Pension Pillar - The benefits of good governance

New Year resolutions have come and gone, and all the best made plans to sort out our personal finances are by now a distant memory. But research we conducted over the New Year period found that three quarters of people (75%) believe that financial planning will be important to them in 2014. Retirement income (32%) and pension savings (29%) are seen as the top financial planning concerns, ahead of other financial planning concerns such as credit card bills (23%).

 By Martin Palmer, Head of Proposition, Corporate Benefits - Friends Life

 We also found that the gulf between what men and women are saving and what they would need to save to give them the income they want remains considerable. Women give £25,128 as the annual retirement income that will allow them to live comfortably, a figure which is currently £8,000 more than their expected income from their pension. Men will also fall short of their desired income (£27,832) but only by £6,637. Current official figures show the annual retirement income for men (£17,992) is 23% greater than women (£14,664).

 Auto-enrolment is clearly helping to raise awareness of the need for us all to save for our retirement, but there is still a way to go to get people engaged, and to be realistic about what they need to save today to achieve their hopes for tomorrow. The increased focus on pensions through auto-enrolment has resulted in an increased focus on outcomes, and thus governance of both contract and trust-based schemes.

 The Pensions Regulator (tPR) recently published its code of practice and guidance on governance for trustees, an OFT report called for independent governance committees, and the Institute of Chartered Accountants has published a joint code with tPR to audit the governance of Master Trust arrangements. So it is clear that regardless of what kind of pension scheme you operate in your workplace, good pension scheme governance is not optional.

 The fundamental aim of good governance is to focus on delivering the best outcomes for employees, free of other influences. Good governance should result in good outcomes for those who elect not to make choices, but also encourage employees to take ownership and provide them with the framework to help them deliver even better outcomes, by making the choices that best suit them.

 Good governance will help to increase trust in pensions, and it is critical that governance considers how we are communicating with employees and encouraging them to take an increased level of interest in their savings. Not only by highlighting the importance of starting to save for retirement, but also of saving enough. That is the only way to avoid disappointment in the decumulation phase - which ultimately could result in members opting out of retirement savings altogether. If auto-enrolment is to succeed, we cannot allow that to happen.

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