Pensions insight
Getting pensions governance in shape
Steve Butler, chief executive officer for Punter Southall Aspire, explains what companies can do
M any companies are finding it increasingly complex to manage their pension schemes, due to increased regulation as well as legislation that is constantly changing and being updated. Keeping on top of everything is a challenge, so what can companies do about it? One of the most important things for ensuring workplace pension schemes are well-run, is good governance. Having a sound governance structure will mitigate risks, avoid costly litigation and enhance efficiencies. That’s why all companies should be holding regular governance meetings to monitor pensions and ensure everything is on track. A recent pension governance meeting with a new client reminded me of why these meetings are so important. As the meeting progressed, it transpired that the numbers didn’t add up and the client became concerned. The company’s pension contribution levels just didn’t match what they had expected to see. This got alarm bells ringing and we decided to take a thorough look at their pension contribution levels following the meeting. We discovered that for several years, the company had been deducting employee contributions from gross pay, whereas they should have been deducted from net pay. This had serious implications for the pension tax relief that had been incorrectly granted. Luckily, there was a happy ending in this case. Not only was the problem identified, it was straightforward to sort out with HM Revenue & Customs and the pension provider. Had the error not been uncovered it’s anybody’s guess how long this issue would have carried on for, which could have made sorting it out a later stage far more complicated. Governance meetings are essential for spotting mistakes early and ensuring the workplace pension is delivering the best
possible value. It’s important to plan them properly and ensure the appropriate people attend. There should be a good mix of staff representatives and senior management, as well as human resources, which will not only ensure meetings and action points are taken seriously, but there will also be a good mix of ideas. ...important to plan them properly and ensure the appropriate people attend Involving a cross-section of people across the organisation can also improve employee engagement with workplace pensions. They feel part of the decision-making process and are more likely to cascade information throughout the company. For companies that struggle to get people interested in pensions this can be a great way to turn engagement around. After scheduling the governance meeting, it’s important to circulate an agenda a few days in advance. And, during the meeting, working from a checklist is a good way for making sure all the important issues are covered. These are some of the key things that your governance meetings must address and should be included in your checklist: ● Performance – How is your pension scheme doing? Don’t just look at the bottom-line figures – consider whether you are getting value-for-money and benchmark against other retirement plan providers. Most importantly, think about whether the members of your pension scheme will have enough to have the lifestyle they would like when they retire. ● Quality – How much are your employer contributions? How are they structured?
Again, benchmark the quality of what you do against the rest of your sector, as well as against government recommendations. If you want your scheme to attract and retain staff, you can’t fall behind with your employer contributions or let the structure of your pension plan become outdated. ● Market trends – What are the changes you need to be aware of? And which new regulations are going to affect you? You must stay up-to-date to avoid getting caught out by The Pensions Regulator and falling behind your competitors. ● Demographics – How well are your employees engaging with their pension scheme? How many people are opting in, and how many are opting out? This will give you an indication of how valuable they perceive the workplace plan to be, and whether you are getting the maximum benefit from your investment. ● Communications – Do your employee communications provide relevant and valuable information regarding your pension scheme? And how successful are those efforts? Often companies go to great lengths to produce information but fail to tell employees where it is, such as having content on an intranet that no one uses. ● Action plan – This is something all good governance meetings should end with – concrete next steps, so that all areas of concern are dealt with. The next meeting should go through this at the start, to ensure everything has been done and prioritise anything that hasn’t. While having regular governance meetings won’t guarantee mistakes are never made, they will ensure that mistakes are caught early. With the risks involved, such as fines and potential reputational damage, good governance is your best defence; therefore, all those responsible for company pension should be holding regular governance meetings as a matter of course. n
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Issue 31 | June 2017
| Professional in Payroll, Pensions and Reward |
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