Pension scheme trustees are relying too much on their advisers to give a holistic view of any governance challenges their scheme may be facing, says RSM.
A survey of 200 pension professionals found that over half expect their advisers to raise governance concerns, but none can give a ‘helicopter view' of all scheme operations. RSM warned such an approach could risk some governance issues falling through the gaps.
Most respondents (76%) said actuaries were their top adviser when it comes to ensuring effective governance, with lawyers and auditors following on 59% and 58% respectively. Just 46% selected independent or professional trustees, despite their better position to get an overall understanding of the scheme.
The Mind the Expectation Gap report comes as schemes prepare for the implementation of IORP II, which will require trustees to get assurance that their scheme is operating correctly.
RSM partner and head of pensions Ian Bell said: "Trustees to rely too much on advisers. Their expectation of advisers is they would tell trustees if they should be doing something differently or better - but no adviser can do that for them.
"No adviser has a helicopter view of all aspects of the scheme; they can adviser on their particular skill sets, but even probably only on a compliance basis and not on an overall basis and certainly not linking all bits of the scheme together."
Trustees should focus more on self-assessing the governance of their scheme, RSM said, but this was challenging given RSM found governance ranks low on agendas. Part of the problem, Bell said, was that governance was ill-defined.
Even though defined contribution chair's statements are an example, this is just one area of the pensions sector. The Pensions Regulator is expected to outline its expectations of governance further in its upcoming modular code.
Just 46% of schemes annually test and evidence their internal controls included within their risk register - but 16% had no evidence, and 9% did not know at all. Similarly, just 48% were "completely confident" that strong controls were in place and working, while 7% said they were confident their advisers would tell them if something was wrong.
Bell said more schemes should consider using assurance mapping to understand how effectively controls are mitigating the top ten risks on their risk register. In particular, schemes should use the "third line of defence", specialist internal audit services, to take a deep dive into specific controls.
"Internal audit is underutilised by trustees, but the benefit is trustees can actually direct the testing in the way they want to direct it," he said.
"They get to work with the internal auditor and say, ‘this year we are going to make sure that this particular aspect of our scheme is operating effectively'."
As internal audits are not a statutory requirement, they can be more flexible and provide more feedback to trustees. Similarly, schemes should seek to benchmark against other schemes where possible, RSM said - but just 30% said they were doing so.
"All the time that trustees are operating in a silo, effectively, that's where the problem is going to rise," Bell said. "They will be listening to advisers and taking decisions, but not really monitoring how well they're doing from a governance point of view."
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