The Pension Regulator’s latest General Code of Practice comes into force today, outlining new requirements for pension schemes.
Under the regulations, pension schemes are mandated to establish an Effective System of Governance (ESOG) and conduct an Own Risk Assessment (ORA) for schemes with 100 members or more. These assessments are designed to evaluate the effectiveness of governance systems, identify risks, and implement mitigation strategies.
Pension schemes have been preparing for the new regulations, and conducting gap analyses to ensure compliance with the Code’s obligations. According to WTW’s Code Assessment Tool (CAT), preliminary evaluations show an average alignment score of 87 per cent, indicating strong governance models among trustee boards. Scores range from 72 per cent to 96 per cent, demonstrating significant adherence across schemes.
WTW head of governance consulting Jenny Gibbons says: “This data is a testament to the dedication of the trustees and managers of these schemes towards maintaining high standards of governance and should be reassuring to members involved and the Pensions Regulator. While the majority exhibit commendable levels of compliance, there is always room for improvement, and improvement is always worth striving for.
“It is important to remember that ‘proportional’ in relation to the Code doesn’t mean aiming to do less in all areas. For example, a bought in scheme looking to buy out may have less to do with investment governance but should arguably be boosting time spent on strategic, legal and data related governance issues and ensuring the board itself is fighting fit to see the scheme through to buyout.”
Soon after the final Code was published in January 2024, Aon polled more than 300 pension plans to determine how prepared they were for its execution. They were especially interested in learning about the higher standards for risk management in pension plans.
The findings showed that 80 per cent of the schemes that were polled expected the ‘risk management function’ to be performed by the Trustee Board or by an already-existing subcommittee. Of those surveyed, 40 per cent said this duty should go to the Trustee Board, and 40 per cent thought it should fall to an already-existing subcommittee. Furthermore, 12 per cent of respondents said they were unsure of the organisation in charge of doing this work.
Aon’s survey also examined the types of assurance reporting that the same pension schemes planned to use for internal controls. Of those, 69 per cent expected to rely on reports from third parties, 43 per cent planned to use internal audit services, 24 per cent envisaged using statutory auditors with a wider mandate, and 27 per cent intended to hire an outside party to audit their internal controls.
Aon UK Retirement partner Sarah Butlin says: “It is encouraging that trustee boards have started thinking about how they will tackle these aspects of their risk management. A well-established risk framework and audit trail will be key to the effective system of governance and preparation of the ORA.”
The post TPR’s General Code comes into force appeared first on Corporate Adviser.
