The anticipation surrounding the general code of practice (the code), formerly known as the single code, has been met with delays and name changes, with its publication expected in spring 2023, which has not transpired. When the code is published it will be one of the largest changes in occupational pensions in decades and trustees must understand its requirements and prepare ahead. Even the most well governed schemes will have a fair amount of work to prepare.
Complying with the code is not rocket science, it is simply a redesign of the governance structure, including the introduction of a self performed audit function. Therefore, the trickiest element to tackle is time. It’s important to start preparing for the changes now, which means fully understanding the code’s requirements and building in preparatory work to your trustee meeting calendars. Though the prospect of implementing the code may appear daunting, it is crucial to remember the purpose behind it – to deliver enhanced governance that adds value and makes you think at the right times. Enhanced governance translates to superior outcomes for members and their welfare must be the number one priority.
What’s important is to not simply develop a system which leads to an annual box ticking exercise. For example, a poor system may simply ask if there is a risk register in place. While a good system will stipulate sensible occurrences of when the register should be reviewed and ensures all key risks are covered and mitigated as far as possible.
Although we don’t know when the code will hit us, one of the key actions trustees can take now is to conduct a thorough gap analysis. By assessing all current practices against the effective system of governance (ESOG) guidelines, you will be able to understand how well your pension schemes already complies, identify areas that need improvement and pinpoint where a new policy or procedure is necessary. Such analysis will also help guide trustees on where to prioritise and channel their efforts effectively.
All schemes will need to make changes and the sooner these are factored into the daily trustee business the better. Pension trustees may want to consider a governance or risk committee to oversee the project (and ongoing ESOG) to help lessen the load on the trustee board, ensure all trustees understand their responsibilities and establish a process of accountability.
Making use of professional support is also essential, although pension trustees should remember it’s their ESOG so it must work for them and ultimately, they are the ones responsible for ensuring their scheme is compliant and governed effectively.
The Pensions Regulator’s (TPR) guidelines state that trustees must implement an ESOG that aligns with the size, nature, scale, and complexity of their scheme’s activities. While size should not be a barrier to good governance, trustees of smaller schemes may understandably have concerns about addressing similar challenges with limited resources. However, they can take comfort that proportionality must be taken into account!
At Vidett we aim to share efficiencies across clients, meticulously formulating a strong strategy and business plan, using appropriate technology such as a key decisions trackers and risk dashboards to facilitate informed decision-making. We also understand that for smaller schemes in particular, it is important to be pragmatic and ensure changes add value.
Regulations are already in place which require pension trustees to have an ESOG and TPR to implement this with the code. We understand that TPR has the final code ready, the delay has been due to finding time in the Parliamentary timetable, but this is still expected.
In the meantime, it makes sense to put in place top priority policies and processes. One example is having a cyber security and incident response plan in place, particularly following recent high profile cyber issues. Also given the DWP’s recent call for evidence on pension trustee skills, capability and culture, I expect there to be significant focus on trustee knowledge & understanding, which should be another area to prioritise. TPR has provided us with this detailed governance framework and we should not waste it. Performing the gap analysis review and completing any improvements only has benefits, so don’t give up now!