News | February 2, 2023

TPR’s Single Code of Practice – Worth the wait?

With 2023 now in full swing, the Pensions Regulator (TPR) intends to publish its long-awaited Single Code of Practice (the Code). It has been some time since TPR first published a draft version of the Code as part of its consultation in March 2021, on bringing together 10 of the existing separate 15 Codes of Practice. 

The key legislation that forms the basis of the new Code can be found under the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018 (Governance Regulations). The Governance Regulations implement the governance requirements of previous EU law into UK law and make amendments to the Pensions Act 2004 (section 249A) which previously required trustees of occupational pension schemes to establish and maintain “internal controls“. 

The amendments made by the Governance Regulations now require schemes to establish and maintain an “effective system of governance including internal controls” (ESOG). These amendments also state that the system “must be proportionate to the size, nature, scale and complexity of the activities of the occupational pension scheme“.

The Code consolidates content under the 15 existing Codes of Practice whilst presenting the opportunity for TPR to update the existing codes of practice with new content. The first version of the Code is expected to consolidate 10 of these existing Codes of Practice, with the remainder to be incorporated in due course. TPR has stated its intention is for the new Code to be clearer, simple to use and easy to navigate. 

Timeline for Single Code of Practice

  • 17 March 2021 – TPR Consultation issued on bringing together 10 of the present 15 Codes.
  • 26 May 2021 – Consultation closed.
  • 24 August 2021 – TPR interim response indicating the new Code would be laid in Parliament in Spring 2022. This did not occur.
  • September 2022 – TPR indicated publication of the Single Code of Practice expected soon.
  • Early 2023 – Publication expected.

TPR referred to a large number of comments received in its interim Response, indicating more time was needed to review these in order to “develop its policy positions further“. Delays have occurred with the Code due to other factors, including progression of the DB Funding Code of Practice, which is expected to be included in the Code once finalised around Autumn 2023. Charles Counsell (TPR Chief Executive) has previously indicated that the new Code will be published soon and before his departure at the end of March 2023. Whilst it is likely the Code will be published before his exit, there could be further delays on the horizon. 

It should also be noted that the DWP issued draft Funding and Investment Strategy Amendment Regulations in July 2022 for consultation, which closed in October 2022. The July 2022 draft Regulations were quite rigid in various respects and need to be more flexible to align with TPR’s new proposed DB Funding Code which will in due course form part of the Single Code.

What are the key obligations under the proposed new Code?

The following are new requirements under the Code which require trustees of most occupational pension schemes to:

  • Establish an “effective system of governance” (ESOG) including internal controls – as stated above, this must be “proportionate to the size, nature, scale and complexity” of the scheme, which builds on the previous requirement under the Pensions Act 2004 for schemes to maintain adequate internal controls. 
  • For schemes with less than 100 members the ESOG requirements are in 7 general areas eg “sound and prudent management of activities” and the Code will elaborate on these areas.
  • For schemes with 100 members or more the Governance Regulations also require the Code to cover many further areas in some detail. These include the following amongst others:
  1. Prepare an “Own Risk Assessment” (ORA) – this is a requirement to carry out and document the ORA of their system of governance, introduced by the Governance Regulations. The ORA is an assessment of how well the scheme’s governance systems are working and the way in which potential risks are managed. It must be in writing, signed by the Trustees’ chair and made available at TPR’s request. The ORA 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. The Governance Regulations require scheme trustees to complete their first ORA “within 12 months beginning with the last day of the first scheme year that begins after the Regulator has issued” the Code of Practice, which TPR has warned will be a “substantial process“. In some cases, the deadline for completing the ORA can be longer. Notwithstanding this theoretically long timescale, the overall message from TPR is that trustees are expected to put in place their ORA sooner, rather than later;
  2. Prepare a written remuneration policy – this document is to cover anyone who is involved in running the scheme, carries out key functions or whose activities have a material impact on the scheme’s risk profile. 
  3. Prepare a policy on the appointment of advisers and service providers – this document should cover the Trustees’ approach to selection, appointment and management of these advisers ;
  4.  Consider climate change – Trustees should ensure processes for identifying and assessing climate change risks are appropriately documented; and
  5.  Consider cyber security – TPR also expects Trustees to ensure processes for identifying and assessing climate change risks are appropriately documented. 

What steps can Trustees take to comply with the new Code?

Complying with the new Code will be a complex task, particularly for trustees of larger schemes with 100 or more members who must prepare and document an ORA, reviewing the working of the ESOG and how risks are managed. 

In order to demonstrate that the scheme is meeting the ESOG requirements of the new Code, once the Code is in force trustees may want to consider the following practical action points:

  • establishing a trustee sub-committee to work with professional advisers to the scheme to ensure compliance;
  • reviewing the scheme’s existing governance system against the ESOG requirements; and
  • conducting a ‘gap analysis’ of the new Code against the scheme’s governance framework, including any existing policies and procedures in order to identify any areas of compliance or non-compliance where additional focus is required.

Clearly, many schemes will in effect already be compliant with large parts of the Code, particularly given some of the requirements have existed previously, albeit in a different format. TPR has been working through any concerns in relation to the ORA, in particular, around the amount of work this would create, timeframe for compliance, the look of the finished product and potential burden on smaller schemes. TPR has said it has been continuing to work through responses in this area and to identify any necessary changes or guidance requirements and to re-examine the timeframe for the ORA’s introduction and the frequency schemes should renew it. It will be interesting to see how TPR delivers on this front as it seems the new Code is fast approaching.