Pensions are in a state of flux throughout Europe. Governments, media, company boardrooms, trade unions and employees all agree. Healthy dialogue is essential between all parties in today's more transparent pensions environment. Governing boards and company boards have increased responsibilities and risks, and are under increased scrutiny from stakeholders. There is renewed focus on pension fund risks and how a high-quality system of controls should be an integral part of effective pension fund governance. 

Many of the changes over the years have been to increase legislation. On the face of it, some of these changes provide a strong foundation where pensions are secure and valuable to members, but the reality is that many defined benefit pension funds have been forced to close to new participants. Sometimes, well-intentioned and necessary changes have been counter-productive.

The increasing complexities of the present systems of regulation, supervision and governance must give way to a more dynamic approach.

Attention has focused on governing boards and their ability to manage pension funds. Some commentators have questioned whether ‘non-professional' governing boards can continue to contribute positively to governance in an era of increasing investment complexity and uncertainty, the challenge of funding requirements, and continuous regulatory challenges.

Against the background of challenge and change, some major concerns have emerged:

What exactly is pension fund governance? The fiduciary responsibility of  the fund's governing board and the company; Pensions from the company perspective; Regulation and supervision; The experience and qualifications  of governing boards; The need for workable and representative governance processes and internal controls; Is there an ideal structure? Protecting members of governing boards; Is there the necessary will for change? How can pension fund stakeholders co-operate together in discussing and determining new governance models for the future?

In addressing these concerns, first and foremost, pension fund governance principles and practices need re-balancing.

The move towards greater transparency has put the actions of governing boards firmly into the spotlight and pensions onto the boardroom agenda. Many companies are now looking to limit the potential risk associated with their pension funds. And there is an increasing cultural shift from defined benefit to define contribution funds.

The role of governing boards has expanded significantly over the years. Choosing the right people to be appointed to governing boards is crucial.

With the changing regulatory environment, the increased complexity of capital markets and the requirement to generate higher returns to meet pension liabilities, there are even more pressures on sponsors.

As a result, many companies and their pension funds are suggesting that there is a need for structural changes to pension fund governance systems as a means of addressing these issues.

A number of principal recommendations could point the way to a major rebalancing:

A new governance model that will involve lay representatives and professionals; A guidance and assessment procedure to ensure that the individuals involved are fully aware of their responsibilities, and fund members and companies are satisfied that high governance standards are achieved; A European-wide initiative to help determine future governance principles.

The detail and impact of these ­recommendations is described in full in the report, together with all the background material reviewed and discussed with respondents.

I hope the report will be a catalyst to promote and create a new co-operative framework for pension fund ­governance that takes account of new realities, and enhances stability, whilst ­retaining the appropriate involvement of pension fund stakeholders. 

Brian Holden's report ‘Ensuring ­Pension Fund Governance Is Fit for Purpose' will be launched at the IPE Awards Seminar in Barcelona on 20 November

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