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Time to focus on getting things doneDelivering Pensions Stability faster
Aon HewittRetirement and Investment Solutions
Risk. Reinsurance. Human Resources.
2 Time to focus on getting things done: Delivering Pensions Stability faster
Time to focus on getting things doneDelivering Pensions Stability faster
Such concerns are understandable — the number of
issues facing pension schemes continues to expand, the
requirements of regulators continue to grow, and making
the right decisions gets increasingly important as defined
benefit schemes mature and become less able to bounce
back from set-backs.
As part of our 2015 Pension Conference series we spotlighted
that this is the ‘Time to focus on getting things done’, presenting
the results of the research we have carried out into pension
scheme governance and successful delivery models. We
considered how a pension scheme should be organised in
order to get the best possible chance of carrying out the tasks
necessary to reach Pensions Stability.
We concluded that this meant ensuring a few things:
• that the right decisions and actions are taken and that they
happen at the right time;
• that the right people make those decisions and take those
actions (that they have the right skills to do so, and that
they would not be better done by others);
• that the right information and advice is available to feed
into that process; and
• that all of the above is focused on getting the right results
in line with the long term objective, for instance, of
achieving Pensions Stability.
For many schemes the need for change is compelling. They
recognise that making changes to their decision-making
process now could have a real and long-lasting impact on the
issues that their scheme is facing.
Over the course of our 2015 Pension Conference series, we
invited our delegates to consider the extent to which they
agreed with 12 ‘self-assessment’ statements to evaluate where
they currently stand in relation to some of the issues described
above. We were pleased to receive around 200 responses from
a wide range of pension schemes. Thank you to everyone who
took the time to do this.
The responses to these statements revealed the following
standout statistics:
• Less than a third had a business plan with SMART (Specific,
Measurable, Achievable, Realistic and Time-bound)
objectives and a strategic focus for their pension scheme;
• Almost half said that they often find themselves discussing
the same issues at multiple meetings, resulting in delays
of months between opportunities being raised, decisions
being made and ideas being implemented; and
• Around 40% indicated that they would not be able to
consider new opportunities at short notice — for example,
nearly two out of three respondents acknowledged that
they would not be able to take advantage of attractive
short-term buyout prices.
This paper contains a summary of the responses for each
of the 12 statements together with some ideas on how to
address the underlying issues behind the headline statistics.
If you have not yet responded to the statements and would value an analysis of your scheme’s responses, benchmarked against others, then please visit aon.com\governancesurvey
When asked what keeps them awake at night, individuals with responsibility for a pension scheme regularly cite issues such as lack of time, resources, knowledge and information. In other words, they worry about their collective ability to be able to make decisions and implement them effectively.
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The statements and responses in more detail
Decision-making
These statements focus on schemes’ ability to make the
right decisions at the right time. Of all 12 statements, the
one which received the highest level of agreement was the
length of time it takes to make decisions, with nearly 70%2 of
respondents agreeing that decisions sometimes take months
from being raised to being implemented. In addition, well over
half of our respondents felt that the same issues are discussed at
multiple meetings.
In an environment where opportunities can be transient,
particularly in the investment and risk settlement markets,
delays and indecision can lead to missed opportunities,
resulting in an increase in the journey time to full funding and
the risks that schemes continue to face along the way.
What is causing these delays and how might schemes
improve? The chart below shows the time spent on various
items at a typical trustees’ meeting:
As you will see, the majority of the time is spent reviewing
things that have already happened and information already
provided, carrying out training and formalities, and thus there
is little time for strategic value add items.
Based on our research and experience most schemes could
operate more efficiently, ensuring they get the time to focus
on the areas they want under a combination of three delivery
models, which we’ve called ‘Get Busy’, ‘Get Simple’ and
‘Get Help’.
Get Busy is where the stakeholders do just that – they
have and dedicate the time to get busy and get involved in
everything from decision making, to day to day operations.
They have the knowledge to devote to the task. They have
the right people to be involved at all levels .
