News | January 17, 2024

TPR’s General Code of Practice – A New Year for Trustee Governance Requirements

After numerous delays to its final publication, the Pensions Regulator (TPR) has laid its General Code of Practice (the General Code) in Parliament on 10 January 2024, some three years since the first draft was revealed for consultation in March 2021.  The General Code was formerly known as the Single Code.  The General Code is expected to come into force on 27 March 2024.    

We covered the key aspects of the General Code in our previous update.  Whilst many of these aspects remain unchanged, there are some notable differences from the original text of the General Code. 

Recap – The lead up to the General Code

TPR’s 16 existing Codes of Practice form the bedrock of its expectations for the conduct and practice of trustees under pensions legislation.  Whilst these Codes of Practice are not legally binding, they still constitute important documents that can be taken into account during court proceedings.   

The legal foundations of the General Code are set out under the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018 (Governance Regulations).  Crucially, the Governance Regulations require schemes to establish and maintain an “effective system of governance including internal controls” (ESOG).  The amendments introduced by these regulations state the system “must be proportionate to the size, nature, scale and complexity of the activities of the occupational pension scheme”. 

The General Code was expected to be laid in parliament in Spring 2022.  However, this was delayed to 10 January 2024.  Such delays are largely thought to have been due to the stalled progress of the DB Funding and Investment Strategy Code of Practice (which remains outstanding), together with delays caused by the Covid-19 pandemic. 

Timeline for the General Code of Practice

17 March 2021 – Consultation on new Code of Practice issued.

26 May 2021 –  Consultation closed.

24 August 2021 – TPR publishes its interim Response.

September 2022 – TPR indicated publication of the new Code of Practice is expected “soon”. 

March 2023 – TPR publishes EDI guidance to be incorporated in the new Code of Practice.

Spring 2023 – Expected implementation of the new Code of Practice delayed.

10 January 2024 – The new Code of Practice (now labelled the General Code of Practice) is laid before Parliament.

10 January 2024 – TPR publishes its final response to the consultation on a new code of practice.

27 March 2024 – The General Code is expected to come into force. 

Own risk assessment

Amongst other things, the General Code requires trustees of most occupational pension schemes with 100 members or more to prepare an “Own Risk Assessment” (ORA) which must be in writing, signed by the trustees’ chair and made available at TPR’s request.  As noted previously, the ORA is an assessment of how well the scheme’s governance systems are working and the way in which potential risks are being managed.  It must state how the trustees have assessed the effectiveness of each of their risk policies and procedures, whether the trustees consider their policies and procedures are effective and why.  

Generally, the first ORA must be produced within 12 months of the end of the first scheme year starting after the General Code comes into force (expected 27 March 2024). So, for a scheme with a 31 December 2024 year end, the first ORA must be provided by 30 December 2026. In certain circumstances, a longer period may be permitted.  TPR has considered industry feedback as to timings of subsequent ORAs and stated that schemes should complete any subsequent ORAs on a triennial basis (i.e. at least every three years).  This is a marked shift from the previous requirement in TPR’s draft Code to prepare an ORA on an annual basis.  However, TPR still expects new assessments to be carried out “where elements of the ESOG, or risk management processes, are new or updated and whenever there is a material change in the ESOG or risks facing the scheme”. 

What are the key changes under the General Code?

  1. Equality, diversity and inclusion (EDI) – The General Code includes reference to adhering to the principles set out in TPR’s EDI guidance (published March 2023), in particular with reference to the diversity of a scheme’s population, awareness of EDI in investment decision making, together with the demographics and diversity of scheme members, to take into account the types of investments preferred by scheme members.  We recommend trustees consider how their governance processes adhere to this guidance to ensure the guidance is implemented into scheme governances processes. 
  2. Knowledge and understanding – The General Code includes new lists of items which it expects trustees to have a working knowledge of – e.g. the nature of financial risk or around investment management arrangements. 
  3. Remuneration policies – There is no longer an expectation for this to be published on the scheme’s website, however TPR still expects schemes to have in place such policies.
  4. Cyber security – TPR recently updated its guidance on cyber security which sets out practical steps trustees can take to comply with the expectations of the General Code.   

What should trustees do now?

Clearly, where a scheme currently is in its governance journey plan will influence how much work needs to be done to comply with the requirements under the General Code.  Although some flexibility has been allowed by TPR in certain areas (e.g. the updated timescales in relation to the ORA) overall there are potentially significant governance requirements on all schemes, in particular those schemes who have not yet taken sufficient steps to comply with the main elements of the General Code to date. 

Trustees should now consider how to organise compliance with the General Code, by working with their advisers to ensure they are in the best shape possible in order to meet TPR’s expectations.