The Pensions Regulator's Code of Practice: Governance and Administration of Occupational Defined Contribution (DC) trust-based pension schemes was laid before Parliament in July 2013.
It is due to come into effect on 21 November 2013.
Following the Pensions Regulator's consultation on defined contribution provision, the Pensions Regulator had identified gaps in the existing guidance. This led to further consultation earlier this year on a new code of practice and regulatory guidance for occupational DC trust-based schemes.
The Code builds on the six principles identified by the Pensions Regulator as necessary for providing the best chance of delivering good member outcomes and, in particular, delivering an adequate income in retirement.
The six principles which underpin the Code are:
- Know your scheme: within the Code, this includes conversance with the scheme documents which is a statutory requirement already covered by the pensions legislation
- Risk management: within the Code, this translates into the requirement to establish and operate adequate internal controls. Similarly, there is already a requirement of this nature within the pensions legislation
- Investment: this covers the requirement to set investment objectives and any default strategy. Again, the legislation sets out the scope of trustees' investment powers and obligations; the Code assists in translating what this means in the DC environment
- Governance: the Code envisages that in a "quality scheme", trustees will be able to demonstrate how they manage conflicts of interest (both trustee and adviser conflicts) and understand and put arrangements in place to mitigate the impact on members of commercial risks
- Administration: the Code draws on previous statements by the Pensions Regulator around good data administration and states that in quality schemes, trustees will both ensure that member data across all categories is complete and accurate and is regularly evaluated and they will support employers in understanding their obligations around the provision of accurate obligation
- Member Communication: this is not specifically covered by the Code. This is largely because the Disclosure Regulations referred to above provide detail on what information must be communicated to members and when. Had the DWP opted for a "principles-based" approach to the Disclosure Regulations, it is likely that detail would have been laid down in a Code of Practice
One key point to note is that the Code does not seem to impose any greater burden on trustees than the legislation. It will be seen from the above summary that many of the aspects of the Code reflect the legal requirements with which pension scheme trustees must already comply.
Instead, the Code seeks to translate the existing regulatory burden into the defined contribution environment. It provides practical guidance on how compliance looks in relation to defined contribution schemes and the defined contribution aspects of hybrid schemes.
Trustees should work with their advisers in identifying areas where they already comply with the Code and additionally, those areas where additional steps need to be taken by the Scheme to ensure that the Code is being followed.
For more information, please contact Suzanne Burrell or your usual pensions contact.