviewed board effectiveness, compared to only 15 per cent of small schemes.
“As pension schemes move forward on their governance journeys it will be important to balance what is important with what is possible. The principle of proportionality allows trustees to focus in on those important areas, for example cyber risk, before moving on to consider how best to tackling less critical tasks,” said Gibbons. “What is possible is often constrained by access to suitably skilled and affordable support. Irrespective of scheme size, building a strong trustee board and investing in their training and effectiveness will create a solid foundation for future governance success.”