Get Simple is where the stakeholders agree to run a
deliberately simplified model. It is simple to run, and
probably has a lower running cost, but it may not be optimal
– either because it misses some opportunities or it leaves
financial risk or the possibility for misunderstanding.
Get Help is where the stakeholders outsource some or part
of the delivery for someone else (with the appropriate skills
and resources) to run, taking the strategic direction set by
the trustees and sponsor through into implementation. It is
intended to ensure that the scheme can benefit from all the
opportunities available, but without the stakeholders, e.g.
trustees, having to ‘Get Busy’.
No trustee board or corporate pensions team will be likely to
operate under any one model for every single process – in
practice there will be a mix whereby certain things have the
time devoted to them, some are simplified and others are
delegated. Getting the right overall delivery model is about
getting the right mix of these approaches.
This section considers the 12 statements we posed to our conference delegates in more detail and provides some ideas on how schemes might improve their operational effectiveness.
The statements fall quite naturally into two related areas — how decisions are made and how opportunities are managed.
Hou
rs
Meetingend
Meetingstart
Formal opening/apologies/minutes etc
Funding level/fundperformance review
Administration, member comms and special exercise reporting
Employer covenant reporting and PPF levies
Operational eg budgets, risk register, audit
Training
Latest legislative change
‘Comfort breaks’
Periodic projects egvaluation factors
Strategic decisions
5
4
3
2
1
0
6
4 Time to focus on getting things done: Delivering Pensions Stability faster
Turning back to the 12 statements, it was pleasing to see that
the majority of respondents agreed with the statement that
the people making decisions and taking actions are always those
who are most likely to get the best outcome. 67% of trustee
boards currently meet quarterly1, even so, such meetings are
unlikely to be sufficiently frequent to respond quickly enough
to time-critical matters.
The implication is that trustees are likely to have to settle for
sub-optimal outcomes, unless there is an agreed way of picking
up time-critical items between meetings (through ‘Getting
Busy’ or ‘Getting Help’) and the time spent at meetings is
focused on the areas that will deliver the greatest value.
While respondents were happy that the right people
were getting involved in making decisions, nearly two-thirds2
of respondents felt that decisions and actions touch more people
than necessary, including people who do not contribute much to the
decision. This apparent contradiction highlights a possible feeling
of inefficiency within the current decision-making process.
Our thought piece titled ‘Governance: Delivering Pensions
Stability Faster’ includes suggestions on how to improve scheme
efficiency and deliver better governance through reviewing
individual pension scheme processes.
Once the trustee board is comfortable that they are making
efficient decisions, they are ready to evolve their trustee
meetings to focus more of their time on the strategic direction
of their pension scheme, as indicated in the graphic below:
Agendas can be freed by removing items which do not
require a decision, and reporting on processes via exception
rather than as the rule. There is clearly significant scope to do
so as three out of five respondents either agreed or strongly
agreed that there are frequently items on agendas that do not
need any decision to be taken.
Moving items into meeting ‘pre-work’ and improving
inter-meeting decision-making on more routine items will
also channel more of the scarce resources towards the
forward-looking and value-adding agenda items. Such
strategic attention would be valuable to around a third of our
respondents who felt that they do not have a strategically-
focused business plan for their scheme.
Managing opportunities
The vast majority of pension scheme stakeholders will
be familiar with the concept of a risk register, but few
registers include the risk of missing an opportunity.
Over 60%2 of respondents agreed that it is often difficult
to find enough time at short notice to appropriately consider
new opportunities — this is consistent with the message
which came from Aon Hewitt’s 2015 Global Pension Risk
Survey, where respondents cited ‘lack of time’ as the biggest
thing impeding their ability to make the best decisions in
connection with their pension scheme. A related concern,
‘the ability to act quickly’ was also third on the list, again
fitting with the responses above. These responses imply
that a ‘Get Busy’ approach might not be achievable
without diverting more resources towards the scheme.
