Mary Lambe, head of Public Sector Governance at Aon, said: “For public service pension schemes, the move from one dedicated code to a general code for all schemes will require fresh thinking in how to interpret requirements and how best to assess and demonstrate compliance with this new Code.
“In the new Code, core modules sit alongside areas of good practice for public service pension schemes. We would expect well-run funds/schemes to be giving real consideration to all relevant areas of this new Code. One might also expect that TPR would look less favourably on funds/schemes which choose not to consider areas referred to as good practice. This all requires resources. Even schemes which fared well against the requirements of the previous Code will need to set aside time and resources to manage the requirements of this new General Code. That work - alongside more governance requirements expected in 2024 for LGPS funds through expected consultations and regulations on the back of the Scheme Advisory Board’s Good Governance project - means governance needs adequate, dedicated, ongoing resources.
Focusing on the Governing Body
“Public service pension schemes are likely to welcome the improved clarity about the term ‘governing body’ since the 2021 consultation. However, significant work will be required by scheme managers in conjunction with their Local Pension Board to assess compliance with the new Code’s requirements. In particular the scheme manager will need to consider the areas that now also apply to Pension Committees or their equivalents.”
Focusing on driving up standards
Scott Campbell, senior consultant at Aon, said: “We can expect the new General Code to drive up standards – for example, this Code demonstrates the importance of managing cyber risk. Already we are seeing more and more public service pension schemes/LGPS funds focusing on cyber risk through practical actions. We expect that it will be a key area of focus for many going forward.”
Laura Andrikopoulos, Head of Governance Consulting, Hymans Robertson, said: “After a lengthy delay, during which Trustees may have put ‘pens down’ on their projects to ramp up scheme governance, the laying of the General Code means these important projects can now be resurrected. Delayed effectiveness and governance reviews can now be performed with greater confidence on the actual requirements. The laying of the Code heralds an important step-up in the governance of occupational pension schemes, particularly Defined Benefit schemes, which have not been subject to the same regulatory requirements as DC schemes have seen in recent years, such as the Chair Statement.
“The biggest change for schemes will be the ‘Own Risk Assessment’ (ORA) requirement, and we are pleased that this final version of the Code recognises, in line with the underlying legislation, that a report once every three years is sufficient. This is in line with other major requirements such as the triennial actuarial valuation, and will save schemes from what could have been a substantial annual process. The clarifications in the final version of the Code are also helpful – for example, that the ORA can be a collation of other relevant documents. Trustees may also be relieved to see the enhanced emphasis on proportionality in relation to the Risk Management Function and the assurance requirements.
“Before the Code comes into force in the spring, schemes should now dust off their gap analyses and proceed with identified policy gaps, a review of their risk management and preparation for their first ORA.”
David Brooks, Head of Policy at leading independent consultancy Broadstone: “The general code is essentially the Trustee Handbook for running a pension scheme well. It will be used by TPR as the benchmark for Trustees to assess if they’re doing the right things for their members and so it is an important document for driving up governance standards.
“However, the last draft the industry saw was released in August 2021 as part of an interim update and the publication of the latest code has been long promised, eagerly awaited but much delayed. It is great that the general code has finally been laid before parliament as it will provide Trustees with clarity on their roles and responsibilities, especially given the growing scrutiny over the role of trustees.”
John Wilson, Head of Technical, Research and Policy at Dalriada Trustees comments: “The laying before Parliament of the final version of the General Code is very welcome and represents the final piece of the ESoG / ORA jigsaw. In particular, we now know the detail as to what TPR expects of schemes in terms of their system of governance and, for schemes with more than 100 members, own risk assessments. That said, trustees should remember that the regulatory requirements have been in force since the beginning of January 2019 and the final Code, whilst containing some differences in form, is not materially changed in substance from the draft code consulted on in 2021. Work should already be well underway in terms setting up risk management committees and carrying out governance reviews and gap analysis. Schemes that have not already started may now struggle in terms of meeting requirements and finding resource over the coming months to help get to grips with all 171 pages of the Code.”
Iain McLellan, Head of Research and Development at Isio: “The confirmation of the final wording and effective date for the General Code helps to remove the uncertainty that has stalled progress for most trustee boards over the past few years. This should give trustees confidence to move forward with the work involved complying with the new requirements around having effective governance systems in place.
“While TPR has made refinements to the General Code following the last round of consultation, initial reading indicates that there doesn’t look to have been any wholescale change in direction. All trustees looking after schemes with more than 100 members will now need to work on ensuring they carry out an Own Risk Assessment of their governance arrangements.
“While there are lots of references in the Code to being proportionate, this isn’t defined and it will take time to see what TPR’s expectations are in practice. Smaller schemes are likely to feel the burden of complying more acutely than larger ones and have the most to benefit from adopting new technologies to help them do so.”
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