Reflections on the new Code of Practice
7 Wonders of Good Governance
04 May 2021 - Estimated reading time: 5 minutes
The 7 Wonders of the World originated in Ancient Greece and of the 7 only the Great Pyramid of Giza can be seen today. Even so, we now recognise 7 different wonders (the 7 New Wonders of the World).
Perhaps evolution is the way to go when it comes to identifying wonders! The pensions landscape has evolved dramatically over the past decade – with auto-enrolment, a shift from DB to DC, the rise of DC Master Trusts, an ever-increasing number of savers. And what is meant by “Good Governance” has evolved too.
Good Governance is key to a well-run scheme. With increased member engagement and the need to publish additional information about schemes, the public scrutiny of pension schemes and those running them will increase.
- The Pensions Regulator
In this blog, we consider the 7 Wonders of Good Governance and apply them to the recent release of TPR’s draft Single Code of Practice (COP).
Taking a holistic view that really makes a difference
Good Governance is required in all elements of running a scheme, and is the overarching principle. Good Governance should not be a tick-box exercise – a theme echoed by TPR and their approach to the single COP. In particular TPR state that the Own Risk Assessment (ORA) “should not be perceived as an item of tick-box compliance” – the single COP provides governing bodies with an opportunity to take a holistic view of governance, and ensure that in complying effort is taken to really make a difference.
Taking a holistic view means that governing bodies can ensure they focus on strategy and priorities. Whilst certain regular regulatory / legislative activity can’t be avoided, governing bodies should have an overarching aim to focus on strategy and to ensure time spent together is spent on decisions most important to the scheme, or on discussions and debate. This is even more pertinent with the focus on journey planning in the Pension Schemes Act 2021. The single COP focuses on shorter, topic-focused modules – governing bodies may wish to consider how to implement shorter more strategic-focused ways of working.
Governing bodies need to be adaptable in their operations and be able to respond to the changing pensions landscape as well as changing priorities. TPR “see the code as being a living product that will go through an ongoing process of review and amendment to reflect legislative and policy change” – if the Code itself will be dynamic, governing bodies should be too. One of the key drivers behind the single COP was updating content that is out of date – the single COP provides governing bodies with a good chance to refresh processes and procedures that are in need of a refresh.
Some believe that there are too many steps in the decision-making process and that boards re-work the work of subcommittees. One of the drivers for the single COP was removing duplication – the single COP provides governing bodies with a good chance to streamline processes or procedures.
Using some of the other wonders, such as taking a holistic view, considering effectiveness and reflecting on decisions can identify potential areas that would benefit from streamlining.
With the changing pensions landscape, increasing governance expectations as well as a focus on value, governing bodies and those supporting them need to be effective in their work. Board effectiveness exercises help to consider this. Key to effect working is that all members of the governing body feel able and willing to contribute, discussion and debate is encouraged, advisers are challenged and feedback is provided.
Furthermore, the single COP introduces the requirement to ensure an “effective system of governance”. Governing bodies should regularly review the effectiveness of their operations to ensure Good Governance. All decisions and actions should include consideration of the most effective approach and outcome.
Diversity (whether that be demographic, cognitive or experiential) aids good decision-making. Diverse boards have fewer knowledge gaps, better debates, better member representation, and less group think – thereby improving their effectiveness. Governing bodies should therefore consider diversity alongside effectiveness. More is expected in this area (in particular, TPR have established an industry working group on board diversity and inclusion) – reflecting the constant evolution of Good Governance.
Decisions that trustees make can have significant effect on scheme members. The governing body is responsible and accountable for any decisions that are made. Effective decision making is therefore important for members and trustees. Reflecting on key or challenging decisions can identify strengths and blind spots. There is no need to dwell on difficulties, but learning from these can aid governing bodies in being adaptable, streamlined and effective.
The pensions landscape will no doubt continue to change as schemes reach maturity and as provision shifts to different types of schemes. It can therefore be expected that the 7 Wonders of Good Governance will also continue to evolve – whether any will stand the test of time remains to be seen.
If you would like any more information on Good Governance or the Single Code of Practice, then please get in touch with Charlotte, or your usual Hymans Robertson contact.