General Code will require ‘fresh thinking’ from LGPS funds
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The Pensions Regulator has published its long-awaited General Code of Practice. Merging 10 codes into one, the new single code will apply to public as well as private sector pension funds, with the former potentially having to carry out significant work to assess compliance. The code was laid in parliament on Wednesday and is expected to come into force on 27 March.
The new code, combining 10 of the existing 16, means Local Government Pension Scheme funds might need to comply with areas that are not covered in the current public service code.
The code will among others ask all schemes to have systems of governance and internal controls that:
- provide the governing body with oversight of the day-to-day operations of the scheme;
- include any delegated activities for which the governing body remains accountable; and
- provide the governing body with assurances that their scheme is operating correctly and in accordance with the law.
Having an ‘effective system of governance’ means schemes comply with 18 modules listed in the code.
Those with 100 members or more should also conduct an ‘own risk assessment’, with TPR saying it might consider failure to do so an indicator of poor governance.
“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,” said Louise Davey, TPR’s interim director of regulatory policy, analysis and advice.
Her remarks follow a 2023 survey by the regulator which showed the trustees of four in 10 micro and small schemes were either unaware of TPR’s codes of practice or had never used them. Less than one-quarter (23%) of the trustees of these schemes were aware that a new General Code was set to be introduced.
“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,” said Davey, urging the latter to take action – such as consolidating into a better run scheme.
“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,” she added.
The 10 codes of practice rolled into the General Code are:
- Reporting breaches of the law
- Early leavers
- Late payment of contributions (occupational pension schemes)
- Late payment of contributions (personal pension schemes)
- Trustee knowledge and understanding
- Member nominated trustees/member-nominated directors putting arrangements in place
- Internal controls
- Dispute resolution reasonable periods
- DC code
- Public service code
The codes not included are about: defined benefit funding – a new version of this is still due to be finalised; notifiable events; modification of subsisting rights; contribution notices; master trusts; and collective defined contribution.
While codes of practice set out the regulator’s expectations, they do not usually attract a direct penalty as they are not legal instruments, but they can make reference to legislation.
LGPS funds will need resources to assess compliance
The fact that Local Government Pension Scheme funds are included in the General Code for all schemes in future will need "fresh thinking in how to interpret requirements and how best to assess and demonstrate compliance with this new code”, said Mary Lambe, who heads up public sector governance at Aon.
“Even schemes which fared well against the requirements of the previous code will need to set aside time and resources to manage the requirements of this new General Code,” she warned. “That work – alongside more governance requirements expected in 2024 for LGPS funds through expected consultations and regulations on the back of the Scheme Advisory Board’s good governance project – means governance needs adequate, dedicated, ongoing resources.”
LGPS schemes will welcome the greater clarity on what constitutes a ‘governing body’, said Lambe, as the code spells out that this may be the scheme manager, but that each public service pension scheme should determine who fulfils the role of scheme manager according to their regulations and local arrangements.
LGPS funds might need to make a particular effort to comply, said Lambe: “Significant work will be required by scheme managers in conjunction with their local pension board to assess compliance with the new code’s requirements. In particular, the scheme manager will need to consider the areas that now also apply to pension committees or their equivalents.”
The LGPS Advisory Board for England and Wales welcomed the publication of the General Code.
A spokesperson said: "We will study the new code closely to identify any new requirements for LGPS administering authorities. The Board hopes this final version provides more clarity on which parts apply to the LGPS than the consultation draft did."
The LGPS Advisory Board for England and Wales welcomed the publication of the General Code.
A spokesperson said: "We will study the new code closely to identify any new requirements for LGPS administering authorities. The Board hopes this final version provides more clarity on which parts apply to the LGPS than the consultation draft did."
Own risk assessment is ‘the biggest change'
The laying of the code is a step-up in the governance particularly of DB schemes, which have not been subject to requirements such as the DC chair’s statement, said Laura Andrikopoulos, head of governance consulting at Hymans Robertson.
“The biggest change for schemes will be the ‘Own Risk Assessment’ requirement, and we are pleased that this final version of the code recognises, in line with the underlying legislation, that a report once every three years is sufficient,” she said, rather than schemes having to produce a report annually.
“The clarifications in the final version of the code are also helpful – for example, that the ORA can be a collation of other relevant documents. Trustees may also be relieved to see the enhanced emphasis on proportionality in relation to the risk management function and the assurance requirements.”
Schemes should now dust off their gap analyses and take action, she advised.
However, head of technical, research and policy at Dalriada Trustees, John Wilson, reminded trustees that the regulatory requirements have been in force since the beginning of January 2019.
“The final Code, whilst containing some differences in form, is not materially changed in substance from the draft code consulted on in 2021. Work should already be well underway in terms setting up risk management committees and carrying out governance reviews and gap analysis,” he argued. “Schemes that have not already started may now struggle in terms of meeting requirements and finding resource over the coming months to help get to grips with all 171 pages of the code.”
What are your thoughts on the General Code?
