UK Pensions Regulator’s new code of practice offers more flexibility for schemes

TPR’s new general code – which consists of 51-topic based modules- has been laid before parliament and is expected to come into force on 27 March. TPR recently published its final response to a consultation on the new code, explaining some of the main changes compared to previous drafts. Its aims are to improve pension scheme governance and consolidate 10 of the regulator’s existing codes, updating them as well as adding new requirements for schemes.

New obligations include a requirement to establish an effective system of governance (ESOG) and, for schemes with 100 members or more, to complete an own risk assessment (ORA) to examine the effectiveness of the ESOG, note any risks and determine how these potential risks are mitigated. TPR expects that ORA will be a more straightforward project for pension schemes under the new general code. For example, schemes will not be required to duplicate work where existing risk assessments already fulfil ORA expectations.

The code will also provide firms with greater flexibility on timing, meaning they can use their own timetable provided the entire ORA is completed at least every three years. The deadline for the first ORA is now as set out in regulations, to allow at least 12 months from the last day of the scheme year beginning after the code takes effect, and longer in many cases. Greater control of scheme risk for members, trustees and corporate sponsors aims to help reduce member complaints, costly settlements and corporate reputational damage.

Christina Bowyer, pensions expert at Pinsent Masons said: “It’s good news that TPR has responded to industry concerns and is adopting a slightly more flexible approach to the new own risk assessment as well as relaxing the timeframe for frequency of the assessment.” She added that meeting the regulator’s governance expectations and guidelines “remains a challenge even for well-run schemes”, but said the update provides “real opportunities for more robust and efficient governance to help avoid issues of delay and disorder which rose to the surface for some schemes in the recent LDI crisis”.

TPR has confirmed that the new ESOG requirements are predominantly a rebadging of things well-run schemes should be doing already, and the ESOG can incorporate existing policies and procedures. The final code includes some other key changes following consultation – for example, the proposed 20% cap on unregulated investments has been removed; the two-year period for reviewing service appointments has been extended to three years; and there is confirmation that TPR expects changes to registrable information to be made as soon as reasonably practicable and not at the next scheme return.  Schemes are also encouraged to consider their diversity and inclusion practices in a number of code modules.

The changes will likely take time to implement, with schemes which have not done so already urged to start preparations now to “avoid a squeeze on advisor resource”, Bowyer said. She added: “it is reassuring that TPR is allowing schemes to tackle risk assessment in a more straightforward way, building on existing processes”.