Getting to grips with TPR’s new single code

The code is a consolidation of existing codes, new modules and updates, with requirements being “proportionate to the size, nature and complexity of the scheme”. It sets out TPR’s expectations for compliance with the law too.

Some have commented that the single code could revolutionise pension scheme governance, but will it?

Once introduced, pension trustees will need to consider changes in several key areas – from investment and administration, to pension communications and reporting to TPR. But before they start, we advise trustees to stop, take a step back, and see the single code for what it is: an evolution, not a revolution. 

The new code presents a timely opportunity for trustees to review communications strategies to ensure they are compliant and, as in the other areas the code covers, that they are also effective

Focus on governance

Governance is simply a framework involving people, a plan and some processes. So, for trustees, nothing fundamental has changed. Governance helps to ensure trustees do what is necessary: collect money, invest money, pay members (or their beneficiaries) the right amount, and follow the law. 

Pensions governance has evolved ever since the first trust-based scheme came into being. It started with trustee boards, then larger pension schemes introduced subcommittees to focus on certain delegated areas. 

More recently, new trust-based models including sole trusteeship and master trusts have evolved. Each has its pros and cons – the key is to use whichever is most effective for helping achieve the plan.

There are examples for good and bad governance in almost any area of pension scheme management. The code should therefore be viewed as an opportunity to improve governance and ensure schemes are managed well.

The breadth of the code may make implementation seem daunting, but pension scheme trustees still have time on their side – expertise to call upon, if needed. However, starting as early as possible will prevent any last-minute panics.

What should trustees prioritise?

Trustee boards should start with the “process” and keep it simple. Consider the following:

• What is our overall plan?

• What is in place?

• What needs updating?

• What needs writing?

• Who is best placed to do the work?

Then prepare for the future by considering what the governance culture will be, how to monitor effectiveness, and how to make the best use of technology. 

Advisers may be able to add value to this discussion, but can they, for example, answer the question about technology independently?

Preparatory work and analysis around single code compliance needs to be budgeted for too. We have seen adviser fees range from £250 for the provision of a template to help carry out a review, to £30,000 for analysis and a proposed action plan. Having an adviser do just the initial work is averaging around £9,000.

Good governance involves the board effectively challenging advisers and their advice. Receiving advice from a third party to supplement the board’s work may prove more valuable, appropriate – ie, good governance – and more cost-effective than handing over single code compliance to existing advisers.

Don’t forget the importance of admin

Administration is another key area of governance. TPR’s new code has no fewer than 10 modules under the heading of administration, a further four under communications and disclosure that affect pension scheme administrators, and one under reporting to the regulator. 

Trustees should also become familiar with three new investment modules on stewardship, climate change and the requirement to produce an implementation report. 

The code uses a new term – governing body – which we take to mean the trustee board, or professional corporate trustee if a sole trustee. However, it is important to recognise the roles and responsibilities played by the trustees’ key support staff, such as scheme secretary, pensions manager and other in-house support. 

This area is concerned with the effective system of governance and how it manages itself, any advisers and how both sets of stakeholders remain accountable.

It’s not only good to talk, but essential

There is also a brief section on communications designed to improve member understanding. Better communications could greatly improve the lack of engagement most members have with their pensions. 

It contains little that is new, but reminds trustees that member communications should be accurate, clear, concise, relevant and in plain English. 

Trustees must inform members of the impact their contributions will have on their overall benefits. They should also consider the format and accessibility of any communications.

Member feedback is mentioned by the draft code and we expect this to be pursued actively in the future.  

This therefore presents a timely opportunity for trustees to review communications strategies to ensure they are compliant and, as in the other areas the code covers, that they are also effective.

Wayne Phelan is chief executive of Punter Southall Governance Services