TPR’s New General Code Of Practice Raises Expectations On Trustees

Introducing TPR’s new General Code

The Pensions Regulator (TPR) works to raise the standards of governance and administration across all aspects of defined contribution (DC) pension management. Plans for TPR to create a consolidated code of practice began in early 2020, and the consultation period took place from 17 March to 26 May in 2021, when the UK was in lockdown due to the pandemic. As a result, the consultation was carried out remotely, with the views of more than 1,000 members of the pension community being heard. The consultation received more than 100 formal responses featuring over 17,400 separate answers.

Why was the new code introduced?

From the outset, TPR declared its intention - with the introduction of a single General Code - to create one defining set of principles that would be clearer, simpler to use, and easier for trustees to navigate.

TPR’s own research suggests there is still a significant number of what it identified as ‘disengaged trustees’ who fall short of the standards expected of pension trustees or are unaware of the existence of the current number of codes of practice. TPR’s 2023 survey of trustees of defined contribution (DC) pension schemes suggested 40% of trustees in micro and small schemes were either unaware of TPR’s codes of practice or had never used them. Moreover, despite TPR’s extensive engagement with the pensions industry on the new code, just 23% of trustees surveyed were aware the new code was soon to be introduced – again with trustees of small (19%) and micro schemes (9%) least likely to be aware.

After experiencing several delays, not least due to the pandemic, the new General Code was laid in Parliament on 10 January 2024 and is expected to come into force in March 2024. The new code, which includes 51-topic based modules, applies to the governing bodies of occupational, personal, and public service pension schemes. However, some key areas of flexibility have been built into the new code, and not all legal obligations apply to all bodies. TPR says trustees must ‘use their judgement as to what is a reasonable and proportionate method of ensuring compliance for their scheme.’

What does the new code replace?

The new General Code brings together and updates ten existing codes of practice. These are:

Reporting breaches of the law
Early leavers
Late payment of contributions (occupational pension schemes)
Late payment of contributions (personal pension schemes)
Trustee knowledge and understanding
Member-nominated trustees/member-nominated directors putting arrangements in place
Internal controls
Dispute resolution reasonable periods
DC code
Public service code.

The aim is to provide trustees with one set of clear, consistent expectations covering scheme governance and administration. The new format, which provides users with brief but focused modules, is designed to make it easier for governing bodies to find and interpret TPR’s expectations and to ask themselves whether they are meeting them, and how they can demonstrate compliance.

How does the new code differ from previous codes of practice?

The new general code sets out in detail what TPR expects of a scheme that is required to maintain an effective system of governance (ESOG). This brings together many key aspects of running a scheme, not least in terms of risk management. The detail of what constitutes an effective system of governance will be dependent on the size and complexity of the scheme.

However, TPR will expect scheme governing bodies to be able to demonstrate that they have appropriate procedures and policies in place, and that they are sufficiently focused on key areas in need of improvement in the governance and operation of their scheme. TPR also confirmed after the consultation that the new ESOG requirements will allow for existing policies and procedures to be incorporated.

The Own Risk Assessment

Arguably one of the biggest changes for schemes to get to grips with is the requirement for occupational pension schemes with 100 members or more to prepare an ‘Own Risk Assessment’ (ORA). The ORA should make an assessment of the scheme’s governance systems as well as identify how potential risks are being managed. Schemes are also expected to clearly set out their own risk policies and procedures and evaluate their effectiveness. EQ Retirement Solutions can assist with this, particularly around governance of outsourced admin which could form part of the ORA.

Once the ORA has been conducted, the findings should be confirmed in writing, signed by the Chair of the trustees, and must be made available to TPR upon request.

Under the new code, the first ORA must be produced within 12 months of the last day of the first scheme year. In other words, for a scheme year running from 1 January 2024 to 31 December 2024, the first ORA must be provided before 31 December 2025. TRP also expects new ORAs to be conducted ‘where elements of the ESOG, or risk management processes, are new or updated and whenever there is a material change in the ESOG or risks facing the scheme.’

However, after concerns were raised during the consultation period about the possibility of annual ORAs, TPR confirmed it will allow schemes to complete subsequent ORAs on their own timetables, provided an ORA is carried out in its entirety at least every three years.

What other key areas should trustees be aware of?

Overall, the new General Code has a greater focus on flexibility and proportionality. For example, there is no longer an expectation for remuneration policies to be published on the scheme’s website. However, TPR still expects schemes to have such policies in place.

Knowledge and understanding

The new code’s ‘Knowledge and understanding’ section also features a list of items that it expects schemes to maintain and for trustees to be familiar with. It expects trustees to have a working knowledge of the following areas:

Pensions law and associated legislation
The trust deed and rules of the scheme
Scheme funding and investments
Principles of investment and risk management
Scheme administration and service providers
Scheme communications.

The list should be available in an accessible format and reviewed regularly.

Equality, diversity and inclusion

The new General Code also sets out expectations for schemes to be more closely aligned with TPR’s principles on equality, diversity and inclusion (EDI). For example, it expects schemes to adhere to the principles set out in its March 2023 EDI guidance, paying particular attention to EDI issues such as:

The diversity of a scheme’s population
The demographics and diversity of scheme members
Awareness of EDI in investment decision-making and taking into account the types of investments preferred by scheme members.

Cybersecurity principles

For the first time, TPR is asking trustees and scheme providers to report significant cyber incidents, to help it build a better picture of the cyber risks facing both the pensions industry and its members. In December 2023, TPR updated its cybersecurity guidance to include practical steps that trustees can take to comply with the expectations of the General Code.

What should trustees do now?

While most pension industry experts agree that the consolidation of nearly a dozen codes of practice into one single code is a welcome development, some concerns have been expressed that the implementation of the new code could place an additional burden on trustee boards. Indeed, some already struggling with the burden of compliance and reporting. It is hoped that trustee boards adopt a ‘joined-up’ approach to ensure that implementation is coordinated and integrated with existing work programmes and initiatives.

Naturally, the amount of work required to meet the General Code's standards depends on the current stage of a pension scheme in its governance improvement plan. But with the General Code due for implementation in March, trustees should already be working with their advisers to ensure they are capable of meeting TPR’s expectations and are demonstrating full compliance with the new code.

As Louise Davey, TPR’s Interim Director of Regulatory Policy, Analysis and Advice, said, “Our new general code is an opportunity for governing bodies to make sure their schemes meet the standards of governance we expect, and savers deserve. It means there is no excuse for failing to know what TPR expects of them… Those that do not meet the code’s expectations should take action to improve their scheme’s governance…. At the very least governing bodies should be aware of where they fall short of our expectations and have clear and realistic plans in place to address those shortcomings.”

Pension administration expertise from EQ

In the current landscape, knowledge is more valuable than ever before in helping schemes and their trustees navigate the complexities of the pensions market, and what the changes mean for them. For over 187 years, EQ has been working with scheme administrators, members, managers and trustees to deliver innovative retirement solutions and to help them meet their responsibilities. We are pension data experts, used to providing data solutions on sensitive and highly complex projects and we specialise in managing the challenge at scale. With technology at our core, we can be your trusted pension partner. If you require support with any aspect of pension administration – get in touch.

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