Scheme governance is in urgent need of improvement, says HSBC Actuaries and Consultants (HAC), to ensure that trustees avoid taking poor or biased decisions.

A report on the state of governance published by HAC has brought to light significant reporting and risk issues that trustees currently face.

The report found that 54 per cent of trustees fail to keep and maintain a register of trustees' interests, and 24 per cent do not have a formal system for identifying and recording potential conflicts for each trustee.

Confidentiality Agreements are not used to manage conflicts by 72 per cent of trustees, and 30 per cent have not reviewed their Statement of Investment Principles in more than a year.

HAC is concerned that the current economic situation will shift even more pressure onto scheme governance, with issues such as conflicts of interest and a lack of independently monitored scheme performance threatening to lead to flawed decision-making.

Steven Robinson, head of trustee proposition at HAC, said that the survey demonstrated that most trustee boards were already exhibiting high standards in many areas, but that there was clearly work to be done to "ensure all processes are watertight and leave no room for ambiguity and misinterpretation."

"Ultimately, every trustee wants their pension scheme to be as well run as possible, with the right members receiving the correct benefits on time, and only through sound governance can this goal be achieved," he said.

The survey also found that there is a need for trustees to demonstrate they have effective internal controls, and that many schemes are not fully confident about their processes for converting DC retirement funds into income - with the result that members' pensions could be much lower than they would otherwise be.

- Pensions Age April 2009

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