Terry Ritchie looks at the demands placed on trustees and the risks that can be overlooked, particularly in the face of auto-enrolment

The introduction of auto-enrolment is going to make the job of administering a pension scheme more complicated, time consuming and demanding. For trustees, that is going to mean that they become ever-more reliant on their pension scheme administrators to help them run and manage the scheme.

Trustees will use their professional advisers to help them with complex decisions and as we are aware, some advisers are non-negotiable i.e. the scheme actuary in a defined benefit scheme. Then there is the scheme administrator, either in-house or a third party, who will undertake the day-to-day activities and ensure that returns are made to The Pension Regulator and the HMRC. There is also the scheme secretarial role which should not be under-played. The questions are, who undertakes this role, but more importantly, who else can help the trustees apart from the normal professional advisers?

The trustee secretary role can be performed by most people but, normally it could be the pensions manager, a consultant or the pension scheme administrator. The common theme is that they may have an involvement with the pension scheme. Clearly this can be good but there is no independence.

Trustee secretary
Many trustees are now appointing an independent trustee secretary who will solely focus on this role. Like pension scheme administration, if it is done well the running of the scheme will be a lot easier. Having an independent trustee secretary means that there is focus on the duties to be performed, there is no blurring of roles and it makes life easier if you want to change advisers. The only caveat to this would be that an independent trustee firm could also perform the trustee secretarial role and also bring the independence to the party. Unlike a consultant or a pension manager, they are detached by their nature that they are there to help the trustee understand the issues and bring the benefit of their experience. That is not to say, that neither the consultant or pensions manger would not bring expertise but the crucial difference is that they are looking at specific aspects of the scheme whereby the independent trustee is looking at the whole picture. Equally, a good trustee secretary needs to be independent, focused and not get involved in every aspect; I guess that they are there as the pilot of a ship helping the captain (trustees) dock the ship because they have good knowledge, need to be accurate, organised and up to date.

The role that the trustee secretary undertakes includes preparation for and management of meetings, ensuring that the trustees meet compliance requirements and maintain excellent governance, assisting with scheme communication and dealing with statutory reporting and assisting the trustees with their work.

Independent trustee
An independent trustee brings knowledge, guidance and experience to a board of trustees. The pension arena is becoming more complicated, precise and wide reaching and therefore, professional guidance on all aspects of running the pension scheme is vital. Independent trustees are normally current or former pension professionals with many years of experience and knowledge. By using this expertise, a independent trustee can help the trustees to run the scheme effectively and meet all legislative requirements. In addition, the experience is particularly helpful when considering an issue which requires a decision and the independent trustee can save time by liaising with the professional adviser.

Also, an independent trustee and an independent trustee secretary can build up specific knowledge of the scheme and ensure that procedures are fully documented so reduce key person risk.

Key person risk – the silent risk
If the scheme has a pension manager or in-house administration team then there is the potential for key person(s) risk because of the knowledge held in people’s heads. With the introduction of auto-enrolment, this risk becomes far more acute as trustees seek to rely even more heavily on that pensions manager, who will themselves be grappling with running a new pension scheme, often with a new provider, and handling much larger numbers of participants than previously experienced. During what will clearly be a stressful period, the value of this person to trustees will increase several fold – but so will the silent risk associated with relying too heavily on any one individual. As trustees receive excellent service from the pensions manager and or in-house pensions administrator, trustees are not alarmed by the huge changes coming into force. However, people do retire, leave the organisation, if lucky, win the lottery or, if unlucky, meet that red bus on a Monday morning! If this happens, then, if procedures and processes are not fully documented, then that knowledge is lost and the trustees can face an uphill battle to maintain the service quality provided to members.

Sitting comfortably
If you are one of the lucky trustees whereby all of the scheme procedures and processes have been documented, then great news. However, don’t get too complacent, because have the procedures been updated? When were they last checked? And were they checked back to the scheme rules? These are just some of the questions that you may want to ask. Also, are your procedures effective and efficient? Is there too much reliance on manual processes when matters could be automated? Remember, you will have a risk register and this is another risk that needs to be managed but it is an area that is often overlooked.

If things are not in order, it could lead you to making inconsistent decisions, incorrect benefits being paid and this leads to a poor member experience. As trustees you have enough to contend with, so these issues do not help.

So what can be done?
The first thing that needs to be done is that the trustees and the pensions manager or in-house administrator needs to sit down and acknowledge that there is a problem – especially the trustees. This is vital otherwise progress will not be made. Then determine what you do have in place and check if the documents are up to date and they are adequate and fit for purpose. Once you have established all of this then you need to draw up a detailed project plan.

Apart from documenting procedures, you may need process maps, calculation proforma, a review of standard letters and documents and don’t forget the need to get your scheme data in order. It is all about data, data, and data!

Once you have captured the procedures and processes you should undertake a top down review to determine whether the procedure or process is efficient and if not, put a plan in place to address the issues. This review process should be an ongoing task to review and maintain the effectiveness and efficiency.

This work cannot impinge on the day to day running of the scheme, so you will need outside help to do the work and manage the project. Auto-enrolment is potentially going to add complexity, time and cost to managing the pension scheme. The independent trustee and independent trustee secretary may well be a good starting point.

Written by Terry Ritchie, manager of trustee solutions at Pinsent Masons

Share Story: