UK - Pension fund trustees and scheme sponsors should adopt a six-point checklist for the effective governance of defined contribution pension arrangements, says Watson Wyatt.
The consultant has suggested DC governance should consider:
- Governance structure - balancing interests, having clear terms of reference and providing suitable training and development
- Risk management - identifying, scoring and weighting risks and identifying actions to monitor and minimise these risks
- Governance plan - setting out clear scheme objectives, establishing a review and measurement framework as well as agreeing levels of service and performance with scheme providers
- A year planner - setting out a clear schedule of management focus as well as key scheme events and review activities
- Regular measurement and review - including regular assessment of scheme performance against objectives as well as investment, administration and member communication performance
- Ad hoc measurement and review - including reviews of the scheme design, communications strategy and scheme costs
“Whatever the objectives of operating a pension scheme, maximising the return on the pension spend or investment - principally through enhanced employee appreciation - and minimising the risks associated with running the scheme must be key considerations,” said Gary Smith, senior consultant at Watson Wyatt.
“Effective pension scheme governance addresses both of these areas and a systematic approach is highly recommended.”
Watson Wyatt said such a checklist can be applied to all types of DC schemes and can be adapted to cover the varying demands and needs of occupational DC schemes, employer-sponsored stakeholder and group personal pension schemes, designation-only stakeholder schemes and AVC arrangements.
“These checklists should help sponsors and trustees to implement and maintain an appropriate level of governance for their DC arrangements, reflecting their own particular circumstances and needs,” Smith said.
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