Schemes have been busy documenting and refining their effective system of governance (ESOG) since the General Code was issued in 2024. Trustees of schemes with 100 or more members have either already documented or are in the process of carrying out their first own risk assessment (ORA) of the ESOG – the latest schemes have to complete the first ORA is 2027 depending on date of the scheme year. Trustees need to bear in mind that a scheme’s ESOG needs to be proportionate to the size, nature, scale and complexity of the scheme’s activities. What is documented in the ORA should reflect actual scheme practice and Scheme policies - templates help, but they are not a silver bullet to appropriate compliance.

Trustees have always had a general legal duty to run their schemes in accordance with the terms of the underlying trust rules, applicable case law and statutory provisions. Since January 2019, trustees of almost all occupational pension schemes have been under a specific statutory obligation to establish and document an effective system of governance (ESOG). The Pensions Regulator issued the General Code in March 2024 to inform trustees as to how it expects them to fulfil this obligation.

Trustees of schemes with 100 or more members are under a further legal obligation to carry out an own risk assessment (ORA) of their ESOG to measure how well it is working, as well as identify and manage key risks the scheme is facing. Failing to carry out the ORA where required is likely to be a key indicator of poor governance from a regulatory perspective. The deadline for schemes to complete their first ORA will be between 2026 and 2027. After that, ORAs will need to be completed at least every three years, when parts of the ESOG or risk management processes are new or updated, or when there is a material change in the ESOG or the risks facing the scheme.

What is key for trustees to remember when establishing an ESOG for a scheme is that legislation requires the system of governance to be proportionate to the size, nature, scale and complexity of the scheme’s activities. It may be tempting to draft a plethora of new stock policies as part of setting up the ESOG. However, in our experience of reviewing and drafting policies and processes for the ESOG/ORA, we find this tends to be unnecessary. Trustees who have been diligently complying with legislative change over the last 30 years will already have many of the policies they need to be able to comply with the ESOG. Well-run schemes operated by thoughtful trustees will already have processes in place to manage the scheme in addition to their long-standing statutory obligations. Therefore, for many schemes the best approach is for the trustees to expand on the documentation that is already in place. It is also crucial that whatever is written down in a policy document actually reflects what is happening in practice. If policies and processes are simply adopted without being tailored to a particular scheme, trustees expose themselves to material legal risk, because when things go wrong (and at some point they will), trustee behaviour will be compared to the policies in place. Where the two do not match without good reason, there is a much greater risk of regulatory scrutiny or member complaint.

Similarly, the ORA should be a bespoke document which reflects the reality of the Scheme and its own challenges so that is a genuinely useful document.