UK - The Pensions Regulator (TPR) has highlighted seven risk areas where trustees need to improve when assessing the internal risk and controls framework for the scheme.

As part of its renewed focus on scheme governance, TPR has revised its guidance on internal controls after research among scheme trustees showed an appetite for less theoretical and more practical guidance and clarification on TPR's expectations in this area.

TPR said the implementation of robust internal controls are a legal requirement so the new guidance aims to give trustees, particularly of smaller schemes, the tools to perform their duty. This includes the launch of new 'bite-sized' e-learning modules to give an overview of the topic and help identify the most critical risks.

The regulator admitted the new guidance is "not intended to be exhaustive" but has instead identified seven specific areas where improvements are needed in most defined benefit (DB) and trust-based defined contribution (DC) schemes: 

A lack of knowledge and understanding; Conflicts of interest; Ineffective relations with advisers - including those that provide services to the scheme, as trustees remain legally responsible for outsourced activities; Poor record-keeping; Deterioration in the employer covenant; Investment risk, and Ineffective retirement processes.

Tony Hobman, chief executive of TPR, said: "Robust internal controls are key to good governance, and this is why we are placing so much emphasis on clarifying our expectations of trustees in this area.

"We hope our updated guidance will provide trustees with new insight into the importance of risk management and internal controls and that this will help them fulfil their broader legal governance obligations," he added.

The revised guidance has been developed primarily for smaller schemes "where there is a recognised need for greater support", and designed mainly as a web-based product to allow trustees to navigate to relevant risk areas and focus on issues specific to their scheme.

However, the regulator noted the "principles, procedures and underlying benefits of establishing and operating adequate internal controls will be equally important to all schemes".

Carole Ward, partner at Barnet Waddingham, said while the bite-sized learning will give trustees a flavour of what is expected, "it is a shame that the guidance is structured as 173 separate points with no clear navigation or clear ideas on how to address the big picture".

Ward added: "The guidance is aimed at smaller schemes; these schemes will certainly need help from their advisors in order to separate the wheat from the chaff and implement controls which are both proportionate and pragmatic."

Responses to the consultation on the draft guidance should be directed to internalcontrols@thepensionsregulator.gov.uk before 1 March 2010.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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