Vidett’s Kelly Newton looks at what the new ORA requirement means for trustee boards, and how to get the most out of the process.
For some pension schemes, the first Own Risk Assessment (ORA) is already behind them. But for others, the clock is still ticking, with schemes with 30 September and 31 December year-ends among those yet to reach their first deadline.
For trustee boards yet to complete the process, the immediate focus will be on getting the ORA done. But meeting the deadline should not be the only objective. It is also an opportunity to review how governance works in practice and ask whether the board is operating as effectively as it could.
That matters because the ORA, introduced under the Pensions Regulator’s General Code of Practice in 2024, is not intended to produce a perfect report. It is designed to assess how well a scheme’s Effective System of Governance (ESOG) is working, identify weaknesses and give trustees a picture of where improvements can be made. The findings can also provide a useful springboard for a wider review of board effectiveness.
Why ‘all green’ isn’t the goal
Early experiences of the ORA process are already providing some useful lessons – not least that finding areas for improvement is no bad thing.
Some trustee boards have understandably been keen to achieve an entirely ‘green’ assessment, but that misses the point. An amber rating is not a sign of failure; it simply shows an area for improvement has been identified and allows trustees to decide what to do about it.
“Increasingly, it is not enough to show that the board reached a reasonable decision; trustees must also demonstrate how they got there.”
Kelly Newton, Vidett
For some schemes, the most valuable output from the ORA has not been the compliance statement itself, but the action plan that follows. This can prioritise improvements while recognising that not every recommendation will be appropriate for every scheme. A scheme approaching the end of its journey, for example, may have very different governance priorities and resources from one with a much longer timeframe ahead.
The process has also highlighted the difference between having a strong governance framework on paper and knowing it works in practice. Many schemes already had robust frameworks in place, but these were not always fully understood by trustees or consistently reflected in the way the board operated.
The missing piece: board effectiveness
This is where a board effectiveness review can be a natural next step. If an ORA concludes that a trustee board is operating effectively, trustees should be able to evidence how.
Increasingly, it is not enough to show that the board reached a reasonable decision; trustees must also demonstrate how they got there, including the evidence considered, the advice and training received, and the decision-making process.
Although ORAs are not submitted to the Pensions Regulator, trustees should not assume they will never be scrutinised. The regulator can ask to see an ORA as part of its supervisory activity, making it even more important that boards can support the conclusions they have reached. An independent review can help test this by looking beyond governance processes at how the board works together and makes decisions.
A comprehensive review should consider three distinct areas: trustee knowledge and understanding; the wider skills and experience that individuals bring to the board; and their strengths and passions.
Someone may be highly competent in an area such as investments, for example, but that does not necessarily mean they enjoy it or find the work energising. People tend to perform better when they enjoy what they do, so looking at strengths and passions alongside skills and knowledge enables boards to understand where individual trustees are likely to make their best contribution, and whether they have the right mix of skills and experience around the table.
“Giving everyone the confidence and space to speak up can help safeguard against groupthink, where decisions are simply driven from the top.”
Kelly Newton, Vidett
Culture is equally important. Even the strongest governance framework can be undermined if trustees do not feel confident questioning or challenging others. Less experienced trustees often ask some of the most valuable questions precisely because they approach an issue from a different perspective. Giving everyone the confidence and space to speak up can help safeguard against groupthink, where decisions are simply driven from the top.
From process to action
Of course, identifying the gaps is only useful if something happens as a result. Knowledge gaps can inform the training plan, while a clearer picture of skills and strengths can help when thinking about subcommittees and future succession.
Training should also reflect what lies ahead for the scheme. If trustees are approaching a significant one-off decision such as a buy-in or buyout, for example, they need the appropriate knowledge and support to make that decision confidently.
Neither the ORA nor board effectiveness should be viewed as a one-off exercise. While the ORA must be produced every three years, the underlying effective system of governance, as well as policies, evidence and action plans, can all be kept under review as part of business-as-usual governance.
The same principle applies to board effectiveness. Regular check-ins mean boards can keep learning and adapting as trustees change and the scheme’s circumstances and priorities evolve.
This also requires boards to make time for reflection. Effectiveness reviews should not be squeezed into the final half-hour of an already packed trustee meeting. Giving trustees dedicated space to step away from immediate decisions and talk openly about what works, what does not and where the board could improve can be valuable.
Trustees do not need to be experts in everything, but they do need the confidence to ask good questions, challenge constructively, and reach well-informed decisions.
Making the ORA count
Once the first ORA is complete, what matters is what happens next – and whether trustees act on what the assessment has uncovered and use it as an opportunity to look more closely at how effectively the board operates.
Done well, an ORA becomes more than another regulatory requirement. It becomes an opportunity to build a stronger board – one that understands where its strengths and weaknesses lie, welcomes challenge, and can demonstrate not just what it decides, but how it gets there.
Kelly Newton is a client director at Vidett.
