The pensions industry continues to await the introduction of the single code of practice which was launched as a flagship policy of The Pensions Regulator in July 2019 when it held a consultation on turning 10 existing codes of practice into 51 shorter topic-based modules.
Until very recently, indications coming from TPR suggested that it remained determined to have the code in place before the end of the year, but industry sentiment believes the timing is almost certain to slip into 2023.
Effective system of governance
Nevertheless, TPR has said the intervening time should continue to be used to carry out the preparatory work, with the focus now on the effective system of governance (ESOG), that schemes need to have in place as part of their adoption of the single code. It is worth noting that those schemes and trusts that already operate strong governance policies may simply need to consolidate their existing practices and tweak them to align with the new regulatory guidance.
TPR has taken a robust approach to governance. It says that effective governance will provide trustees with oversight of the day-to-day running of the scheme, clear accountabilities and delegations, and a basis for assessing that the scheme is meeting all legal requirements over time.
Regulator’s expectations
TPR is expecting to see that a scheme’s ESOG has a coherent structure with clear accountabilities and delegations, and for trustees to be able to demonstrate how the scheme will be governed. Requirements the regulator wants to see addressed include the creation of a governance map setting out the structure for the scheme, detailing the different governance functions, who is responsible for them and who else is involved.
It wants to see the responsible person identified for each function and also a set of objectives produced with a statement provided for each function that sets out the aims and objectives and key tasks to be undertaken.
Own risk assessment
Consequently, a new obligation is for schemes to produce their Own Risk Assessment (ORA) which TPR says should be prepared and documented within one year of the code coming into force and repeated every 12 months after that. The ORA will need to cover how the trustees have assessed the effectiveness of each of their policies and procedures and the way potential risks – external, financial and operational – are managed.
Trustees will also need to describe how the ORA is used in their management and decision-making processes, including the management of risks associated with outsourcing and where the sponsor conducts certain functions in-house.
Schemes with fewer than 100 members are exempt from the need to carry out an ORA.
Scheme managers and trustees should by now have made substantial progress in preparing for the implementation of the single code and to have asked themselves questions about where they want the scheme to be in 5, 10, or 15 years from now and whether they have the right knowledge and skill set across the trustee board to achieve this.
Our view
At MHM, our view is that good governance is the key to a well-run pension scheme and that does not have to be onerous. We are aware that some in the industry feel a single code is a step too far but choosing to do nothing will put a scheme – and potentially member benefits – at risk should the TPR come knocking at the door.
MHM can help by providing an ESOG template and advice on how to meet the new requirements. If you would like to discuss any issues in relation to your own pension scheme, call us on 01423 229029 or email david.hodgson@sandccarsalesharrogate.co.uk.