Good governance is worth its weight in gold

Pension scheme governance should not be viewed as a chore or even a tick box exercise – a message endorsed by all the pensions regulatory authorities. In fact, it should be approached with relish, recognising that what you are providing to your employees is potentially a significant contribution to their retirement welfare. If the governance process is performed openly instead of behind closed doors, the impact this may have on staff relations could be worth its weight in gold.

Pensions governance is quite like having your car serviced regularly. You may be reluctant in having to spend time and money on the required work and parts and hope that the outcome is no more than an oil change; but at the same time, you are grateful when something is discovered early and can be repaired before the issue becomes too serious. Well-run pension schemes may only require an ‘oil change’ now and again but sometimes parts may need tuning or even replacing. From a financial perspective, good governance resulting in early remedial action can often result in cost savings for example management time, which ultimately may have a demonstratively beneficial impact upon member outcomes.

Essentially, there are three main areas of governance. The standard and quality of the administration systems, the suitability and performance of the investment offerings and the quality of member communications. Having considered these areas, you should then ask and, in some cases, justify if the cost of providing them is generating value for money.

The governance question for each area is typically:

  • Are your admin systems sufficiently robust and capable of delivering good turnaround times?
  • Are the investment offerings a reflection of members’ appetite for risk and are the funds performing well?
  • Is the way you communicate to members hitting the mark?

All three questions could be answered in a very simplistic and superficial manner, but such an approach may not always uncover underlying issues suggesting all is not as it seems. Perhaps it needs a look under the bonnet.

Here is a small selection of warning signs that could warrant investigation.


  • Member data and contribution files take too long to upload onto the pension providers platform.

This could indicate that files have not be mapped across accurately causing the same errors on each upload or if data is being inserted manually data fields are being completed incorrectly. In practice, there has been a fair amount of improvement in the smoothness of the data transfer process across payroll and provider systems to such an extent it should no longer be an event taking up unwarranted employer time.

  • Members enquiring why their accounts are not up to date.

Contributions should be allocated within reasonable time from receipt, typically no more than five working days – hopefully quicker. If the timescale is longer, this could require a review of the collection process.

  • Members asking why the amounts on their payslip are not consistent with the amount shown on the provider’s platform.

This could be for several reasons including the incorrect application of tax relief, the wrong amounts are being collected by the provider, or the member has misunderstood the information on the payslip. The latter point then, of course, becomes a communication issue.


  • Whilst the fund manager is producing good returns, it is not clear if they are performing well against the benchmark they have set themselves.

Typically fund manager performance is measured against their peers’ performance but is this a truly fair comparison? It could be the main objective of the manager is simply to beat a particular index say the cost of living. Other managers may have chosen different benchmarks.

  • There appears to be an element of uncertainty whether the scheme’s default investment fund is suitable.

It is not unusual for the scheme’s default fund to be the pension provider’s house fund.  Is the manager taking the appropriate level of risk? Is it time to test its suitability? Should you carry out a survey asking members their preferences or use generic or specific demographics to establish an overall risk profile?

Member communication:

  • Questions are coming in from members demonstrating a lack of basic knowledge indicating they have not studied or understood the information available to them.

It is important that any misconceptions are cleared up as soon as possible. If not, these could turn into concerns and become widespread. It is not always easy to dislodge a perceived negative once in the public domain, so a review of the scheme literature is a good starting point, perhaps following up with member clinics.

  • Statistics indicate that members are not registering to access their own personal account information portraying a low level of engagement.

Low levels of member engagement could indicate a lack of appreciation which is undermining the value of the benefit. Again, the theme is to devise ways of getting the message across.

Adopting good governance procedures is undoubtedly a fundamental component of ensuring a pension scheme remains fit for purpose. The by-product is nearly always a higher level of member appreciation. A benefit worth its weight in gold!

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