A new year, a new decade with lots more change for trustees to stay on top of, as all the roundups show. 

Here are five governance tips to help trustees navigate in 2020. The headings may be reassuringly familiar themes to some readers. These will help trustees manage governance issues in play this year, whilst a more focused TPR works with a single code of practice and we await a final Pension Schemes Bill.

1.    Confirm where you are going and the likely route to get there

Whether DB or DC the trustees need a strategic plan with objectives for how required outcomes will be achieved, with as much clarity as possible on the sponsor’s position via-a-vis the scheme, and timescales. 
Aspects for 2020 include: 

• End game plans; the DB funding target; investment flight planning, roles; ESG and stewardship; 
• Sustainability vs insurer, consolidator, sole trustee, master trust models; Brexit covenant impact;
• Governance, member journeys, member experience, member outcomes and value all need objectives in the plan.

2.    Stay attuned to the major risks, changes and scenarios that could knock the Trustee’s plan off course 

Paying effective board attention to risk is vital. Two aspects for 2020 are: 

• An Own Risk Assessment and a strong risk and controls framework, with independent assurance, are 2020 highlights to meet IORP’s II requirements which will be brought into the new Code; 
• Time spent on contingency planning (e.g. covenant, data loss, other operational scenarios) helps trustees consider how risks can escalate and combine, the board-level risk dashboard needed. 

3.    Engage, engage, engage

• The new Codes and legislation mean there will be ever more to engage on with the sponsoring employer, members, TPR 
• And for many schemes a wider range of advisers and service providers, such as internal audit, covenant, derisking, member communications, DC, fiduciary management, fiduciary oversight…

4.    Develop the plan for people, resources, skills and roles 

• TPR is focusing on trustee effectiveness, fitness for role, skills and training, succession and appointments, board diversity and refreshment, professional roles and accreditation and sole trustee fitness. Have you got a plan, are you engaging on it; have you reviewed effectiveness…
• Linking to contingencies and delegations a key person plan is needed for those in the main supporting, advisory and service provider roles; current guidance anticipates this in the Code.

5.    Spend more time on what’s most important, and vice versa – decide what else to delegate, where

• Linking to points above, trustee boards will again need to review their ways of working, how time is used in meetings, and if additional dates are needed e.g. strategy review, investment, training.
• More delegation (without abrogation), committees or working groups may be relevant e.g. fiduciary management; an audit and risk committee. 
• Timed agendas to focus on ‘move the dial’ items; co-ordinated adviser papers; clear reports on delegated work; timely packs with detail housed separately; clear cover papers, timely minutes and follow up; these are all elements that make a difference. It’s worth the effort in 2020.

"How do we know?"

This is a question we hear repeatedly from trustees - How do we know that we’re heading in the right direction? How do we know that the wheels aren’t about to fall off? How do we know that work is being done as it should be? How do we know that those we rely on for outsourced services are managing risk as we expect them to?

What prompts these questions? Sometimes objectives haven’t been clearly articulated and nobody understands the risks that might prevent objectives being achieved. Sometimes roles, responsibilities and delegations are poorly defined and trustees don’t know who is doing what. Often they are asked because reporting isn’t effective and trustees aren’t getting the right information.
It’s the trustees’ responsibility to manage risks and understand the effectiveness of their internal controls, so it is important that they know how to find the answers to these questions.

So where do you start?

1.    Set clear objectives and a strategy to achieve them. It’s difficult to get assurance and comfort that you’re exercising your oversight responsibilities effectively without a clear idea of where you are heading and why. 
With the requirement on schemes to set strategic objectives for their investment adviser by 10 December 2019 and a long-term funding target consistent with achieving the objective of paying promised benefits to members, there’s really no way to avoid thinking about objectives.

2.    Consider what might prevent you from getting there - your strategic risks – and those risks that might impact you, e.g. reputational, compliance risks. This clarity can also help you determine how much risk you are prepared to take to get there: your risk appetite.

3.    Agree the risks that the Board will manage and those that will be owned by others in the governance structure. Lack of clarity over who owns which risks and controls often stems from a prevailing lack of clarity on where responsibilities and delegations lie within scheme operations.  
It is this clarity around what’s important, what a good operating state looks like and knowing when issues are arising, that engenders trust and enables the pensions team to provide the necessary assurance that risks are being managed in a way that supports the objectives. 

4.    Define your reporting. Knowing the material risks helps define how focused and targeted it should be. This will help you make the right decisions and prioritise effectively, whilst avoiding distraction by the detail of trivial issues. 
Good reporting is essential to enable effective stewardship of a scheme. This is particularly relevant with outsourced providers and being able to hold them to account, knowing that they have robust controls in place. 

Armed with a clear understanding of what you’re trying to achieve and how, the risks that might derail you, knowing who is doing what and the risks they own and receiving the right information at the right time will better equip you to know the answers when the ‘how do we know’ question is next asked.