TPR publishes eagerly anticipated general code of practice

The Pensions Regulator (TPR) has released its eagerly anticipated General Code of Practice. Presented in parliament on January 10, the code aims to enhance the governance of pension schemes by consolidating and updating 10 existing codes from the regulator and introducing new requirements. These include the establishment of an effective system of governance (ESOG) and, for schemes with 100 or more members, the undertaking of an own risk assessment (ORA) to evaluate the effectiveness of ESOG and mitigate potential risks.

The new code provides detailed guidelines on what TPR anticipates from a scheme mandated to maintain an effective governance system, incorporating various crucial aspects of scheme management, notably areas such as risk management.

Louise Davey, TPR interim director of regulatory policy, analysis, and advice, commented: “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.

“Some governing bodies have already grasped this opportunity and carried out analysis to ensure there are no gaps in their governance. However, we believe there are many who have not done so and risk falling short of our expectations.

“Those that do not meet the code’s expectations should take action to improve their scheme’s governance.

“Trustees of schemes unable to meet our expectations should consider whether defined contribution (DC) savers would be better off in a larger, better-run scheme, and whether defined benefit (DB) savers would see higher standards of governance in a consolidation arrangement.

“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.”

Michelle Burgess, associate partner at Aon, said: “Thankfully, the Code is largely as anticipated following the consultation in 2021. We welcome the enhanced standards of governance which underpins everything that trustee boards do. My experience is that most DC schemes and well-run DB schemes are already largely complying with the requirement to have an effective system of governance so the Code will result in current practice being documented more formally than in the past.

“However, our main concern is the increased governance burden and associated costs this will bring for the smallest schemes, many of which will have adopted a proportionate approach to governance and are now likely facing the largest hurdles.”

Madalena Cain, associate partner at Aon, added: “We expect that for DC schemes, this will lead to further consolidation in the market. However, this should be considered within the context of value for members and whether any consolidation action is expected to result in better member outcomes.”

Laura Andrikopoulos, head of governance consulting at Hymans Robertson, added: “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.”

The code is expected to come into force towards the end of March.