The Pensions Regulator publishes new General Code of Practice

The Pensions Regulator has published its new, consolidated General Code of Practice (referred to previously as the Single Code of Practice) which will come into force on 27 March 2024, subject to Parliamentary approval. The new Code consolidates and updates ten of the Regulator’s existing codes, and also introduces a number of new modern governance requirements which trustees will need to take into account when administering their pension scheme.

The Code consists of five main sections:

1. The Governing Body
2. Funding and Investment
3. Administration
4. Communications and Disclosure
5. Reporting to The Pensions Regulator

Key changes for trustees to consider

Effective System of Governance

One of the main requirements of the new Code is that trustees will need to establish an Effective System of Governance (ESOG). The Code makes clear that a scheme’s ESOG must include internal controls and be proportionate to the size, nature, scale and complexity of the activities of the scheme.

Many trustees will already have operating systems of governance in place which satisfy, for the most part, what constitutes an ESOG. Careful consideration will need to be given to the Code however, to ensure that current governance policies and procedures adopted within a scheme incorporate what is expected under the new ESOG regime, and whether any changes are necessary to ensure compliance.

Trustees will also need to review their ESOG at least every three years, unless a significant change occurs which would prompt an immediate review.

Own Risk Assessment

For schemes with more than 100 members, trustees will also need to undertake an Own Risk Assessment (ORA), to examine their ESOG and determine whether any risks need mitigating.

Factors to be taken into account when conducting and reporting an ORA include risk management policies, investment strategies and stewardship, IT and cyber security, administration and governing body policies.

The ORA must be completed and documented by the end of the second scheme year after the Code comes into force and at least every three years following this. It had originally been proposed by the Regulator that the ORA would need to be conducted annually.

Remuneration and Fee Policy

Part of the ESOG required on the part of trustees is to include a remuneration and fee policy. This policy should set out the basis and means for paying those undertaking activities in relation to the scheme that are paid for by the governing body. Whilst there is no requirement for a remuneration policy to be posted on a scheme website, the policy should set out the principles for determining pay and the decision-making process for payment levels, as well including an explanation for the level of remuneration and why it is considered appropriate.

The remuneration and fee policy must be reviewed at least every three years, unless a significant change to the scheme’s governance arrangements prompts an immediate review.

Steps to take

With the new Code due to take effect from 27 March 2024, we recommend that trustees are proactive and, to the extent they’ve not already done so, undertake a gap analysis on current scheme governance policies. By doing so, they will ensure that any policies and procedures currently adopted are up-to-date and any new necessary measures are implemented, to establish compliance with the ESOG.

We anticipate that well run pension schemes will be largely compliant with the new Code already, but now is the time to ensure compliance before the Code is officially in force.

If you have any questions about what steps need to be taken in regards to the upcoming changes in pension scheme governance with the new Code, Doyle Clayton’s specialist pensions team would be happy to assist you.