Addressing the Risks of Lack of Succession Planning in Pension Schemes

Safeguarding pensions management

Succession planning is an uncomfortable discussion to have, nevertheless it is needed now more than ever. With the Pensions Dashboard, possible pension pot for life, Life Time Allowance ( LTA) being abolished and the continuous requirement for an Effective System of Governance (ESOG) knocking on our doors, you can’t afford not to have a strong Pension Management Team.  

Ensuring the pensions team is adequately resourced is a critical conversation that employers and trustee boards must have to safeguard the continuity and effectiveness of pension management.  

The widening gap in knowledge between pension managers and their staff, compounded by a lack of experience in managing teams and overseeing scheme governance, poses significant risks that cannot be ignored. 

With staff coming and going you are left with the wider head of department, possibly finance or human resources left scratching their heads, as they are unsure what they need to do to protect the members of the scheme.  

Why does this happen? 

Team members are directed to focus on day-to-day firefighting rather than getting them involved in strategic decision-making. Often, only one person holds a key role, with little sharing of knowledge or delegation of responsibilities. Short term thinking creates long term problems. 

In my experience this reluctance to empower others with essential skills and insights needed to run a pension scheme effectively, stems from the fear of losing control or job security. 

What are the risks?  

The consequences of this scenario are dire.  

Without proper succession planning and in the event the sole knowledgeable individual becomes burnt out or leaves unexpectedly, the pension scheme can be left vulnerable and exposed. The risk of disruption to essential services looms large, potentially jeopardizing the financial security of scheme members. It can create an atmosphere of fear and quick fix problems may be applied. You might as well apply a band aid to a broken arm.  

A recipe for disaster 

In essence, relying solely on one individual without a contingency plan is akin to inviting disaster. Fortunately, there are proactive steps that can be taken to mitigate these risks and ensure the continuity of pension scheme operations. 

Implementing Solutions 

• Effective System of Governance (ESOG)
  Establishing a robust system of governance is paramount. This includes succession planning for key senior roles, trustee board members, and service providers to mitigate the risk of knowledge gaps. 

• Comprehensive Risk Register
  Maintain and regularly review a detailed risk register during trustee meetings. This ensures the availability of emergency plans and long-term solutions in the event of unexpected staff turnover. Share this risk register with the employer and have meaningful discussions to ensure risks are mitigated.  

• Awareness of the team structure
  Do not rely on one senior member of staff providing information out of the “pensions team”. Be aware of all the qualifications, responsibilities and experience of the pensions team. Ensure staff strengths are utilised to make the team more effective. Listen to your administration staff – they are the experts on where the gaps are.  

• Knowledge Sharing
  Foster a culture of knowledge sharing within the team. Rotate staff members to participate in trustee meetings to broaden their understanding of scheme governance and decision-making processes. Ensure the team are part of the solution making. If you invest in your team, they will invest in the organisation.  

• Continuous Training
  Ensure trustee training is up-to-date and comprehensive. Have more than one subject matter expert for each subcommittee, if necessary, to distribute knowledge and responsibilities. Ensure the pension team is also continuing with training, qualifications and maintaining up to date knowledge. Pensions is everchanging, do not assume what your staff knew five years ago is relevant in today’s market.  

• Consultation with Advisers
  Regularly check in with all advisers to ensure they have risk registers in place to mitigate service disruption due to staff turnover. Ensure you are not complacent with advisers that are already set up, check the market and ensure you are receiving an effective service and competitive prices. If the pensions manager and trustee board are not actively questioning things, no changes will be made. 

• Outsourcing Arrangements
  Consider outsourcing arrangements for interim and long-term solutions if in-house resources are insufficient. Outsourcing isn’t just about administration; it can also be a strategic tool for effective pensions management and scheme governance. Having a check in with an outside organisation is crucial to ensure perspective when making decisions. By creating this back up team you are making sure your current pension manager is not being complacent and just ”checking their own homework”. 

Securing your pension scheme continuity

In today’s dynamic and evolving landscape, effective succession planning is not a luxury but a necessity for pension schemes. By proactively addressing knowledge gaps, implementing robust governance structures, and fostering a culture of collaboration and knowledge sharing, pension schemes can safeguard against potential disruptions and ensure the long-term financial security of their members. 

At Dalriada Trustees we can be the helping hand that is needed to ensure organisations are fully equipped to manage day to day objectives as well as any upcoming legislation changes.