Only half of trustee boards conduct governance reviews

In a report published on Tuesday — which included a survey of 172 trustees and pension managers of DB schemes — the consultancy concluded that just over a quarter (29 per cent) of trustees use some form of external validation, which soon could be the norm.

In March, the Pensions Regulator published a consultation on its new code of practice, which combines 10 of the 15 existing codes of practice into one web-based document. 

Among a raft of new requirements around climate change, stewardship, investment and administration, there were also new duties when it comes to governance.

If the current proposal goes ahead, the watchdog was expected to require all schemes with 100 or more members to carry out an assessment of their risk, governance and effectiveness practices, at least annually.

It will also require schemes to appoint an independent reviewer of their governance and risk management practices, WTW stated.

Jenny Gibbons, pensions governance lead at Willis Towers Watson, noted that “reviewing the effectiveness of your trustee board and wider governance is a journey that’s well worth travelling”.

She said: “We know that better governance leads to better outcomes — for schemes, sponsors and members — and it is better to start this process now, rather than wait for the combined code to make it mandatory.”

The WTW survey also showed that independent professional trustees have an important impact in improving governance and effective decision making. Some 73 per cent of respondents said the role of trustee has significantly more risk attached to it now, and 65 per cent said their role as trustee has become more difficult.

Gibbons said: “It is clear that the presence of an independent professional trustee reduces other trustees’ concerns about the complexity and risk of running DB and defined contribution schemes due to their expertise and knowledge of other schemes and market practices.”