What’s an Effective System of Governance, Paul?
11th August, 2022
I still get asked this question quite a lot. It’s the trustees (Governing Body) and the actions of the trustees.
The initial approach to evidencing an ESoG seems sadly to be a tick box exercise, which I certainly always wanted to avoid. Many ‘gap analysis’ tools ask, do you have a widget? For example, a risk register or a written remuneration policy. Most I have seen so far don’t actually ask if you have looked at the widget in the last year, updated it, noted something on it and took action accordingly.
Having the widget does not an ESoG make. Doing something that the widget has noted, which improves the governance of the pension scheme and recording that improvement, is starting to evidence an ESoG.
The more frustrating question I get asked quite often is, Paul, how do we evidence our ESoG? Back to the tick box mentality again. The Pensions Regulator’s (TPR’s) draft code states that all trustee boards should maintain a list of items the members of the board should be familiar with. The list should be available in an accessible format and reviewed regularly. There is one for your tick box list.
One of these items is the risk register and you have one, great. A good one may have noted your scheme secretarial risk, which is an in-house support, single person, with no back-up. I’ve seen this many times, but I am still waiting for the day I am presented with a written contingency plan, rather than having to put one in place.
The main difficulty in a tick box approach is captured by TPR in the draft code: A system of governance will include anything that can reasonably be considered part of the operation of a pension scheme. So, that’s your tick box list – everything.
However, that only provides you with lots of words on pieces of paper or held electronically. That may create a System of Governance. The element that then makes it effective is what the trustee board does with those words.
So, trustees will need to have a hard, candid review of their own effectiveness on the trustee board. When was the last time you turned up to a trustee meeting having read the whole meeting pack, not just the red, decisions to be made sections, with the mindset that you can wing-it for the rest of the meeting?
There are quite a few documents, written processes, procedures, policies, logs, statements and registers. We have 158 of them, which we use as standards and templates, all needed as core items to capture ‘anything that can reasonably be considered part of the operation of a pension scheme’. These are the words on the paper, everything from adviser assessment tools, to written trustee behaviours and standards.
There is a lot, yes, but that’s a System of Governance. The effective part is what we do with those processes, procedures, policies, logs, statements and registers.
More ESOG & ORA information
We have a series of blogs about the ESOG & ORA
- ESOG and ORA: The new architecture for pension scheme governance
- ESOG: outsourcing activities, remuneration policies, proportionality and the ORA
- Effective System of Governance (ESoG): Where do we start?
- Effective System of Governance (ESOG): governance framework and internal controls
- ESOG and ORA: Proportionality
We also have dedicated page on our ESOG & ORA service