Spring is sprung but where is the General Code?

The Pensions Regulator's General Code could be published any day now, but what is it, and why has it been so delayed?

Back in March Charles Counsell, then CEO of the Pensions Regulator (TPR) confirmed in an interview with Pensions Age Magazine that the long anticipated consolidated code of practice would be published in the spring, under the new title of the “General Code”. A month into the season we have yet to see it, and like the early spring daffodils, things are starting to nod their heads towards summer.  

What is the General Code?

The General Code consolidates and updates a number of TPR’s existing codes of practice. It will be web-based, with content split into 51 modules designed to be easy to navigate, with links to relevant content elsewhere in the code. 

TPR says that the General Code will make it much easier for users to distinguish between legal duties and TPR’s compliance expectations, which can sometimes be challenging. It’s an important distinction because breach of a legal duty can have significant consequences, including a prison sentence in some scenarios, whereas breach of one of TPR’s compliance expectations generally carries no specific penalty (though the failure can be used as evidence in any subsequent action TPR might bring).  

It’s quite the overhaul, so how did we get here?

It all started with the second European Pensions Directive, known as IORP II, which came into force before Brexit and was aimed at improving governance in relation to occupational pension schemes. 

IORP II requires occupational pension schemes to establish and operate effective systems of governance which must be proportionate to the complexity of the scheme and the nature of the risks it is exposed to and must be assessed by the trustees and documented in what is known as an ‘own risk assessment’ or ‘ORA’. 

The Occupational Pension Schemes (Governance) (Amendment) Regulations 2018 (Regulations), which came into force on 13 January 2019, implement IORP II into domestic law and require TPR to publish a code of conduct on effective systems of governance.

TPR acknowledged that its existing codes were not kept up to date and so were sometimes difficult to navigate and took the opportunity to completely modernise its whole approach by consolidating 10 out of its 15 existing codes of practice into one, with plans to incorporate the remaining codes later. It published the draft code for consultation back in March 2021.

Why the delay?

TPR issued an interim response to the consultation in the summer of 2021 stating that more time was needed to properly review and amylase the industry feedback it received. The issue which received the most attention in that feedback was the ORA, in which respondents raised concerns over the amount of work involved, timescales and the burden the ORA would present, particularly to smaller schemes.

The Regulations require the ORA to be carried out at least every three years, with the first ORA due within 12 months of the end of the first scheme year beginning after TPR formally issues the General Code. The draft code however required trustees to carry out the ORA every year. In the interim response TPR said it was reconsidering this point as well as looking at other changes for smaller schemes.

TPR also found itself beholden to the political turmoil of last year, in which we found ourselves with three different Prime Ministers in less than three months, and which had knock on effects at the DWP. The General Code will need to be approved by the Pensions Minister before it can be finalised, and for a while TPR (like the rest of us) wasn’t sure who that would be.

Is it really a problem?

From an ORA perspective, schemes will have some time to prepare for their first ORA once the General Code is published in its final form, and many schemes have already started to prepare for it. TPR has also been keen to point out throughout this process that well governed schemes will not have any difficulty complying with the new requirements. 

The frustration for many schemes in this waiting period is really knowing what to do when it comes to day-to-day matters. The draft General Code is materially the same to the existing codes it incorporates in many respects, but there are differences, albeit some very subtle ones. So trustees undertaking business as usual tasks like reviewing their member nominated trustee procedures, may wish to look ahead to the General Code and may need to double check things again when the General Code is operative. 

Our view is that Trustees should generally continue to adopt a business as usual attitude but to be aware of how the General Code might impact on current activities so that any preparatory work can be built into their day to day activities.

When is the General Code likely to be published?

TPR published its Corporate Plan 2023-2024 on 21 April 2023 in which it simply stated, “It is essential that our expectations of trustees and governing bodies are clear and easily identified, and this year we will launch a new general code of practice.” For the time being then, “anytime this year” continues to be the best answer we can give to clients. 

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2024.

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