· Features

Should employers disband their pension governance committees?

If you are an employer with a contract-based DC pension scheme, the chances are that you will have set up a governance committee to help run and manage it.

The committee may be similar to a trustee board, with a formal structure and terms of reference, meeting regularly throughout the year. This is not a legal requirement, but is good practice.

With providers of contract-based pension schemes establishing independent governance committees (IGCs), employers may be considering disbanding their existing pension governance committees. After all, if matters are being dealt with 'higher up', why would an individual employer need to continue with its own committee given the management time and resources it takes to run such a thing? Isn’t that just doubling the amount of governance involved?

It is worth stepping back before reaching such a conclusion as it could be a big mistake.  

The world of IGCs is still an uncertain place, which will take some time to establish itself. At the same time, there are so many changes happening with new flexible retirement options and products available in the marketplace.

Having already established a governance committee, it could be a false economy to withdraw it, at least for the time being. If nothing else, it makes sense to offer some form of continuity and stability for employees in the short term. 

Beyond that, there are at least three good practical reasons to keep the committee in place:

1. Monitoring suitability

An IGC will monitor the value for money offered by the pension scheme provider at a group level. However, the IGC will not be looking at whether the scheme remains suitable for each individual employer. Someone within the organisation will need to do that – for practical and commercial reasons – to make sure the pension vehicle remains appropriate for its employees. 

2. Managing the provider relationship

An employer will still need to monitor day-to-day standards of administration, communications and charges at an individual employer level, and manage the relationship with the provider. It makes sense for an experienced governance committee to carry on doing that, at least while the role of an IGC is still evolving. In the absence of a pension governance committee, it is likely this would fall to the employer’s HR team, who may not have the time or resources to deal with such matters.

3. Forum for member involvement

A governance committee is a useful forum for gathering details of member experience, allowing engagement between the employer and its employees regarding the pension scheme on offer. Without a governance committee, this channel of communication could be lost, with detrimental impact on employee relations.  

Employers should think twice before rushing to disband what may be a helpful way of managing pension issues, even beyond April 2015.

Helen Ball is head of the DC team at specialist pension law firm Sacker and Partners