New draft Code of Practice on occupational defined contribution governance & administration

The Pensions Regulator (TPR) has published a draft new Code of Practice for trust-based defined contribution (DC) schemes. TPR has revised the Code in particular so that it takes into account the new DC flexibilities, and new regulations on governance and charges in occupational DC schemes which came into force in April 2015. The new Code, once finalised, will take the place of the existing DC code which was published by TPR in 2013.

The purpose of the draft Code is to set out the standards of conduct and practice that TPR expects trustee boards to meet in complying with their legislative duties. The draft Code is shorter than the current code, and assumes that trustee boards have a good level of knowledge of relevant legislation.

The consultation will run until the end of January 2016, and the new Code will be laid in Parliament next May, to come into force in July 2016. Further guidance to support the Code and provide practical assistance to trustees is anticipated to be published in spring 2016.

The revised DC code is divided into sections and sets out expected conduct and practice in relation to the following:

• The trustee board – including appointing a chair of trustees, member-nominated trustees, and the make-up of trustee boards of master trusts.
• Scheme management skills – such as managing risk, trustee knowledge and understanding, and conflicts of interest.
• Administration – including core financial transactions and record-keeping.
• Investment governance – including documenting investment matters, monitoring and reviewing investment strategies, and security and liquidity of assets.
• Value for members – such as restrictions on costs and charges, and the adjustment measure.
• Communicating and reporting – for example at-retirement communications, scams, and the annual chair’s statement.

TPR confirms that in light of the new legal requirement on relevant schemes to produce an annual chair’s statement on governance, it no longer expects trustee boards to produce a voluntary governance statement demonstrating how their scheme has performed against the DC quality features. The chair’s statement will be expected to provide a meaningful narrative of how the new legislative governance requirements have been complied with.

The draft Code is in general not prescriptive about particular methods that the trustees should use to meet the required standards, recognising that different approaches may be appropriate for different schemes. TPR accepts that trustees will often need to make judgement calls as to what is a reasonable and proportionate method of ensuring compliance for their scheme.