The new Code will mark an evolution from the current requirement to have in place a set of internal controls, to having “an effective system of governance” – with schemes of 100 or more members, excluding the public service schemes, having additional compliance requirements.
In their initial response TPR highlight a number of key issues raised by the consultation responses:
The industry is generally supportive of having common expectations for all schemes, with the modular format being welcomed.
There is concern, particularly from public sector schemes, as to the lack of clarity on the intended audience for each module.
There is general support for the new term of “governing body”, however some respondents (again mainly from the public sector) raised some concerns. TPR have resolved to examine this in greater detail.
The proposed limit for “unregulated investments” to be less than 20% of assets will not be taken forward. However, TPR will explore options to protect members of schemes where poor quality or inappropriate assets are held whilst still allowing prudently run schemes to maintain exposures to unregulated assets.
Perhaps unsurprisingly, some respondents raised concerns about the new Own Risk Assessment (ORA) requirements and the potential additional burden this could place on trustees. Whilst the ORA requirement, which does not apply to the public service, is not got going away, TPR will consider this area in detail to identify any possible changes or guidance requirements – particularly for smaller schemes.
TPR do not expect to lay the new Code before Parliament before Spring 2022 – so it is unlikely to become effective before Summer 2022. This gives trustees, scheme managers, scheme sponsors and advisers more time to consider the new Code requirements - but it is important to keep up momentum on governance matters. While we wait for TPR’s full response and more guidance we suggest that trustees undertake a review of their governance frameworks, which will place them in a better position to implement any changes the new Code brings.
Annemarie van Bochove Allen, Head of Benefits and Governance (Public Service) at Barnett Waddingham, said; “We welcome TPR’s commitment to clarify these key issues of concern raised by us and the public service sector, and to help develop a revised Code that will truly assist with delivering a high standard of pensions governance, and which is at least as good as the Code it replaces”.
Sara Cook, Principal and Senior Pension Management Consultant at Barnett Waddingham, said: “The areas of concern identified from the consultation responses do not come as a surprise. Trustees and Scheme Managers may see this as a short reprieve, which will give them time to focus on other governance heavy obligations as applicable to each sector such as GMP equalisation, the age discrimination remedy in the public service schemes, simplified benefit statements, climate change strategy/disclosures and journey planning.
However, they should not put off having some agenda time to discuss and plan resource for what the new Code will bring, though the finer details will not yet be finalised. They can use this period of breathing space to undertake a review of their governance frameworks, which will place them in a better position for any changes they need to make from next summer.”
Commenting on the Interim response to the consultation on TPR’s new code of practice, Laura Andrikopoulos, Head of Governance Consulting, says: “We welcome an update from TPR on the progress of the consolidated Code of Practice which could have a significant impact on schemes’ governance processes and the amount and attention devoted to good governance. With the underlying regulations having been in force since early 2019 it is important that the UK pension system starts to comply sooner rather than later. Its positive there has been so much engagement with TPR with the consultation, although this has meant the introduction has been delayed beyond the original timetable. Many schemes do however need to start undertaking their gap analyses now to ensure they are well prepared for the Code’s introduction.”
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