LONDON, May 24, 2022 – A report published today by WTW shows that two-thirds (65%) of pension schemes think the Pensions Regulator’s new single Code of Practice will lead to major changes in scheme governance processes over the next two years.
The Pensions Regulator’s new single Code of Practice is due to come into force later this year and will require all schemes with 100 or more members to adhere to new risk, governance, and effectiveness practices.
WTW’s latest Trustee DB Governance DB Survey* shows that many pension schemes are concerned about their ability to meet the requirements of the new Code. Nearly two-thirds (61%) think it will take significant time and resource to become compliant, while less than a quarter (22%) think the new requirements will add value to their scheme’s governance.
However, few schemes (25%) have yet undertaken training on the new single Code’s requirements, and even fewer (13%) have yet undertaken a gap analysis to discover where their scheme governance is lacking, relative to the Code requirements, with four-in-five (79%) still planning or considering a gap analysis.
Jenny Gibbons, pensions governance lead at Willis Towers Watson, said: “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.”
Jenny Gibbons | WTW
“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%) of those surveyed say it is becoming harder to find members to act as Trustees.
To address this, and to tackle the lack of diversity on Trustee Boards that has long been identified as a challenge for the pensions industry, nearly half (42%) of schemes have taken at least one action in the last year to encourage diversity on their board.
A quarter of schemes (26%) 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% who had done so last year.
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% and 13%, respectively, in 2021.
Furthermore, in a move that could encourage more applications for Trustee roles across the board, over half (53%) 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%) of Trustee boards include at least one IPT and this is expected to rise to nearly three-quarters (73%) in the next two years.
Gibbons commented that “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.”
*WTW’s Trustee DB Governance Survey 2022 surveyed nearly 200 Trustees and pension managers of Defined Benefit pension schemes in the first quarter of 2022.
WTW provides a full range of governance services to UK pension scheme Trustees, from board governance diagnostics and reviews, to consultancy and training services on the implications of the Code, to the provision of outsourced risk management, pensions management and secretariat services.
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