The Pensions Regulator’s (TPR) new proposed Single Code of Practice closed for consultation on 26 May 2021 and is expected to come into force towards the end of 2021.

The Code consolidates 10 of the existing 15 Codes of Practice into one and incorporates changes introduced by the 2018 governance regulations. While this consolidation is useful, there is no doubt that the Single Code will noticeably expand the governance burden for trustees. Given the significant amount of work that will be required for many trustee boards to ensure compliance with the Code, our advice is for trustees to start considering now what changes will be needed to comply with the Code and begin planning a process for implementing these changes.

Two key issues

In terms of the Code, there are two key issues for trustees to consider. The first is the requirement for schemes to establish an effective system of governance (ESOG) and the second, for schemes to document an “own risk assessment” (ORA) of their system of governance. The issues are linked as trustees can’t carry out an effective ORA without first having an effective system of governance in place.

What does an effective system of governance look like?

TPR has outlined that trustees must have an effective system of governance proportionate to the size, nature, scale and complexity of their scheme. TPR says that ‘Private sector schemes with 100 or more members will now need to carry out an own risk assessment. TPR expects governing bodies to use this to assess how well their policies and procedures address various risks, financial and operational, that their scheme faces.’

As professional trustees working across numerous schemes in many sectors and of various sizes, 20-20 Trustees is often brought into situations where trustee boards need help with reviewing their governance structure. While ESOG should be ‘proportionate to the size, nature, scale and complexity of the scheme’, there will be a lot for the trustees of all schemes to consider, regardless of their make-up. This includes risk management, climate change, cybersecurity and recording a remuneration policy, which should be published on the scheme website or otherwise made available to members.

Small schemes

20-20 Trustees’ consider that small schemes, in particular, may find this new requirement burdensome. We are well versed in working with small schemes and fully appreciate that when it comes to pensions, size doesn’t matter – the challenges facing smaller scheme can be just as complex as those facing larger ones. This is essentially reflected in the Code which requires all schemes, regardless of size, to have first-rate governance.

20-20 Trustees have substantial expertise in the scheme governance field and so if you would like to discuss the governance needs of your scheme (be it big or small) in light of the Code, please do contact us for an informal chat.

ORA will add to trustee workload

Firmly linked to ESOG, the other key issue for trustees to consider is the ORA – although it’s important to note that this only applies to schemes with 100+ members.

The ORA is designed to enhance professional standards around governance and risk management by assessing how the scheme’s governance is working in practice – back to ESOG again – and of course, considering how trustees manage risk. However, most professionals agree that carrying out an ORA for the first time will probably be a substantial job and this is backed up by TPR itself acknowledging this is likely to be a significant piece of work. Just looking at the outline of the ORA in the consultation document shows the level of detail required – for the lay trustee it could be seen as quite formidable.

Certainly, the experience of 20-20 Trustees as we speak to clients and colleagues in the sector appears to suggest that whilst many are aware of the new Code, there seems to be little appreciation of just what is around the corner and the scale of the work schemes will need to do in order to be fully compliant.

We are encouraging schemes to think about who is going to be taking the lead on this – trustee boards or professional advisers. It is important the terms ESOG and ORA are on the agenda now as further resources and additional skills may well be necessary. If you have any concerns about any aspects of the new Code and how your trustee board should be approaching it, please do not hesitate to contact our team of experts at 20-20 Trustees.