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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 regulatory
requirements 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 it was ‘Time to focus on getting things done’, presenting
the results of the research we had 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.
At our Pension Conferences, and over the remainder of
2015, we invited pension scheme representatives 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 over 250 responses from a wide range of
pension schemes.
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.
Based on this, in summer 2016, Aon is launching a more
formal self-assessment service for pension schemes,
covering a wider range of issues for both scheme trustees
and sponsors. The ‘Governance Challenge’ is available at
aonhewitt.co.uk/governancechallenge.
In the meantime, this paper contains a summary of the
responses for each of the original 12 statements, together
with some ideas on how to address the underlying issues
behind the headline statistics.
When asked what keeps them awake at night, individuals with responsibility for a DB pension scheme regularly cite issues such as lack of time, resources, knowledge and information. In other words, they worry about their collective ability to make decisions and implement them effectively.
Aon Hewitt 3
The statements and responses in more detail
Decision-making
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% 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 can 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. Three out of five
respondents agreed with the statement that there are frequently
items on agendas that do not need any decision to be taken.
Although some items clearly do need to be reported on
and noted, these should not be dominating meetings to an
extent that genuine decisions cannot be effectively taken.
Moving items into meeting ‘pre-work’ and improving inter-meeting decision-making on more routine items both
channel more of the scarce resources towards the forward-
looking and value-adding agenda items.
Roles and responsibilities
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.
However, while respondents were happy that the right people
were getting involved in making decisions, nearly two-thirds1
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.
It was also interesting that 57% of respondents felt
that individuals focus their time on agenda items
that they find most interesting rather than those that
are key priorities. While that is clearly not surprising,
effective governance is about focusing time on the
most complex, important and high risk issues, not
just those which happen to be most interesting.
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. A key
component of this is avoiding unnecessary steps and ensuring
that actions are taken by people with the right skill set.
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% 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
This section considers in more detail the 12 statements we posed to our conference delegates and provides some ideas on how schemes might improve their operational effectiveness.
The statements fall quite naturally into four related areas — how decisions are made, roles and responsibilities, strategy 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
1 Includes Strongly Agree, Agree and Slightly Agree.
4 Time to Focus on Getting Things Done: Delivering Pensions Stability faster
thing impeding their ability to make the best decisions
in connection with their pension scheme. A related
concern, ‘the ability to act quickly’ was third on the
list, again fitting with the responses above.
67% of trustee boards currently meet quarterly2; even
so, such meetings are unlikely to be sufficiently frequent
to respond quickly enough to time-critical matters.
We chose the example of the buyout market becoming
10% cheaper to test this further, and asked whether
delegates would know about this if the opportunity arose
in practice. Only 3% strongly agreed that they would.
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 and the time spent at meetings is focused
on the areas that will deliver the greatest value.
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.
Strategy
An item that arguably should be first rather than last on
our list is strategy. But in our experience strategy is too
often left until last because day-to-day matters are so
time consuming. It is often only once the trustee board
is being efficient that they can find the time to evolve
their trustee meetings to focus more of their time on
the strategic direction of their pension scheme.
Such strategic attention would clearly be valuable to many
schemes, as around a third of our respondents felt that they do
not have a strategically-focused business plan for their scheme.
A greater proportion, around 48%, felt that they had
no operational plan, covering how the governance
of the scheme would develop over time.
As a first action, we strongly encourage all schemes to
develop a proper business plan if they don't already
have one. If you've attended our 2016 conferences then a
sample was available to take away. If you didn't attend and
would like our sample business plan, please get in touch.
Possible solutions
Based on our research and experience, most schemes
could operate more efficiently, ensuring they get the
time to focus on the areas they want. Some solutions
have been outlined in the previous sections, but the
optimal solution for each scheme will be different. Our
2016 ‘Governance Challenge’ explores these issues in more
detail, but as starting point we suggest that trustees
consider 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 getting busy and getting 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, eg,
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, but with just this small change we
believe there are advantages in a range of areas:
• decision-making improves because boards have more
time to spend on the most important decisions
• roles and responsibilities are clearer, with better
division of tasks
• time is created for dealing with opportunities on a
more timely basis
• the rigour of considering how to deal with each item results in
a greater focus on strategy, and what is crucial to the scheme.
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.
Alternatively, take our "Governance Challenge"
at aonhewitt.co.uk/governancechallenge
2Reference: Accompanying report on the 2014 (eighth) Scheme Governance Survey, The Pensions Regulator, DB schemes with over 100 members.
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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
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 frequently items on agendas that do not need any decision to be taken
Strongly agree
Agree
Slightly agree
Slightly disagree
Disagree
Strongly disagree
Roles and responsibilities
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 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 35
0 5 10 15 20 25 30
0 5 10 15 20 25 30
6 Time to Focus on Getting Things Done: Delivering Pensions Stability faster
Opportunities
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
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
Strategy
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
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
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
0 5 10 15 20 25 30 35
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
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.
Paul McGlone Partner +44 (0)1727 888 613 [email protected]
Susan Hoare Principal Consultant +44 (0) 117 900 4441 [email protected]
Aon Hewitt empowers organisations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organisational and personal performance and growth, navigate risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is a global leader in human resource
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