Pension governance alarm bells
We were running our new client’s very first pension governance meeting. As we went through the numbers, they became concerned. The company’s contribution levels just didn’t match what they had expected to see.
Alarm bells started to ring. We agreed to look at their contribution levels after the meeting. That was when we discovered that for several years, they’d been deducting employee contributions from gross pay, whereas they should have been deducted from net pay. This had serious implications with regard to the tax relief that had been incorrectly granted.
Luckily, there’s a happy ending. Not only did we identify the problem, but we were able to liaise with HMRC and the pension provider to get things sorted out promptly. But if the error hadn’t been uncovered in that governance meeting, it’s anybody’s guess how long this issue would have carried on.
As I explained last week, regular governance meetings are vital to make sure your pension scheme is well-run – as vital as board meetings for your company, or an audit of your finances.Governance is a crucial mechanism to catch mistakes early and ensure that your pension scheme is delivering the best possible value.
Good pension governance
So what exactly should a good governance meeting cover? And how do you get the most out of it?First of all, make sure the right people are there. As well as HR, you need a good mixture of staff representatives and senior management. This helps ensure that the meetings and action points are taken seriously and that there is a high level of ideas.
Having a good mix of staff in the pension governance meeting also helps improve engagement with pensions throughout your business. We find that employees who attend these meetings feel empowered because they are part of the decision-making process. They then cascade information throughout the company, and when your staff can see that you care about their pension and manage it carefully, they tend to care more, too.
Five questions to consider at every pension governance meeting:
How is your scheme doing?
Don’t just look at the bottom-line figures –consider whether you are getting value-for-money and benchmark against other providers. Most importantly, think about whether the members of your scheme will have enough when they retire!
2. The quality of your scheme
How much are you contributing? How is it structured?
Again, benchmark the quality of what you do against the rest of your sector, as well as against government recommendations. If you want your scheme to attract and retain staff, you can’t fall behind in what you contribute, or let the structure of your scheme become outdated. You need to lead the pack.
3. Marketplace trends
What are the changes in pensions that you need to be aware of? Which new regulations are going to affect you?
Stay up-to-date to avoid getting caught out by the regulator and falling behind your competitors.
How are staff interacting with the scheme? How many people are opting in, and how many are opting out?
This will give you an indication of how valuable they perceive your scheme to be, and therefore whether you are getting the maximum benefit from your investment.
How are you communicating information around pensions to staff? How successful are those efforts?
A couple of weeks ago, I mentioned a company which had painstakingly built a pensions intranet, only to discover that at the end of the first quarter, just three people had logged in. Because this was uncovered relatively quickly at the governance meeting, it meant that immediate action could be taken to get people to the site.
An action plan with concrete steps is all what good governance meetings should include
Pension governance meetings don’t guarantee that mistakes are never made. But they will help ensure that they are caught early. Given the risks involved – fines, reputation, your employees’ future and even your own career – isn’t that worth its weight in gold?
Topics: Pension Governance