After a significant delay, The Pensions Regulator’s new code of practice was laid before Parliament today (January 10th). The measures contained in this code are expected to come into force next spring.
The general code covers a number of issues particularly concerning the effective system of governance of DB schemes. The delay followed proposed changes and considerable consultation on key issues.
As a result of this delay some trustees had put on hold plans to boost scheme governance, and consultants said clarification of the final code should mean these important projects can now go ahead.
The biggest change for schemes is the new ‘own risk assessment’ (ORA) requirement. The final code published today clarifies that this will only need to be taken once every three years. Earlier iterations of this code had proposed an annual assessment.
Consultants have welcomed this change, which responded to concerns from the industry. Hymans Roberston head of governance consultant Laura Andrikopoulos says: “This final version of the code recognises a report once every three years is sufficient. This is in line with other major requirements such as the triennial actuarial valuation, and will save schemes from what could have been a substantial annual process.”
She adds: “The clarifications in the final version of the Code are also helpful – for example, that the ORA can be a collation of other relevant documents. Trustees may also be relieved to see the enhanced emphasis on proportionality in relation to the Risk Management Function and the assurance requirements.”
Aon associate partner Michelle Burgess, says: “Thankfully, the code is largely as anticipated following the consultation in 2021. We welcome the enhanced standards of governance which underpins everything that trustee boards do.”
She said her experience was that most DC schemes and well-run DB schemes are already largely complying with the requirement to have an effective system of governance, so the code will result in current practice being documented more formally than in the past.
She adds that there is a strong diversity, equality and inclusion link within the code with a greater focus on the combined skill and knowledge of the trustee board. She says: “This is great to see but stops short of including a full DEI module within the code. “
Burgess adds: “Our main concern is the increased governance burden and associated costs this will bring for the smallest schemes, many of which will have adopted a proportionate approach to governance and are now likely facing the largest hurdles.”
Dalriada Trustees head of technical, research and policy John Wilson says: “The laying before Parliament of the final version of the general code is very welcome and represents the final piece of the effective system of governance and ORA jigsaw.
“We now know the detail as to what TPR expects of schemes, in terms of their system of governance and, for schemes with more than 100 members, own risk assessments. That said, trustees should remember that the regulatory requirements have been in force since the beginning of January 2019 and the final Code, whilst containing some differences in form, is not materially changed in substance from the draft code consulted on in 2021. Work should already be well underway in terms setting up risk management committees and carrying out governance reviews and gap analysis.
“Schemes that have not already started may now struggle in terms of meeting requirements and finding resource over the coming months to help get to grips with all 171 pages of the Code.”
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