Two-thirds (65%) of pension schemes think the Pensions Regulator’s new single Code of Practice will lead to major changes in scheme governance processes over the next two years, according to Willis Towers Watson’s (WTW) latest Trustee DB Governance Survey.

The Regulator’s new Code requires schemes with 100 or more members to follow new risk, governance, and effectiveness practices. The Regulator says the new code is “largely a consolidation and re-presentation of the existing codes it replaces”. 

It says: “The governance regulations have given us a much greater scope to set expectations around behaviours of running pension schemes.” 

However, nearly two-thirds of schemes polled by WTW said the new code will require substantial time and resource to be compliant, while less than a quarter (22%) think the new requirements will add value to their scheme’s governance.

Nonetheless, the study shows that only 13% have carried out any analysis to discover where the gaps are in their scheme governance, while most are still planning or considering a gap analysis.

Jenny Gibbons, Pensions Governance Lead, WTW, said: “It’s clear that pension schemes are concerned about the time and resource that could be involved in meeting the requirements of the Code. However, of the schemes that have undertaken a gap analysis so far, we are seeing that many have realised that their current governance framework is closer to the level required by the Code than they first thought.”

Still, Gibbons said the research highlights the urgency for pension schemes to identify their governance strengths and weaknesses “sooner rather than later” in order to meet the new requirements.

WTW’s survey found trustee board chairs spend an average of 53 hours a year on governance-related activity, while chairs of sub-committees spend an average of 47 hours and regular trustees 37 hours. However, the amount of time spent on governance varies depending on the size of the scheme.

The expanding role of the trustee is also making it harder to fill vacant trustee roles, with 62% of those surveyed saying recruitment of trustees was more difficult now.

Diversity of trustee boards is also a challenge for the pensions industry. Just a quarter of schemes said they had actively promoted the role of trustee as a career development opportunity in order to encourage applicants from a broader range of backgrounds, an increase from the 14% last year.

To boost trustee recruitment, half of respondents said lay trustees should be paid for the increasing time commitment required. Currently it is less frequent for anyone other than Independent Professional Trustees (IPTs) to be paid for their time. The number of IPTs is expected to rise in the next two years due to the new requirements.

Gibbons said: “Remunerating more trustees for the time they spend on their duties could be one of the most effective ways to open up opportunities to a broader, and larger, base of applicants who would not otherwise be able to make the commitment. The increasing professionalisation of trustees’ roles is evident as more schemes appoint IPTs, so extending some payment to all trustees could benefit scheme governance in the long term.”

WTW’s Trustee DB Governance Survey 2022 surveyed nearly 200 trustees and pension managers of defined benefit pension schemes in the first quarter of 2022.