Less than a third of pension plan boards independently review effectiveness
According to a study by Willis Towers Watson, less than a third (29%) of pension boards currently use some form of external validation to independently assess their effectiveness, despite concerns over the growing risks to which face administrators.
The firm Trustee governance survey revealed that only half of boards are currently reviewing their effectiveness each year, despite “looming” requirements for plans to do so, as outlined in the new consolidated code proposed by The Pensions Regulator, which is currently in the process of being finalized. consultation.
Willis Towers Watson stressed that reviewing the effectiveness of the board and governance at large is a journey “worth taking”, stressing that it is best to start this process now, rather than waiting for the proposed code to make it mandatory.
The research also found that nearly three-quarters (73 percent) of respondents believed the role of trustee now carries a lot more risk, while 65 percent say their role as trustee has become more difficult.
It is perhaps not surprising, then, that two-thirds of the plans have also said that it is becoming increasingly difficult to find members to act as trustees.
However, while seven in ten directors were aware that the lack of diversity was a major challenge facing the industry, “only a minority” (21 percent) of plans said they were actively targeting it as a priority that should be addressed over the next three years.
Additionally, while 54 percent said their own board is sufficiently diverse in terms of life experience, only 28 percent could say the same for diversity by age, gender and ethnicity.
Concerns about the risks and challenges associated with the role of a fiduciary also highlighted the impact that Independent Professional Trustees (IPTs) have on governance and effective decision-making, with 88% of plans with an IPT agreeing that all diets should have one.
Evidence also suggests that this trend is likely to continue, with nearly three-quarters of corporate sponsors predicting that the number of IPTs will continue to rise, while a third expect boards directors are replaced by a single director, with one in 10 having reviewed the single trustee governance model in the past 12 months.
Jenny Gibbons, Head of Pension Governance at Willis Towers Watson, said: “It is clear that the presence of an IPT reduces the concerns of other trustees about the complexity and risk of managing DB and DC plans due to their expertise and knowledge of other regimes and market practices. . “
The report also found broader positives, with around 80% of directors reporting good engagement in meetings and proper contingency plans.
In addition, over 90 percent of directors were comfortable with the board’s responsibilities for dealing with pressing issues during the recent difficult period, which was a real test of continuity planning.
On top of that, he suggested that technology “is starting to mature for pension boards,” with 85% of respondents feeling well supported by the technology during and between meetings amid the pandemic.
He also found evidence that the use of technology is evolving, with 54% using it for “monitoring and tracking,” versus 56% using it for automated triggers that aid decision making; a prospective approach.
“Capturing this technological momentum in the way programs are managed in a post-containment world will be key to agile and efficient decision-making which, after all, is at the heart of what good governance seeks,” said Gibbons.
Looking ahead, research suggested that the biggest change in governance would be in environmental, social and governance factors, with 44% of participants predicting increased attention in this area.
Commenting on the results, Gibbons said: “Administrators who hope for a break from the challenges of 2020 and early 2021, and even those whose DB funding levels have seen sustained improvements, will in fact continue to have to work at the same pace. with new roles, structures and improvements to be assimilated under the new combined code.
“The trick for administrators and sponsors will be to make these improvements work for them; to achieve the best results for the structures and specific requirements of their diet.