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.

Aon Hewitt 3

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 jackie.daldorph@aonhewitt.com

Paul McGlone, Partner +44 (0)1727 888 613 paul.mcglone@aonhewitt.com

James Patten, Principal Consultant +44 (0) 113 291 5076 james.patten@aonhewitt.com

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

Karen McWilliam, Principal Consultant +44 (0) 117 929 4001 karen.mcwilliam@aonhewitt.com

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