Some of the pension scheme shortcomings in the report include:
- 70% of defined benefit schemes have no specified policy to manage conflicts of interest.
- 37% of defined benefit schemes do not review the sponsoring employer’s credit rating or its covenant.
- 20% of all schemes with a main provider of administrative services have no service level agreement with their administrator.
Despite these findings, scheme trustees surveyed expressed high confidence in their board’s governance practices. When asked if their boards performed well in conducting effective negotiations with the employer, managing the scheme’s administration, and identifying potential risks to the scheme, trustees agreeing or strongly agreeing on each issue were 75% or greater.
Additionally, the Pensions Regulator found that better governance was associated with more training, having risk management processes in place, the presence of a professional trustee and a higher frequency of board meetings. Scheme boards whose trustees had advanced training in the past 12 months tended to score better on regularly reviewing the scheme’s investment strategy and reviewing and updating scheme rules.
Particular to defined contribution schemes, those boards whose trustees had advanced training scored better on reviewing the appropriateness of investment fund choices, reviewing investment fund performance, and reviewing fund charges and administrative services for scheme members.
The Pensions Regulator surveyed over 1,200 scheme trustees or key administrators between January and March 2006. The survey report is here .