Helen Ball discusses the importance of proper business planning for pension schemes
The Pensions Regulator has recently emphasised the importance of effective business planning by trustees. This was mentioned as one of the "back to basics" standards that it expects trustees to meet in its discussion response regarding 21st century trusteeship.
This should not come as a surprise - pension schemes are in business to provide retirement benefits, and some now exceed the size of the company that supports them.
It is therefore not unreasonable to expect those who are responsible for handling such a large amount of assets, and for so many individuals, should have a good idea of where they are going.
But what does effective business planning mean in practice?
It is fairly common for trustees to ask their consultants or advisers for a standard 'to do' list covering business as usual matters that must be dealt with in the year ahead.
This tends to cover items involving deadlines, such as the triennial valuation process, or the production of the scheme's annual report and accounts.
Although such lists can be helpful, they are rather two dimensional in nature and their usefulness can be fairly limited. They are not reviewed on a regular basis, they don't flex to deal with unexpected circumstances, and, most importantly, they don't treat the pension scheme as a living and breathing business in its own right.
A better business planning arrangement would start with a thoughtful discussion at trustee board level about the internal and external factors that could affect the scheme in the year ahead. This would include engagement with the sponsoring employer and advisers.
Such a discussion would focus on matters that go beyond "business as usual" activity, to cover strategy and priorities, and also risk management. It may even explain which matters are delegated to sub-committees, and how their progress will be reported back to the main trustee board, and in what timescale.
A good business plan should take account of various factors. These could include trustee and company business as usual activity (e.g. production of annual benefit statements, the annual audit or triennial valuation process) and strategy and priorities (e.g. seeking improvements to value for DC members, reviewing the effectiveness of communications and member engagement, conducting investment reviews and project managing any scheme changes).
It should also consider employer strategy, including introducing changes to payroll, auto-enrolment systems or reward programmes, and the management of risk and controls.
A good business plan should also go further, and consider the potential impact of any external factors which could influence the scheme in the year ahead.
These could include proposed changes to legislation and regulatory requirements (e.g. any major tax changes), financial and economic developments that could affect investments and the employer's priorities (e.g. Brexit), as well as member expectations and experience (e.g. likely responses to political changes such as the introduction of pension freedoms and flexible savings products).
In other words, a good business plan should not look the same each year and it should be tailored to suit the individual scheme's circumstances. This does not, however, mean that it needs to be complicated - a simple chart showing items, responsibility and timings could be enough - as long as it is meaningful and kept under regular review.
Trustees might be forgiven for thinking that this is all very nice in theory, but not achievable in practice, particularly for smaller schemes.
However, there are just as many benefits to be gained from a good business plan by small scheme trustees as large ones - particularly if it means resources are targeted more efficiently and there is less chance of unexpected and costly items arising part way through the scheme year.
In a regulatory environment where there is an increasing emphasis on effective governance and risk controls, this is something we anticipate will become more important over time.
The significance of effective business planning is also demonstrated by the new requirement in the Pension Schemes Bill for master trusts to have an approved business plan before they can be authorised by the Pensions Regulator.
Having a sound business plan will also help to demonstrate good trustee knowledge and understanding, and will encourage greater co-operation between employers and trustees.
Without such a plan, it will be much more difficult for trustees to show that they have a good grasp of their role and how they will perform it in the interests of their members - which is a fundamental hallmark of being a good trustee.
Helen Ball is partner and head of defined contribution at Sackers
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