The draft new Code says that schemes will have a year from the date the new Code is finalised to produce their first ORA, and that it will be ‘a substantial process’. Given how quickly a year in pensions passes, I recommend that trustees start to think about their governance systems now, rather than wait for the new Code. So, what can trustees do now? At the most basic level, an ORA is a review of the policies and procedures that make up a scheme’s effective system of governance (ESOG). Trustees will need to describe in their ORA how those policies and procedures meet the ESOG requirements, and how they reduce to a tolerable level the risks which could impact their scheme. This might sound like a simple concept, but it’s less easy to see how to get started. Here is one way.
TPR believes trustees should consider 22 elements as part of their ORA. As a starting point I suggest trustees prioritise these in order of materiality, and tackle the most important first.
It is possible that some of the 22 elements won’t appear in the final Code but if trustees identify something as being important for their scheme then it needs to be addressed regardless of the final content of the new Code.
Determine key risks
The next step is to consider and document key areas of risk for each element. For example, under “Continuity planning” trustees might consider questions such as:
- What happens if the pensions manager (or other key person) is away unexpectedly?
- What happens if we cannot form a quorum of trustees?
- What continuity arrangements do our providers have?
I suggest starting the process with a blank sheet of paper to encourage independent thinking. The results can then be reviewed against the scheme’s existing risk management framework to complete the cycle.
Review and amend
Think about the policies, procedures and controls in place and decide whether they are effective in managing the identified areas of risk and meeting the requirements of the new Code. Any areas of inadequacy can then be addressed.
The new Code says that trustees will need to document how the effectiveness of policies and procedures has been assessed, their conclusions, and why they have reached those conclusions.
I agree with TPR that it will be a substantial process, but doing it right will add significant value and will help to improve risk management for pension schemes.
This article was featured in Pensions Aspects magazine October edition.
Last update: 14 October 2021
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