TPR’s 15 existing Codes of Practice are set to be transformed into a new online code. The transformation began on 17 March when TPR launched a consultation on the first phase of its work, bringing 10 of the current 15 codes together as one.¹
While consolidating these 10 codes, TPR says it has reduced the number of pages by nearly half. That said, the full draft of the new Code of Practice (COP), with six substantive sections (governing body, funding, investment, administration, communication and reporting), and 51 separate modules, is still 149 pages. It will also be significantly longer when the missing content, on scheme funding, TPR powers, scheme modification and Master Trusts, is subsequently added.
The consultation also incorporates changes introduced by the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018. In turn, these emanate from the second EU Pension Fund Directive (IORP II) and relate to “Effective Systems of Governance” (ESOGs) and the “Own Risk Assessment” (ORAs). These are the latest additions to the pension industry’s long list of acronyms.
- Effective Systems of Governance: Under new regulations, trustees must have an ESOG, proportionate to the size, nature, scale and complexity of their scheme.
- Own Risk Assessment: Private sector schemes with 100 or more members will now need to carry out an ORA. TPR expects governing bodies to use this to assess how well their policies and procedures address various risks, financial and operational, that their scheme faces.
The new ‘super code’
Work on the new Code started in 2019 and, in terms of the new and revised guidance which will supplement it, is still ongoing. The now closed consultation essentially asked the same five or six questions for each of the 51 modules and, whilst we may see some changes of form in the final Code, material changes to the substance are not expected.
So, we largely know what is coming and there are lots for governing bodies to think about, not least:
- navigating around the new code, which is intended to be a web based experience
- in the context of the ESOG, the assessment of what is proportionate to the size, nature, scale and complexity of the activities of their scheme
- for schemes in scope, undertaking the ORA – not just within 12 months of the Code coming into force but at regular intervals thereafter
- understanding the implications of prospective requirements to publish minutes of trustee meetings, and establishing and publishing remuneration policies
- getting familiar with content moving from TPR guidance into the super code, such as cyber risk, conflicts, pension scams, and investment and ESG
- ensuring that the governing body as a whole can, to quote the Code, “demonstrate they jointly possess the skills, knowledge and experience to run the scheme effectively”, and
- keeping abreast with updates to the Code (the optimum frequency for updates was part of the consultation).
Codification not just consolidation
As alluded to in the introduction, when drafting the new Code, TPR has not simply taken key parts of ten existing Codes of Practice and used them to produce one consolidated document. There are several new initiatives.
In addition, governing bodies will need to familiarise themselves with the new format of the Code and the revised guidance that will accompany it. The intention is that, if viewed online, the Code and the guidance will be more accessible but, taken together, the content will be substantial.
In closing, the consultation on the new Code highlighted the “seismic changes” in the landscape of pension saving over the past decade, the massive increase in the number of pension savers and corresponding increase in the standards expected of those running the schemes.
The new Code is further evidence of the need for trustees and other governing bodies to, in the words of TPR, “have the right people, skills, structures and processes in place to facilitate scheme operations, enable effective and timely decisions, and to manage risks appropriately. Our COPs and guidance provide the support needed to be able to achieve this”.
¹A draft defined benefit (DB) funding code will be published as part of a consultation in the second half of 2021.The new DB funding code will be the same style as, and form part of, the new code. Future consultations will cover areas such as Master Trust authorisation and supervision, and collective defined contribution schemes.
This article was featured in Pensions Aspects magazine July/Aug edition.
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