Creating and maintaining an equivalent register of
opportunities could add value for those schemes that do
not have such a process in place now. Such a tool enables
stakeholders to quickly review the range of ideas available
and identify those which could add the most value. It
also provides a mechanism for periodically reconsidering
ideas that were previously rejected — something that
nearly half of our respondents do not currently do.
Could your current structure lead you to miss out on
an opportunity that would benefit the scheme? We
chose the example of the buyout market becoming 10%
cheaper two days ago, and asked whether delegates
would know about this if the opportunity arose in
practice. Only 3% strongly agreed that they would!
The legacy of today’s trustees should not just be the financial state in which they leave their scheme. It should also include the governance structure that they leave behind — a delivery model that can meet the challenges of the pensions environment, now and in the future.
If this paper has led you to consider how your operational framework might be improved to benefit your scheme and its members, we would be happy to discuss this with you.
Hou
rs
Meetingend
Meetingstart
‘Just in time’ training
Strategic decisionsProgress against business plan
Issues requiring decision by the trustee
Issues raised by individual trustees
‘Comfort breaks’
5
4
3
2
1
0
6
1Reference: Accompanying report on the 2014 (eighth) Scheme Governance Survey, The Pensions Regulator, DB schemes with over 100 members.2Includes Strongly Agree, Agree and Slightly Agree.
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Summary of responsesThe following 12 statements provide an indicate of effective governance and decision making.In each chart the extreme positions are indicated by blue (good) and black (bad).
Decisions sometimes take months, from the point they are initially raised to the point that a final decision is made and implementation commences
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
We often discuss the same issue at a number of meetings, either because a decision was not reached the first time or new information is to be considered
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
There are so many things that need to be on a meeting agenda, that it is often difficult to find enough time at short notice to appropriately consider new opportunities without reducing time on (or deferring) other essential items
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
There are frequently items on agendas that do not need any decision to be taken
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
Projects that we would like to undertake sometimes get deferred because there is not sufficient resource (people and/or money) to deal with them
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
When ideas are rejected, we have a robust process for reconsidering those issues in the future
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
0 10 20 30 40 50 0 10 20 30 40 50
0 5 10 15 20 25 30 35 0 5 10 15 20 25 30
0 5 10 15 20 25 30 35 0 5 10 15 20 25 30
6 Time to focus on getting things done: Delivering Pensions Stability faster
We have a one year business plan for the pension scheme that has SMART objectives, is more than just a calendar of tasks and meetings and has a strategic focus
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
If the buyout market became 10% cheaper 2 days ago and represented a strong opportunity for our scheme then we would know about it by now
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
We have an operational plan that sits alongside our funding plan, and describes how the governance structure of the scheme will change and remain aligned over time
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
The people making decisions and taking actions are always those who are most likely to get the best outcome, have sufficient time available to act quickly (when appropriate) and are most cost efficient
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
Decisions and actions sometimes touch more people than is really necessary (including trustees, employer and advisers), including people who don’t contribute much to the decision
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
Individuals often focus their time on the agenda items that they find most interesting and not necessarily because they are key priorities
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35
0 10 20 30 40 50 0 5 10 15 20 25 30
0 5 10 15 20 25 30 35 0 5 10 15 20 25 30
ContactsFor more information on the results of our research into the spectrum of effective delivery models, and insight into the range of behavioural biases which can lead to sub-optimal decision-making, then please see our thought piece, ‘Governance: Delivering Pensions Stability Faster.’ For a copy, contact your usual Aon Hewitt representative or any of the individuals listed below.
Jackie Daldorph, Senior Partner +44 (0)1727 888 225 [email protected]
Paul McGlone, Partner +44 (0)1727 888 613 [email protected]
James Patten, Principal Consultant +44 (0) 113 291 5076 [email protected]
Susan Hoare, Principal Consultant +44 (0) 117 900 4441 [email protected]
Karen McWilliam, Principal Consultant +44 (0) 117 929 4001 [email protected]
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