Introduction
Since the Pensions Regulator (TPR) published its code of practice 13: Trust-based Defined Contribution (DC) Schemes in 2013, the legislative landscape has changed drastically, with:
- individuals now having much more flexibility around how they may take their DC benefits at retirement and
- new legislative standards with which DC schemes have to comply.
TPR is, therefore, consulting on revising the code of practice. In Spring 2016 TPR will consult separately on a series of guidance documents to support the new code.
The new code is rather shorter than the original and TPR expects that this should lead to fewer revisions being required in the future. Any changes to reflect evolving best practice will be incorporated into regulatory guidance rather than in the code. The new code assumes that trustees are conversant with the legislation with which they are required to comply, so does not seek to repeat all the legal requirements.
DC schemes have now to produce an annual chair’s statement on governance, so TPR no longer expects trustees to produce a voluntary governance statement demonstrating how their scheme has performed against the DC quality features set out in the existing code of practice. The online scheme assessment template will be maintained but will no longer refer to the 31 quality features.
TPR considered whether to include a section on flexible access to benefits in the new code. However, it was felt that this falls outside the scope of the code, which applies while trustees are custodians of members’ funds but not after. The subject of flexible access may be covered instead in guidance.
The new code
The purpose of the code of practice is to set out the standards of conduct and practice that TPR expects trustees to meet in complying with their duties under legislation. If trustees are not confident that, as a board, they are conversant with the relevant legislation they are urged to undertake training as appropriate.
The new code has six sections, covering:
- the trustee board,
- scheme management skills,
- administration,
- investment governance,
- value for members and
- communicating and reporting.
The section about the trustee board sets out TPR’s expectations of the standards that should be met both by the trustee board as a whole and by each individual trustee. Paragraphs 28 to 37 apply only to multi-employer schemes for non-associated employers.
The section about scheme management skills covers internal controls, risk management, trustee knowledge and understanding, including an understanding of policies that involve trustee discretion, relations with advisers and service providers, working effectively with the employer and conflicts of interest.
The section on administration stresses the importance of good administration, in relation to both the accuracy of member records and the prompt and accurate processing of financial transactions. In particular, TPR notes that payment of monies by cheque is likely to be appropriate “only in exceptional circumstances”. Contributions are expected to be invested within 3 days of receipt. Trustees are expected to include administration on their risk register and to have a business continuity plan (or to be aware of the plan of their third-party administrators).
The section on investment governance notes the requirement under legislation for trustees to prepare a separate Statement of Investment Principles for their default arrangement and to make that available to members, on request, as part of the Chair’s governance statement. TPR expects to trustees to communicate with members regularly, to establish their expected retirement date and how they might wish to take their benefits, so that they can take that information into account when reviewing their investment strategy.
The section on value for members sets out TPR’s expectations of what trustees should consider in their annual assessment of whether the charges met by scheme members represent good value, taking into account the services the members receive and other options available in the market. The four key aspects that TPR expects trustees to consider are scheme management and governance, administration, investment governance and communications.
The final section, on communicating and reporting, urges trustees to go beyond the requirements of legislation, where this would assist members’ understanding, and to use plain English. TPR expects trustees also to consider the most appropriate medium for communicating with members. Trustees should remind members of their right to transfer their benefits to another arrangement to access their benefits flexibly, although they should also make members aware of the existence of pension scams and ensure that due diligence is carried out in relation to the receiving scheme.
Comment
The new code, at 38 pages, is only two thirds of the length of the original code, as well as being arranged more helpfully. There is still some repetition of legislative requirements but the requirements of the code (indicated by “we expect …”) are set out clearly. We believe that the format of the new code will make it easier for trustees to follow the spirit of the requirements, rather than completing a lengthy box-ticking exercise.