TPR’s single code: Where is the finish line?

While the final version of the code is now expected in “autumn 2022” — in a further delay to the original timetable — there are still steps and planning that can take place now ahead of it coming into force.

As a reminder, under the draft code, trustees will need to establish and operate an effective system of governance that is proportionate to the complexity, scale and organisational structure of their scheme, and the nature of risk the scheme is exposed to.

The ESOG will need to be reviewed every three years. Note that trustees already have a statutory requirement to establish and operate an ESOG — the code sets out how trustees can discharge that duty.

While we do not have a crystal ball, it is not expected that the final code will be drastically different to the draft that was issued in March 2021

In addition, on an annual basis trustees will need to prepare a written own risk assessment evaluating the effectiveness of the policies and procedures comprising their ESOG.

Many trustees will already be carrying out a gap analysis of existing policies and procedures and starting work that is needed to fill in any gaps.

The code also provides opportunities to review and update existing arrangements or to take account of any actions that the scheme has undertaken recently that affect governance arrangements. 

Planning and early preparation are helpful in ensuring that work is manageable, and that value can be added. Trustees will also need to start to consider what their governance framework — the ESOG — will look like on the page, how the ORA will be carried out in practice, and how it will be presented.

Going off track?

While we do not have a crystal ball, it is not expected that the final code will be drastically different to the draft that was issued in March 2021.

That is because much of the content reflects existing legal requirements and TPR codes of practice, or is derived from requirements provided for in the second European Pensions Directive and corresponding domestic legislation.

That said, TPR has been considering the responses to consultation and has indicated that it has been looking closely at some of the terminology used in the code, as well as the level of detail and timescales for preparing the ORA.

So, while there may be some changes, these are expected to be tweaks — not a complete overhaul — and trustees should still work towards meeting the requirements as set out in the draft code for the time being.

Course map

1. Planning ahead — many trustees will have now established the work that is required to implement the ESOG. Project plans and resourcing (for example, the need for a trustee subcommittee) may need to be revisited in light of progress to date.

2. Initial gap analysis — assess existing policies and procedures. Which policies are already in place as compared with the requirements of the code? Are there any gaps or does content need to be updated? Consider if your advisers can assist in completing any gaps now; get ahead to avoid a bottleneck.

3. Refine gap analysis — once the final code has come into force, some fine-tuning of the gap analysis and planning may need to take place to ensure compliance.

4. ESOG — trustees may wish to turn their attention to what the ESOG might look like in practice. TPR is not prescriptive on this: the ESOG must be specific to the scheme in question and there is not a one-size-fits-all approach. We are seeing different schemes take different approaches and it is worth considering what will work best for your scheme. However, an index or spreadsheet that lists and links to the policies and procedures might be a useful starting point.

5. ORA — the initial ORA will need to assess the processes followed to implement the ESOG. How effective are the policies and procedures forming the ESOG? Who are the key stakeholders (for example, trustees, sponsor, auditors, advisers) and factor in time for input. Again, think ahead to how the ORA might be presented on the page in practice and the specific points that will be important to cover for your scheme.

6. Twelve months after the code comes into force — trustees will need to have finalised the first ORA by this date.

7. Beyond the finish line — update annual planners and business plans to account for the ORA to be carried out annually, and the ESOG to be reviewed every three years.

Take time to refuel

There is potentially a lot of work to be done in approaching the ESOG and ORA.

While it is important to plan and be on top of the steps that can be taken now, there is certainly no harm in breaking down the workload into manageable chunks, taking stock of progress at regular intervals, and setting up a sustainable review process for the years to come.

Emily Whitelock is a senior associate at Sackers