Is AAF fit for today? What should Trustees be considering?
Is AAF fit for today? What should Trustees be considering? AAF 01/20 reports began appearing
Proportionality vs Pragmatism
A lot of thought has gone into The Pension Regulator’s General Code, 28 March 2024, and Trustees have been looking at how they effectively manage their Effective System of Governance (ESoG).
Once complete, the attention moves to auditing and demonstrating how well the ESoG is working in practice, through a governance and risk management lens, via the Own Risk Assessment (ORA) to ensure better decision making which ultimately leads to better member outcomes. The purpose is to ensure delivery of robust operations aligning policies and processes and identifying key risks to support enhancement of controls. The ORA considers how effectively risk is managed and is not a duplication of the risk register.
It is the responsibility of the Trustee to use their judgment to determine a reasonable and proportionate method of ensuring compliance for their specific scheme. In doing so, the Trustee must appoint a risk management function and produce a written record.
Is The ORA Suitable For All Schemes?
With the earliest ORA due by 31 March 2026, a question we keep getting asked is whether the ORA, as designed, is suitable and proportionate for those unloved smaller schemes or those that are well on the path to buyout. It is important that the Chair, the Trustee and advisers are all part of the General Code journey. What does proportionate mean? It is important that the Trustee considers its journey path and focuses on the risks that are prevalent to the current situation. Determining which risks will have the greatest impact is important when agreeing which areas of the General Code will require greater attention.
It is also important to scope the requirements to ensure the approach is proportionate to the size and nature of the scheme, whilst having a pragmatic approach to where the scheme is in its journey to buyout. Training requirements may be essential to ensure that the Trustee is fully aware of its responsibilities and to agree the risk management function with clear role and responsibilities. Prior preparation and planning is key to make sure that the Trustee has time to complete the assessment and to highlight any gaps against the General Code. Now we reach a pivotable point whereby we need to consider the Trustee’s strategic business plan and agree the key priorities with realistic goals. This step is crucial to manage the assessment in a proportionate manner and test the robustness of the scheme’s governance approach. A health check!
Finally, document the above with a clear audit trail and prepare the Chair’s declaration to evidence the steps taken and why.
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