The Pensions and Lifetime Savings Association (PLSA) has published a discussion paper setting out its definition of good pension fund governance.

The paper, Good Governance – how to get there: A PLSA discussion paper, emphasises that good pension fund governance depends on the people providing it.

It says that the quality of the input into the governance, will determine the quality of a scheme's governance.

These inputs, the paper says, are mainly to do with the quality of scheme governance bodies and the support they in turn can draw upon.

The paper identified four key characteristics of effective boards or committees – the first being collective knowledge of the technical areas relevant to pension fund administration, on issues including investment, legal and actuarial matters.

The second characteristic is having more general skills, such as an ability to communicate effectively and commercial acumen when dealing with external advisers; and the third is cognitive diversity, through board or committee members with a range of different backgrounds and perspectives.

The PLSA says the fourth key characteristic is to have executive support for the day-today running of the scheme, enabling the governance body to concentrate on key strategic decisions.

On the back of identifying the key characteristics, the PLSA says governance bodies that demonstrate them will make good decisions, increasing the likelihood of good outcomes for scheme members.

In turn, it says, this means The Pensions Regulator (TPR) should concentrate on ensuring individuals who are appointed to boards and committees have the appropriate knowledge and experience.

Joe Dabrowski, head of governance & investment, at the PLSA, said: "Pension schemes are affected by the fortunes of their sponsors and the wider economy, so cannot guarantee success - but governance bodies that are expert, effective and diverse give them the best possible chance of success."

"The regulation of the pensions industry currently is characterised by a focus on outputs and there is a wide range of different regulations setting out expectations of boards and committees, largely concerned with process rather than with ensuring that governance bodies are appropriately skilled."

Research from TPR has shown highly varied standards of governance, with only half of surveyed schemes saying all their trustees meet standards set out in the Trustee Knowledge and Understanding (TKU) Code of Practice, while 24% say they never disagree with external advisors and 58% say they rarely do, suggesting a lack of capacity to challenge advice.

"Regulatory oversight should instead focus on ensuring the right people are appointed to governance positions and let them take decisions in the best interests of their scheme," Dabrowski added.

First published 07.09.2017

Lindsay.sharman@wilmingtonplc.com