The new general code – How to lighten the burden of compliance while improving member outcomes

Phil Sargent, Partner and Head of Defined Benefit Consulting, explains that with the right approach and suitable technology, trustees can deliver improvements to members as well as comply with the general code.

The long-awaited and much-delayed general code of practice has now been laid before Parliament and is expected to come into force at the end of March.

The Pensions Regulator’s (TPR) new code consolidates 10 of the existing codes into a single modular code of practice. On the surface then, the general code shouldn’t merit much fanfare for well-run schemes with a decent governance framework based on these 10 existing codes of practice. But the new general code does much more than simply consolidate existing guidance.

What’s new in the general code?

The general code gives trustees several layers of new requirements to contend with:

  • ESOG – All schemes will need to be able to demonstrate that they have an Effective System of Governance (ESOG) in place
  • ORA – Schemes with more than 100 members will also have to carry out and document an Own Risk Assessment (ORA) at least every three years (scaled back from an annual requirement in the draft code)
  • Risk management function – Schemes will need to decide how best to meet the expectations around the newly created risk management function.

They may also need specific policies in place covering areas such as fees and remuneration, and the appointment of advisers and service providers.

Lots to get on with then!

TPR does helpfully recognise that a ‘one size fits all’ approach isn’t appropriate, and that trustees can take a ‘proportionate’ approach. But what is ‘proportionate’ exactly? It’s clearly open to subjective interpretation. I suspect that many trustees will find it simpler to seek full compliance, after weighing up the benefits of doing so versus the perceived risks of non-compliance and the spectre of regulatory scrutiny.

How will the general code affect smaller schemes?

Some of the new requirements apply only to schemes with more than 100 members. This means than many schemes – widely seen as small in the industry – will need to comply with the same modules of the code as those with thousands of members. Although there may be potential for flexibility by taking a “proportionate” approach.

It’s clear from conversations with clients that this is a real concern. Keen to channel their time and energy into the effective running and funding of their scheme, they worry that these new requirements will be an unwelcome distraction.

Many trustees and sponsors are only now coming to terms with the additional work and costs arising from GMP equalisation, often with minimal benefit for their members. They predict that the general code will involve further difficult conversations with sponsors around yet more expense.

Back to the general code, the challenge for trustees of smaller schemes will be to carry out each duty efficiently but meaningfully, and not turn any of the requirements into tick-box exercises. This is most likely to be achieved through a combination of technology – needed to deliver compliance efficiently – and a suitable approach to prioritising and mitigating the risks they face.

How can technology help schemes comply with the general code?

Trustees should now be starting to work out how their existing governance framework compares with the detailed expectations of well-run schemes set out by TPR.

The right technology should lighten the load of trustees at this time by helping them:

  • Carry out the necessary gap analysis
  • Identify priority areas
  • Monitor ongoing compliance
  • Flag when they need to review their policies and processes in line with the requirements of the general code.

By using a technology-driven process, trustees will know that their journey to compliance is a focused, efficient and effective one. And importantly, it will help them reduce costs.

What about scheme members?

When faced with another lengthy list of compliance requirements, trustees and sponsors of well-run schemes can feel that undertaking such an exercise will result in increased costs with no tangible benefit for members.

Once trustees of smaller schemes start to work towards compliance, I would recommend that they prioritise those areas that will do the most to protect members’ benefits and mitigate risks.

By focusing on actions that enhance member protections while aligning with the scheme’s objectives, trustees will avoid the ‘tick-box’ trap, and can instead deliver genuine, improved outcomes for members.

Any questions or comments about this article?

Get in touch with the author, Phil Sargent.

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