Governing bodies have been challenged by The Pensions Regulator (TPR) to use the introduction of its new general code of practice as an opportunity to ensure their scheme is fit for the 21st century.

TPR’s new general code, laid in parliament today, brings together and updates 10 existing codes of practice into one set of clear, consistent expectations on scheme governance and administration.

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While the new code looks different – with expectations set out in short, focused modules – many of the standards set out are not.

The new format makes it easier for governing bodies to find TPR’s expectations and ask themselves whether, and how, they are meeting those expectations.

TPR’s research suggests there remains a subset of disengaged trustees who fall short of the standards expected or are unaware of the existence of such codes.

Louise Davey

Louise Davey, TPR’s Interim Director of Regulatory Policy, Analysis and Advice, said:

“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 savers would be better off in a larger, better-run scheme, and whether defined benefit 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.”

The results from TPR’s annual survey of trustees of DC trust-based pension schemes (PDF, 2,191kb, 47 pages), published in July 2023, showed trustees of four in 10 (40%) micro and small schemes were either unaware of TPR’s codes of practice or had never used them.

And, despite extensive industry engagement during the consultation on the new code, less than one-quarter (23%) of the trustees of these schemes were aware the new code was set to be introduced – with trustees of small and micro schemes the least likely to report being aware, just one-fifth (19%) and almost one-tenth (9%) respectively.

Effective systems of governance and the own risk assessment

The new general code sets out in detail what TPR expects of a scheme that is required to maintain an effective system of governance. This brings together many key aspects of running a scheme, not least in terms of risk management. The detail of what constitutes an effective system of governance will be dependent on the size and complexity of the scheme.

TPR will expect scheme governing bodies to be able to demonstrate that they have appropriate procedures and policies in place.

The own risk assessment is a periodic review of the effectiveness of the features of the system of governance and will help the governing body focus on key areas in need of improvement in the governance and operation of their scheme.