What are the key themes for DC Governance in 2020 and beyond? TPR has just released its final response to its Future of Trusteeship and Governance consultation. What news does this bring and what are the broader themes at work?

Consolidation – we are all aware that there is a move towards fewer overall DC schemes as some DC schemes move into Master Trust arrangements. Often this is due to the perceived ‘governance burden’ of running a single trust scheme. So, is a move to Master Trust the end of governance duty for sponsors of DC schemes? Not at all – in fact an increasing number of sponsors are establishing Governance Committees to oversee their participation in a Master Trust or GPP arrangement. Such Committees have a great opportunity to focus on governance that really adds value, as they are unconstrained by specific regulatory guidance. These Committees take the best of trustee world and adapt as necessary for their specific corporate objectives around pension provision.

TPR is also on the case with another form of consolidation – that of their guidance into one mega Governance Code! This will be a welcome amalgamation of all the existing guidance and will incorporate their 21^st Century Trusteeship material and eventually, revised guidance on Trustee Training, Knowledge and Skills. This consolidation comes as part of the UK’s implementation of the 2019 IORP II regulation, which demands that all schemes demonstrate an effective system of governance.

Strategic risk management – Demonstrating an effective system of governance means great risk management. Forget the energy-sapping line by line drudgery of the traditional risk register review. Risk is higher on the agenda than ever, with increasing numbers of boards spending time exploring the big risks of our time – climate-change, cyber-risk, pandemics in addition to diving into the really important yet more familiar risks facing DC schemes – poor member outcomes and investment returns, low member engagement.

Professionalisation – TPR’s headline grabbing suggestion that there should be a professional trustee on every board is not proceeding at the moment, but there is no doubt of the direction of travel. As the professional trustee accreditation regimes (yes, there are two) finally get off the ground, there is increased focus on professional governance.

Value for members - a topic here to stay in 2020 and beyond. Whilst the legal definition that trustees must follow is narrowly focused on only what members pay for, a wider conception would recognise the value from what members get without explicit payment: contributions for example, or great governance and enhanced communications. Measurement of value may also start to move to more weight being placed on member outcomes. After all, that is really what matters.

Collective Effectiveness – it is increasingly recognised that it is the collective effectiveness of a governance body that matters. Board diversity is firmly on the agenda, with TPR’s new industry taskforce a welcome move to explore the questions of what a diverse and inclusive board really means and how we can achieve these boards in pensions world. Training and skills, including soft-skills are also firmly in the spotlight. TPR has suggested 15 hours as a guide for lay trustees, which compares to 25 for professionals in the new accreditation regime. And soft-skills are increasingly recognised as vital to a successful board. A board’s annual effectiveness review should encompass both technical and soft-skills, and delve into the board composition issues of our time – how diverse are we? How diverse should we be? Do we need a professional trustee?

2020 is a busy year for Governance, but these themes will continue well beyond this year…

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