Time to Focus on Getting Things DoneDelivering Pensions Stability faster

Aon HewittRetirement and Investment Solutions

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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.

Aon Hewitt 5

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 paul.mcglone@aonhewitt.com

Susan Hoare Principal Consultant +44 (0) 117 900 4441 susan.hoare@aonhewitt.com

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

solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit: aonhewitt.com

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