The Pensions Regulator’s General Code of Practice

The Pensions Regulator (TPR) has today laid the final version of its single Code of Practice before Parliament, over two and a half years after its consultation ended on the draft. The newly named ‘General Code’ is expected to come into force on 27 March 2024. As a reminder, TPR consulted on combining 10 of its existing Codes of Practice into one, alongside new expectations relating to the UK’s implementation of the second European Pensions Directive (IORPII). We expect the remaining Codes to be transposed into the General Code in due course.

Helpfully, TPR’s consultation response identifies the principal changes made to the final version of the Code, the most notable of which are outlined below:

• As indicated in its interim response in August 2021, TPR has revisited its proposals for the timing of the new Own Risk Assessment (ORA). Trustees must document their first ORA within 12 months after the end of the first scheme year that begins after 27 March 2024 or, if later:
  • The date on which the trustees are next required to produce an annual chair’s statement (for schemes with any non-AVC money purchase benefits)
  • Within 15 months beginning with the date on which the trustees are required to obtain their next Scheme Specific Funding actuarial valuation.
  Subsequent ORAs must be documented at intervals of not more than three years (not annually, as originally proposed) with each element being assessed in accordance with a scheme-specific timetable (and not necessarily all at once). TPR has stepped back from referring to the ORA as a “substantial process”, stating that many “well-run schemes” will already have broadly comparable processes in place, so it may merely be a matter of collating information into a single document. The content of the ORA is largely unchanged, other than the addition of two new elements “scams and the risks of members making poor choices” and “risks posed by legal and regulatory change and court decisions”. TPR emphasises that trustees’ focus should be on maintaining an effective system of governance (ESOG), as the ORA cannot be conducted effectively without it. TPR states that it “may consider failure to complete an ORA as an indicator of poor governance”. Further, in the accompanying press release, Louise Davey (TPR’s Interim Director of Regulatory Policy, Analysis and Advice) says schemes that are struggling to meet TPR’s expectations should consider whether their members would achieve better outcomes in a consolidation arrangement.
• TPR has removed its suggestions on who may perform the role of the new Risk Management Function (RMF), thereby helpfully removing any potential restrictions. In relation to the ‘independence’ of the RMF, TPR states that, “in practice, the degree of separation between the [RMF] and the [Board] will be influenced by the size and internal organisation of the scheme and participating employer(s)”. It clarifies that the person(s) performing the RMF is/are not prohibited from performing other roles related to the scheme, including the ‘Internal Auditor’ (IA). The scope and role of the IA remains flexible, enabling schemes to appoint the sponsor’s IA (subject to them having or acquiring the relevant knowledge and experience and identifying any conflicts of interest), but not the Statutory Auditor.
• TPR has clarified its intention for the new remuneration and fee policy to be a principles-based document, which should set out “the basis and means for paying those undertaking activities in relation to the scheme paid for by the [Board].” It has removed the expectation to publish the policy.
• Also, as was referenced in its interim response, TPR has removed the proposed 20% limit on unregulated investments, thereby addressing concerns about the impact on illiquid investments.
• As part of its equality, diversity and inclusion (EDI) strategy, TPR has taken this opportunity to add high-level EDI expectations for trustees, having already published detailed practical guidance in March 2023.
• TPR suggests that trustees consider the appointment of a professional trustee when faced with ongoing difficulties in recruiting member-nominated trustees, which may impact the standard of scheme governance. It also strengthens its expectations in relation to accreditation, encouraging professional trustees to progress toward this if they haven’t done so already.

The web-based version of the Code (which is not yet live) will include links to Code-related and ‘external’ guidance. TPR is expected to review some of its existing guidance and has identified reporting breaches as a priority. It has no plans to produce additional guidance on completing the ORA or a template.

Louise Davey states that schemes that have not yet carried out a gap assessment “risk falling short of the expectations” and, at the very least, schemes “should be aware of where they fall short of our expectations and have clear and realistic plans in place to address those shortcomings.”