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• There is no legislation that says employers must have a pensions governance committee.
• A committee should focus on: investment funds, administration, communication, and whether the provider is offering a suitable service.
• Meeting at least once a year, it should have three to eight members.
• A committee is well placed to inform employers of their responsibilities under the 2012 pension reforms.
A governance committee is important to monitor a pension scheme’s health, says Jennifer Paterson
Just as medical check-ups make sense for the human body, so occupational pension schemes need regular care to
ensure that they are serving their members. That is the role of a pensions governance committee.
John Sansone, head of pensions at Enrich, says: “There is no legislation that says employers have to have a committee and that it should have a certain shape. There is no one-size-fits-all here.”
A pensions governance committee should explore four factors: whether there is a range of funds that ensure members’ differing objectives are met; efficient and effective administration; clear communication; and suitable service from the pension scheme provider, says Tim Johnson, managing director at Gallagher Risk and Reward.
To identify whether forming a committee is in the best interests of a scheme’s members, the employer needs to outline the reason for a committee, what it will be responsible for, who will be its members, how often it will meet and what it will cost.
Meeting at least once a year, a committee should have three to eight members, including representatives from senior management and payroll. Typically, a financial adviser, employee representative and the pension provider or investment manager will sit on the committee. Iain Chadwick, senior consultant at Johnson Fleming, says: “Throw membership of the committee open to scheme members and use it to provide governance and a way of engaging members.”
The cost of setting up and running a committee depends on various factors. After set-up, the main cost is time. Sansone says: “There is no formal hard cost to setting up a committee, it is just [fees] for the consultant support time. We build that into an annual retainer for [employers] which includes the governance management process.”
Can employer be consultant?
But Wilson does not see why an employer cannot take on the role of consultant itself. “It is not rocket science,” he says. “Employers can do it themselves if they think they have enough knowledge in-house. Employers are spending millions on the pension scheme, and the committee makes sure it adds value and is offered in the best way to staff.”
A governance structure that involves consulting with a pension scheme’s members is one of the prerequisites employers need to qualify for the Pensions Quality Mark (PQM), issued by the National Association of Pension
Richard Wilson, senior policy adviser for the NAPF and the PQM, says: “The committee plays an important role in making sure a scheme meets members’ needs, and that the administration, charges, costs and fund choices are looked at and kept up to date. We ask that employees are represented on the committee and get an opportunity to increase their skills and pensions knowledge.”
With the 2012 pension reforms on the horizon, a governance committee is ideally placed to inform the employer of its obligations on auto-enrolling staff and providing the minimum employer contributions.
Jamie Clark, business development manager at Scottish Life, says: “Governance committees could be a vital resource in identifying possible breaches of employer duties under auto-enrolment before they happen, saving the employer both time and [penalty] fines. Setting up a governance committee can help identify and solve administration issues, help employees feel they have real engagement with the scheme and increase membership numbers.”
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