The consultation on The Pensions Regulator’s (TPR’s) new Code of Practice closed on 26 May. Whilst we await the outcome of the consultation, given the aspiration to put the Code into practice by the end of 2021, it may be that changes are limited. Assuming they are, will the Code improve scheme governance?

There has been an uptick in focus on scheme governance in recent years with TPR’s 21st Century Trusteeship campaign, the consultation on the Future of Governance and Trusteeship, and now the consolidated Code. But how many schemes have thoroughly engaged with all the issues and requirements?

There isn’t a huge amount in the new Code that is genuinely new although significant work may be required to tackle the annual ‘own risk assessment’ (ORA) and to undertake a gap analysis of where schemes are in relation to all the Code of Practice requirements. The ORA itself is a welcome addition to scheme governance, going above and beyond existing requirements in relation to risk management, ensuring that Trustees evaluate the effectiveness of their overall risk management approach, and spend time considering and reviewing controls with a view to identifying improvements and those controls that make the critical difference. The current proposal for an annual ORA is also designed to ensure risk management is embedded firmly into the governance cycle of trustee business, rather than relegated to a triennial compliance exercise. This, again, is welcome. Risk management should drive a large part of meeting focus, with key risks examined regularly, and assumptions revisited and challenged on a regular basis to avoid the problems of ‘groupthink’ and ‘status quo bias’.

The draft Code does, however, focus heavily on processes, policies and reports rather than the more ‘living’ aspects of governance. What I mean by that is the culture of the board, sponsor and advisers. Factors such as the quality of debate and discussion, the extent of motivation and engagement of the trustees, and whether all parties have a clear understanding of each other’s roles and responsibilities, and moreover, respect for the boundaries that should exist between each group. Attaining that fine balance between collaboration and appropriate separation where necessary is often key to a well-run scheme. Some of the most difficult governance issues that I encounter involve a lack of understanding between various parties on their roles with consequent misunderstandings arising. Often both parties want the same thing, a successful and healthy scheme that provides great value for members; they may, however, have different views on how this should be achieved, or who should take the final decisions!

The new Code of Practice has little to say on these ‘softer’ aspects of governance, albeit these interpersonal dynamics and cultivation of a good culture can be vital to really great governance, and make a key difference that an extra policy or process document simply won’t.

I’m not saying the new Code won’t improve governance, but it won’t do it without attention to the people and culture elements of governance.