What is the new Single Code of Practice? 

The Pensions Regulator’s new Single Code of Practice (“Code”) pulls together 10 of the 15 current pensions codes into one place and adds new governance requirements.  Those outside of the Code still need to be complied with and new funding and investment requirements are currently subject to consultation.

The Code was supposed to “go live” in summer 2022.  Summer 2022 is here but the Code is not.  It is still coming but there is so much else going on that it will be delayed a bit longer.

When is the Code coming into effect?

We do not know for sure when the Code will be officially adopted, but once it is schemes will have 12 months to comply with it.

Although the current draft has not been officially finalised, no material changes are expected.  Whilst we wait for the Code to come into effect, now is a good time for schemes to start planning compliance if that is not already underway.

Is this another pensions compliance exercise?

All schemes will have some work to do.  Most will need to review and better record existing practices.  Some will have more work to do than others.

Everyone will need a new policy on effective system of governance (“ESOG”) which pulls together the underlying policies on all key areas.  From that Trustees will need to produce an own risk assessment (“ORA”) which sets out the risks arising from the ESOG and how they are managed and mitigated.  No two schemes are the same and therefore ESOGs and ORAs should not be the same.

This feels like an expensive compliance exercise, but it need not be.  Trustees that see this as the opportunity to properly consider how their Scheme and they operate are the ones which will derive the most value from this exercise.

Proper thought about Scheme operations and Trustee governance is not only more interesting, but it is also more likely to result in a smaller number of policies which are more relevant, effective, dynamic and are a catalyst for improved risk management.

What does the Code look like?

The Code is comprised of 51 modules covering five areas: the governing body, funding and investment, administration, communications and disclosure, and reporting to the Pensions Regulator (“TPR”).  It is intended to be both easily accessible in a web-based format and appropriate to the needs of pension schemes of different types.

Five of the existing codes of practice are not included and will still need to be considered separately.

The Code is long.  It’s repetitive.  It contains a lot of existing requirements and expectations.  It sets out far more changes to the existing codes than one might think.

It may look like a mountain to climb, but it’s a really largish hill.

Who does the Code apply to?

The Code will apply to all pension schemes although there are greater obligations on schemes with 100 or more members.

What action should Trustees take?

Implementation of the Code should be seen as an opportunity for dynamic discussion about how the scheme and the Trustee board operates.

To drive real value Trustees who treat this exercise as a “SWOT”¹ analysis with appropriate scenario testing are likely to gain a lot more from the exercise than those who focus on ticking off items from a standard checklist and filling any gaps with standard policy templates.

That’s not to say that checklists are not a good idea.  The Code covers such a lot of ground checklists are a good risk management tool, but they should be a tool to help ensure that all the key issues are debated, recorded, and implemented.

What can, and should, Trustees be doing now?

Step 1: Adopt a plan

Decide who is going to do this work and who will drive the agenda.

All Trustees should be involved in the debate about key policies and risk areas, but this is potentially a big project where having a sub-committee to look at the detail is a good idea.  Terms of reference help such delegations and are evidence of good governance.

Step 2: Identify existing governance systems

Develop a list of the existing policies for review.  Most benefit and governance consultancies have products which are designed to produce this list and identify obvious gaps.

The lists are helpful as a blank sheet of paper is daunting, whereas reviewing what’s already in place is more manageable.

The existing policies are also a useful starting point to kick off the discussion as it allows Trustees to see what their existing written governance systems are and how they operate.

Step 3: How do the existing policies measure up?

Existing policies that are robust and work well form the foundation of your new ESOG.  Policies that are less successful can be worked on to bring them up to scratch and, in the process, gaps can be filled.

When reviewing existing policies and developing new ones, it’s important to remember TPR expects Trustees to end up with an ESOG and policies supporting it which are proportionate to the size, nature, scale, and complexity of the activities of the scheme.

This is not an exercise in re-writing “War and Peace”.

Step 4: Be clear about new obligations

There are new requirements. These will need to be addressed.  New requirements do not necessarily need a new policy.  Adding to existing policies to meet new requirements is a good idea where that results in the policies being coordinated and coherent.

Step 5: Pulling it all together

Making sure everything that needs to be written down has been is likely to be quite a task and Trustees may well want to use templates to help them.  Templates can be a good starting point, but it is crucial to remember that templates can only do a part of the work as the policies adopted must reflect what happens in practice and be consistent with other relevant policies.

No standard template policy will fully reflect the behaviour of any Trustee board.  Templates will always need to be tailored to reflect reality.

Step 6: Do the final check?

Once the review process is coming to an end, it is worth doing a check against the list of Code requirements to make sure nothing has been overlooked.

Step 7 : Review

The test of good policies is that they get used, are referred to and evolve with experience.  Policies that lie forgotten and gather dust are not doing their job.

Some policies will inevitably be used more than others. This exercise is not a “once-and-done” process.  Trustees are expected to have processes in place to regularly review and, where necessary, revise policies, practices, and procedures.

This should be more than a 5 minute review at the end of a long Trustee meeting.  It should be a more thoughtful look at the value of the policy to the scheme and whether it is being followed.

Remember that there is nothing more embarrassing or risky than being caught out not following written policies.  This is why adopting standard policies without tailoring them to the scheme and failing to keep policies up to date is not a good idea.

A final word …

While many have criticised the Code (the consultation last Spring elicited more than 10,000 individual answers from across the industry), ultimately TPR wants to improve member outcomes which is a good thing.

Well run schemes can expect to find that they are already broadly compliant and so for them the exercise is about demonstrating that compliance through its documented policies.  TPR will, however, want to see that the policies reflect behaviours and vice versa.

Those that engage positively with this exercise and see it as an opportunity to promote good member outcomes are likely to derive the most benefit from it and in the long run are likely to pay the lowest price for it.

¹ “SWOT” means strengths, weaknesses, opportunities, and threats.