Corporate governance embodies the idea that if an organisation’s managing board implements an appropriate set of processes which it adheres to and monitors diligently, better outcomes will result. In Ireland the overall concept of corporate governance has trickled down from publicly listed companies right through to not for profit organisations which have adopted the governance code for community and voluntary organisations.
In relation to defined contribution (“DC”) schemes, the Pensions Authority (the “Authority”) has fully embraced the importance of good corporate governance. The Authority perceives that members of well-run occupational pension schemes will be more likely to save, make reasonable decisions and, ultimately, have a better outcome than those belonging to a scheme where defined principles of good governance are an afterthought. Over the course of 2016, the Authority published a total of 11 individual codes of governance for DC schemes covering a range of important issues.
The codes are not statements of law that prescribe distinct processes for every eventuality but are intended rather as guidelines designed to assist trustees to meet the standards of practice that form the basis of good governance and administration. They set out standards of behaviour, activities and control processes that the Authority expects trustees to adopt to demonstrate their commitment to serving the best interests of members and other beneficiaries.
The codes are therefore structured as reference documents to enable DC trustees adopt a constructive and proactive approach to the running of their schemes. Each code provides some practical guidance on how trustees can give effect to its principles and the Authority advises that they supplement, and should be read in conjunction with, the Trustee Handbook.
Practical Effect of the Codes
While the codes are not legally binding, compliance is nevertheless treated with significant importance by the Authority, as publicly expressed by one of their senior officials last year:
“While compliance with the codes is not a statutory requirement, they have been issued pursuant to the Authority’s statutory function under section 10 of the Pensions Act and in our view a failure to comply with a code may be indicative of a breach of duty under trust law or the Pensions Act”.
The Authority clearly contemplates being proactive in monitoring compliance levels. If you are a DC trustee or sponsor a DC scheme it is expected that you are familiar with the codes and take steps to ensure you discharge your role in compliance with an appropriate standard of corporate governance as tailored to the needs of your particular scheme. Where applicable, the Authority have also demonstrated a willingness to apply the principles espoused in the Codes in respect of individual defined benefit pension arrangements.
Of particular concern should be the code relating to data protection, a subject which up to now has been something of a blind spot for many trustees. In the context of members’ personal information pension scheme trustees act as data controllers and must therefore take appropriate measures with regard to how such information is shared and processed. The Authority have stated that they expect that “trustees will comply with the Data Protection Acts”. In Ireland, the Office of the Data Protection Commissioner is responsible for ensuring compliance with the Data Protection Acts. While a failure to comply with the Data Protection Acts may result in reputational damage, it could also result in a fine of up to €100,000 if convicted on foot of proceedings brought and prosecuted by the Data Protection Commissioner depending on the nature of the offence.