The Pensions Regulator's revised DC Code of Practice and finalised DC ‘how-to’ guides come into force
Details
The Pensions Regulator’s (TPR) revised ‘Code of Practice 13: Governance and administration of occupational trust-based schemes providing money purchase benefits’ (Code of Practice) came into effect on 28 July 2016. On the same date, TPR also published its response to the consultation on six defined contribution (DC) ‘how-to’ guides to accompany the revised code of practice.
Revised DC Code of Practice
The revised Code of Practice sets out the standards of conduct and practice that TPR expects DC trustee boards to meet to comply with the law. The Code of Practice has been renamed to clarify that it applies to all occupational trust-based schemes providing some DC benefits, including additional voluntary contributions, and schemes providing both DC and DB benefits, including underpin benefits.
The information in the Code of Practice is now divided into the following, more practically titled, sections:
The trustee board
TPR recognises that the level of knowledge and understanding of individual trustees will vary according to their role and expertise. However trustee boards as a whole are expected to possess or have access to the knowledge and understanding necessary to run the scheme properly and ensure sufficient standards of governance and administration.
Scheme management skills
The requirement for good governance does not end when an employee stops contributing. In order to look after the interests of every beneficiary, trustees need to have the right level of knowledge and understanding, as mentioned above, and the skills to apply the knowledge.
Administration
Scheme administration is crucial to the successful running of a DC scheme and covers a wide range of activities. All transactions need to be processed accurately and in a timely fashion. Accordingly, TPR expects trustee boards to consider administration as a substantive item at every regular trustee meeting.
Investment governance
Whilst trustees delegate much of the day-to-day business involving the management of their investments, they remain ultimately responsible for those investments. Trustees particularly need to consider the default investment strategy, in addition to offering members an appropriate range of self-select options.
Value for members
The Code of Practice is careful to describe this as ‘value for members’ rather than ‘value for money’, acknowledging that low charges do not necessarily equate to good value for members. Trustees must include their assessment of value in their chair’s annual statement (the Statement).
Communicating and reporting
All communications to members should be accurate, clear, relevant and in plain English. The Code of Practice gives particular emphasis to communications at retirement. Members need to be told about all of the options available to them, not just those in the scheme and that it is possible to transfer to another scheme to access some options. Under the heading of reporting, the Code of Practice refers to the Statement, the Statement of Investment Principles and reporting to TPR.
‘How-to’ guides
In April 2016, TPR began consulting on six guides to provide detailed practical support for trustees on how to meet the standards set out in each section of its new Code of Practice and the underlying legislation. These guides have now come into force and are mainly designed to be used as online tools, with cross-references to the Code of Practice and to additional tools to support governance, such as checklists and summaries.
The Code of Practice and ‘how-to’ guides are not intended to be prescriptive and TPR acknowledges that alternative approaches may be more appropriate depending on the complexity of the scheme. Trustees should adopt a proportionate approach and best practice will be for trustees to consider the Code of Practice and ‘how-to’ guides, as they set out the standards that TPR considers will demonstrate compliance with the legislation.
