Ireland’s Pensions Regulator, Brendan Kennedy, has said that if the trustee boards’ own risk assessment (ORA) does not lead to action then there “hasn't really been any point" in doing it.

The requirement for an ORA was introduced with the transposition of the IORP II Directive and is set out in the Pensions Authority’s Code of Practice, published last month. Speaking at the Irish Association of Pension Funds (IAPF) Governance Conference today, 1 December, Kennedy said he expects trustees to have the same focus as the regulator – a forward-looking, risk-based approach.

“The trustees own risk assessment, or ORA, ought to be central to the work of the trustees. An ORA has to be understood properly. It must not be seen as a form-filling exercise and the response to the ORA must not be understood as finding the right boiler-plate text that will keep the scheme below the authority’s radar. The focus of the ORA, the usefulness of the ORA, is its use, not primarily as a supervisory responsibility, but as a fundamental action by the trustees.”

He added that trustees should recognise that a thorough and properly completed ORA is an important and useful process for them.

“An ORA will fall short, it will fail in its purpose if it’s not done objectively, and there are two ways in which an ORA might not be done objectively. The first and obvious one is conflict of interest, it’s vital that conflicts of interest be avoided, where possible, and managed closely and properly where it is not possible to avoid them completely. Just as important is making sure that the ORA process itself is objective and bias free," Kennedy said.

“Trustees must be aware of the possibility of unconscious bias because we’re all only human and we’re all subject to biases and this underlines the importance of process and governance to make sure that the ORA is done properly to the benefit of scheme members. The ORA must be proactive, obviously, trustees will be proactive in doing the ORA, in identifying the risks to the members’ interests, but the ORA is not simply intended to be an exercise in drawing up a risk register.

“The purpose of an ORA is not just to identify risks but to address them. This is one of the most challenging aspects of the trustee responsibility and it is, undoubtably, the most important. If an ORA does not lead to trustee action then there hasn’t really been any point.”

Speaking more broadly about the code of practice, Kennedy said it is addressing standards for trustees and for key function holders, and the governance processes of the pension scheme. “What the code is certainly not doing, is forcing trustees to make particular decisions. Rather what it is intending to do is to make sure that trustees address the important issues in an informed and structured way.”

The IORP II Directive, which was transposed into Irish law in April, imposes a significant number of new obligations on trustees of pension schemes.

"What it does not do is lessen or undermine the digression of trustees in relation to their basic obligations. The fact that there are additional tasks to be undertaken by trustees must not be understood as narrowing the scope of the trustee role. The responsibility for running the scheme and for looking after the interests of members, rest unambiguously with the trustees as it always has.

"The objective of pension scheme governance is to ensure that the scheme is well managed and to provide evidence of that management. Governance comprises of the processes that trustees put in place to ensure that their management of the scheme is consistent, reasonable, and well-informed.

"Good governance will not mechanically answer the difficult decisions that trustees are often faced with. What it should do is identify all those decisions, ensure that the trustees have all the information and advice they need and ensure that they set about those decisions in a balanced and systematic way – but a difficult decision is still a difficult decision," Kennedy said.

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