BAC Briefing

November 2015

Beginner’s guide to risk registers

Risk registers and dentists have a lot in common. Both are important for managing risks, you need to spend time with them at least twice a year and your heart sinks when the next session is approaching!

What is a risk register?

Risk registers are a key tool in managing the many and varied risks faced by pension schemes (dentists are not). A risk register is a simple concept, being a document (or perhaps an online tool) which records:

  • the risks faced by a scheme
  • how those risks are monitored and managed
  • the extent to which the current governance framework ensures a particular risk is not a threat to the future security of the scheme
  • who is responsible for managing the risk in question.

Sadly, too often risk registers develop into something large, unwieldy and laborious to work through. The result is that, rather than being a useful facility for reviewing scheme risks and how to manage them, they become a tick-box exercise to complete and do not lead to a proper discussion about a scheme’s risks.

In this BAC Briefing we look at how to ensure your risk register does not fall into this trap.

Keep it short and focussed

Whilst it is true that pension schemes face many and varied risks, this does not need to translate into a large risk register. Many trustee boards look at individual risks at too granular a level, which results in a risk register that no one monitors or updates properly. When designing a risk register, the trade-off you need to keep in mind is detail versus usability.

In reality many detailed risks can be grouped under broad headings, keeping the risk register shorter whilst still providing an effective aid-memoire for reviewing the risks on a regular basis. It is far better to have a shorter register which supports meaningful discussion than a more comprehensive document which results in users not seeing “the wood for the trees”.

One possible framework that we have seen work well is to use the following 7 broad headings – Infrastructure, Business continuity, Decision making, Expertise, Risk management, Strategy and Communications. Each of these can be divided into two or three sub-headings, for example under Decision making the trustees could consider the following three areas separately – the work of subcommittees and their terms of reference, the trustee/company relationship and implementing strategic plans quickly.

Buy in from stakeholders

No two sets of trustees or advisers are the same, so an “off the shelf” solution is unlikely to be a good fit with your scheme and situation.

The best risk registers are those that have been designed with specific input from the scheme’s trustees and its pension team. Being involved in the design process means that the key stakeholders think about and discuss the risks they need to manage and how best to capture them. This process should create both understanding and ownership of the risk register, meaning that everyone is committed to using it as a living document rather than viewing it as a compliance nuisance.

How are you going to use the risk register?

When designing your risk register, think through how it is going to be used by stakeholders, for example:

  • who wil l be involved in reviewing the scheme’s progress against the risk register and updating it?
  • frequency of reviews and updates
  • is online technology helpful, or an irrelevance?
  • what will you do if the register identifies a new risk that needs managing?

If your current risk register is not working well, or if you are planning to revamp your processes, it is best not only to look at your documentation but also your broader framework for how you use the register.

Make sure you follow up any issues identified

It sounds obvious but it is easy to lose sight of; a risk register’s purpose is to identify risks that either do not have controls in place or for which the controls are not working effectively. In the same way that the risk register needs careful design to be meaningful, you need very clear protocols for what you will do when you identify an issue.

Things you need to consider:

  • the scale of the risk exposure faced by the scheme
  • what corrective actions are needed and over what timeframe (major risks need correcting much quicker than low risk issues)
  • when will the position be reviewed again to ensure the agreed actions have been taken and have worked (some risks cannot wait to be assessed until the next scheduled review of the risk register)
  • who is responsible for making this happen.

This should be engrained within the review process and any necessary actions should be clearly documented as part of the review.

Don’t get complacent

Scheme governance needs to evolve over time, as the requirements of the scheme change and legislation moves on. However good your current risk register and processes are, they will not remain a perfect fit over the lifetime of your scheme. So you need to test regularly whether your approach remains appropriate.

From time to time, you should consider asking someone independent to review the risk register. This could be a different consultant from your normal adviser, a different advisory firm altogether or someone senior within the sponsoring employer. What matters is the fresh perspective that this individual can bring.

Summary

Risk registers, and how they are used, can be invaluable in keeping members’ benefits safe and sponsors’ costs down, but only if they are designed and used intelligently. It is worth the effort – just like brushing your teeth regularly…

For more information on how bac can support you cost-effectively with a review or refresh of your risk register, please contact us.

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