Good governance is critical in running an effective pension scheme

Effective pension trustee governance is not just about having a well run pension scheme. You also need to have the policies and procedures in place that allow you to mitigate risk now and in the future.

Mercer has the pension scheme governance risk management expertise to provide clients with clear advice, which places the member at the heart of everything.

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Our governance and scheme management services

We have a comprehensive pension scheme governance service across DB and DC pension schemes, including:

Our approach to your pension scheme governance

Whether your pension scheme is defined benefit (DB), defined contribution (DC) or hybrid in nature, you cannot run a scheme in today’s regulatory and social climate without having robust governance. The regulatory environment is evolving and new risks are emerging. Trustees of pension schemes need to have effective systems, policies and procedures in place that allow them to mitigate risk and take opportunities both now and in the future.

Mercer can help you develop and maintain an efficient and effective governance framework which meets regulatory requirements and tackles emerging risks including cyber security and climate change. Our pension scheme governance services range from effectiveness reviews and trustee training to fully outsourced pensions management and everything in between. Whatever you are aiming to achieve in improving your pension scheme’s governance model, we are well placed to help you and your pension scheme stakeholders.

There is no one size fits all solution, and good pension scheme governance should be proportionate. We provide clients with solutions to help them meet regulatory requirements as well as bespoke governance consulting to fit their pension scheme’s specific needs. We are also able to leverage our contacts across DB and DC consulting, investment, risk transfer (and more) to provide the right advice and thought leadership as and when it is needed.

Good pension scheme governance is at the core of every well-run plan. We can support you to have effective systems, policies and procedures to make sure your scheme’s governance meets the Regulator’s requirements and allows you to focus on strategic objectives.
Lindsay Sadler

UK Wealth Governance Leader

Are you General Code ready?

The Pensions Regulator's General Code is coming. This will introduce new pension scheme governance requirements. It addresses the governance requirements arising from the UK’s implementation of IORP II and reflected in UK legislation which expects trustees to have an “effective system of governance” (“ESOG”) and for schemes with 100 members or more to complete an “own risk assessment” (“ORA”) to assess the ESOG.

Are you ready? Watch our video which outlines steps that can be taken now…

Our capabilities in new and emerging risks

We know that Trustees are tackling new and emerging risks, and we can support you in dealing with these with training, action plans, incorporating new risks into risk registers and more. Our thoughts and capabilities in specific areas are set out below.

  • Cyber risk

    It’s a matter of time before a UK pension scheme suffers a major cyber incident. Is your scheme resilient and ready to respond if you are targeted?

  • Climate risk

    If your pension scheme hasn’t addressed climate risk, the task may seem daunting. But there is no time for delay — and it’s easy to get started.

  • DEI

    Diversity, equity and inclusion is rising up the agenda for pension schemes and expectations are changing quickly. Don't get left behind.

Governance frequently asked questions

In March 2021, the Pensions Regulator (“TPR”) published its consultation on its new code of practice consolidating 10 of the existing codes into one web-based code. It also addressed the governance requirements arising from the UK’s implementation of IORP II and reflected in UK legislation which expects trustees to have an “effective system of governance” (“ESOG”) and for schemes with 100 members or more to complete an “own risk assessment” (“ORA”) to assess the ESOG.

The ESOG is covered under 17 of the new code’s topic specific modules which outline TPR’s expectations around the processes and policies governing the operation of schemes, and schemes will also need to have internal controls in place to manage risk. The new code effectively raises the bar in terms of what is expected from trustees in terms of good governance. There are five key areas that reference the need for an ESOG within the code. Trustees will need to establish and maintain policies covering these areas as well as policies for the review of each element of the ESOG. These policies should be agreed before any review is carried out and all policies should be reviewed at least every three years.

IORP II came into force in January 2017, with EU member states (including the UK) required to implement it by January 2019. Its aim is to improve governance and accountability in relation to “IORPs” (or “institutions for occupational retirement provision” such as funded occupational Defined Benefit and Defined Contribution pension schemes) by implementing more robust rules around governance and communication and setting out common standards to better protect pension scheme members and beneficiaries.

The European Pensions Directive (IORP II) requires trustees to establish and maintain an effective system of governance which is proportionate to the size, nature and complexity of the scheme. This builds on the previous requirement under the Pensions Act 2004 for trustees to maintain an “adequate” system of governance. The ESOG comprises the processes and policies governing the operation of the scheme.

Linked directly to the Effective System of Governance (ESOG), this is an assessment of how well governance systems are working and the potential risks are managed. Trustees of schemes (both DB and DC) with 100 or more members will be required to prepare an ORA which documents how the effectiveness of the scheme’s policies and procedures, covering the governing body, risk management, investments, administration and the payment of benefits, has been assessed. The ORA is expected to be an annual review, and will be available to scheme members on request.

A process to help trustees of DB schemes identify, manage and monitor risks that could affect their funding objectives. An effective IRM framework brings together funding, investment and covenant risks to help inform trustee and employer decisions in relation to the overall strategy, given the risk capacity of the scheme and risk appetite of the employer.

Good governance is intrinsic to having a well run pension scheme. It should be proportionate to the pension scheme size and complexity. There are many things that trustees of pension schemes need to tackle from a day-to-day operational perspective, as well as strategically. Good governance means that trustees can operate a pension scheme efficiently, can manage risks and are able to take opportunities. It means working well with all the pension scheme stakeholders to achieve the best outcome for the scheme and ultimately the pension scheme members.

Governance is the manner in which the pension scheme is run by the trustees, their third party providers and their advisers. It is the framework under which the scheme operates on a day to day basis and is crucial to the effective running of the pension scheme. Good governance takes account of the scheme size and complexity. It involves establishing and operating internal controls that enable trustees to identify, evaluate and manage the risks that relate to the scheme. It allows effective decision making to occur, in a timely manner.

Governance is the responsibility of the trustee board however some pension schemes have a governance sub-committee which is tasked with focusing on good governance and making recommendations to the wider board on improvements that could be made. The new General Code requires a risk management function to be defined for the trustees which will be responsible for identifying, evaluating, monitoring and reporting on key risks and internal controls.

Our pension trustee governance services – your risk management team

In a world where trustees have many tasks competing for their time, robust pension scheme governance is a form of risk management that means trustees can focus on their strategic aims. To achieve good governance, you need a partner who can support you whether you need information, advice, best practice or technology to strengthen your pension scheme governance model.

We have more than 50 experienced consultants and specialists who can provide governance and pensions management services to a wide range of clients responsible for defined benefit, defined contribution and hybrid pension arrangements. We can help you bring together the pension scheme stakeholders, including the corporate sponsor, in order to achieve alignment, make effective decisions and manage risk.

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