The changing landscape for workplace pensions makes good governance more important than ever, says Simon Fletcher, client relationship director at Johnson Fleming

In 2012 we will see the introduction of two of the most significant changes to workplace pensions ever to occur in the UK. The first – pensions reform – means employers will, for the first time, be legally required to automatically enrol employees into a workplace pension scheme and make contributions on their behalf. This will be accompanied, of course, by the introduction of the national employment savings trust (Nest).

The second change – the implementation of new legislation resulting from the Retail Distribution Review (RDR) – means that, for any new pension scheme set up after 31 December 2012, advisers can no longer be remunerated through commission paid by the pension provider (although it is currently understood that existing commission-paying arrangements will be allowed to continue).

These changes throw up a number of issues for employers running, or considering introducing, contract-based defined contribution (DC) pension schemes, not least those covered within this pensions governance supplement. Any organisation that has not yet started to plan for these changes really should consider doing so at the earliest opportunity.

We have always stressed the importance of helping employees understand the need to save for retirement. Indeed, for many employers, the removal of the default retirement age has made this a strategic necessity. Auto-enrolment and compulsory pension contributions will go a long way to combat the inertia many staff have over pensions.

However, we believe auto-enrolment will make clear, engaging pension communications even more important than they are now. Once people are in a pension scheme, we need to ensure they choose to stay there, and there are still a number of questions employees will need help in answering, such as: ‘How much should I save?’, ‘Where should I invest?’ and ‘What do these fund names mean?’. We now work with all our clients to develop annual communication plans. These are then monitored, reviewed and updated regularly to take account of any changes in the employer’s business, the market, legislation or any common issues faced by their employees.

The changes to the way advisers are remunerated may mean employer fees will become much more commonplace. It is therefore vital for employers to ensure they are clear on the services they will receive from their advisers and providers, and at what cost.

Formal service level agreements (SLA) containing this information will be essential so employers can avoid any nasty surprises at some point in the future.

Employers will need to ensure the systems and technology they are using to administer their schemes can cope with the new auto-enrolment (and reenrolment) requirements. Many people feel these will be administratively troublesome, but technology is available to enable employers to deal with these requirements effectively and efficiently.

Governance of DC schemes has been high on the agenda for The Pensions Regulator for some time, and we believe good governance is more crucial than ever. Every business is different and therefore the exact form this should take will depend on an organisation’s specific requirements and objectives. Typically, employers should ensure they regularly monitor and review areas such as the scheme provider, management information, communications, retirement options, performance of suppliers against SLAs, member feedback, core administration processes, the scheme default fund and range of other investment funds available.

We often work with employers to help them set up and run pension advisory committees, which meet regularly and cover all these issues on their agenda - plus, of course, preparing for the latest raft of pension changes on the horizon.

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