Assessing the Pension Manager's Role: Understanding Governance Gaps

29th February, 2024

  • How Involved is the Pensions Manager in the Governing Body, and What Gaps Exist?

    When trustees are assessing the key person risks associated with their Pensions Manager support, they will first need to assess the extent to which the Pensions Manager is responsible for ‘running’ elements of their Scheme operations (both in-house pensions management and third-party support).

    ‘The governing body is responsible for running a scheme.’

    Source: TPR General Code (GC) – point 1, first sentence in the ‘Role of the governing body’ section.

    In our experience this can be quite substantial, with some involved in the strategy, not just the delivery, meaning trustee boards are then heavily reliant upon their Pensions Manager in ‘running’ their Scheme. 

    When we refer to Pensions Manager we are aware that this role could also be undertaken by a Scheme Secretary or similar. We are interested in those people who provide material support to the governing body and therefore to what extent their role and activities must be accounted for.  

    Logically then a Pensions Manager is arguably part of the governing body. Although any decision making is by authorisation from the trustee board, recording the part the Pensions Manager plays is part of the governance ‘gap analysis’. This includes incorporating the Pensions Manager within the documented behaviours and standards of the governing body.  

    The Pensions Regulator (TPR) also states in the General Code that governing bodies need to use their judgement as to what is a reasonable and suitable method of ensuring compliance for their Scheme.

    • To what extent is the Pensions Manager applying judgement on behalf of the trustee board, particularly where quite often we find the Pensions Manager is leading the Risk Management Function?
    • What authorisation limits and autonomy does the Pensions Manager have?

    This second potential gap in the ‘gap analysis’ then needs to ensure that all authorisation, autonomy and limits are documented, together with the stress testing that has been undertaken to evidence the effectiveness.  

    Document Activities, Apply Proportionality, Align Policies

    One challenge to the governing body is ensuring that their already overburdened Pensions Manager has the resources and support to undertake these additional activities. As required by law, the trustees must apply proportionality to the size, scale, nature and complexity of the activities of the Scheme, which includes the activities undertaken on their behalf by the Pensions Manager. One important part of the EsoG is to document the clear allocation and appropriate segregation of responsibilities. This third potential gap in the ‘gap analysis’ is then to document which parts of the operation to ‘run’ the Scheme are allocated to the Pensions Manager.

    Once the activities are clearly documented, proportionality can be applied. The relevant written policies, practices, procedures etc can then be aligned. Don’t start with the policies, practices, procedures, as this would ignore the documented application of proportionality. Yes, document the application of proportionality, as the activities can change, and therefore so could the application of proportionality.  

    The fourth ‘gap’ consideration is the requirement to provide continuity and regularity in the performance of the governing bodies activities, including the development of contingency plans.  

    N.B. don’t forget, proportionality is applied to the activities, and can scale up, as well as down. 

    Appropriate proportionality here should also be cognisant of the key person risk. Specifically for in-house Pensions Manager, part of this gap analysis is the employer’s understanding of what the Pensions Manager does. To provide continuity and regularity in the performance of the activities and to develop effective contingency plans, the employer must first clearly understand the activities.  

    Ensuring Effectiveness: Contingency Plans for Pensions Managers

    So, what continuity and contingency plans are documented for the activities of the already overburdened Pensions Manager and how do you evidence the plans are effective? What stress testing have trustee boards and employers undertaken to understand the impact of their Pensions Manager not being available for a short or extended period? 

    This type of event we have witnessed on many occasions; long term sickness, resignations and even retirements, where continuity and succession plans have not been as effective as desired. Taking the Pensions Manager reigns after the in-house Pensions Manager has retired is particularly challenging. One handover was little more than ‘here’s access to the old Pensions Manager’s drive, please fix this’.  

    A short while later the governing body had an efficient and documented governance framework, incorporating process flowcharts for each and every part of the operation of the pension scheme, authorisation and autonomy limits, with scheme specific and proportionate policies, practices, procedures, logs, statements, registers, lists etc, including the operations for the trustee company. 

     The employer was also similarly supported with a governance framework in respect of its operations; cyclical re-enrolment and regulatory reporting, member data processing, accounting disclosures, renewal data, adviser assessments etc.  The governing body and employer then had a documented ESoG, with stress testing and an automatic mechanism to integrate the results of the Own Risk Assessment into the Scheme’s on-going management and decision-making processes. A great client to work with.  

    Very importantly, all of this highlights how multi-skilled the Pensions Manager is, in order to deal with any aspect of the pension, and the key person risks cannot be underestimated by the other members of the governing body or the employer.  

    Cultivating Good Governance in DB Pensions

    For DB pensions particularly, the ramifications of PSA21 and the potential to spend time as a guest of His Majesty, operating an ESoG isn’t a compliance task or a checklist. As TPR states in the General Code (point 4 in the intro) ‘The code sets out our expectations of the conduct and practice governing bodies should meet to comply with their duties in pensions legislation.’ Conduct and practice are verbs. Good governance is about how the governing body acts, it’s behaviour and culture, it is not about filling out forms, a checklist or having a suite of written policies that only collects dust.  

    Looking for Support?

    Understanding the pivotal role of the Pensions Manager as you navigate the complexities of pensions governance, it’s imperative to address gaps and enhance collaboration between trustees, pension managers and employers. If you are looking for support or would like to discuss and learn more, contact us today.

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    • Published byPaul Tinslay

      Paul Tinslay is a Professional Trustee for DB and DC Pension Schemes, including Chair for Sole Trustee positions, and EGLAS arrangements. With 33 years in the Life and Pensions Industry, Paul has the very rare, if not unique experience of...

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