New DC code of governance: A new bedrock is introduced by the Pensions Regulator
The new slimmed-down DC code should help to set out the key minimum standards in a clearer way, while allowing the Regulator flexibility to update and amend the DC guides in line with changing practice in the industry.
The Pensions Regulator's revised "Code of practice 13: Governance and administration of occupational trust-based schemes providing money purchase benefits" came into effect on 28 July 2016, replacing the first version of the code published in 2013.
The purpose of the revised DC Code is to set out the standards of conduct and practice that the Regulator expects trustee boards to meet in complying with their duties in legislation.
The Regulator's aim is to ensure that schemes are being managed to a high standard in light of the large numbers of individuals being auto-enrolled into Defined Contribution pension schemes.
The revised DC Code applies to trustees of all occupational trust-based pension schemes with two or more members (whether active, deferred or pensioner) which offer money purchase benefits. This means that as well as applying to DC schemes and DC sections within schemes offering mixed benefits, it also applies to money purchase additional voluntary contributions (AVCs) within Defined Benefit schemes, money purchase benefits with a Defined Benefit underpin, and money purchase underpin benefits where these are provided by a scheme, insofar as the relevant legislation applies to them.
So what has changed from the 2013 DC Code?
The revised DC Code …
- focuses on six areas (1) the trustee board (2) scheme management skills (3) administration (4) investment governance (5) value for members (6) communicating and reporting;
- is shorter and simpler than the 2013 code;
- has an increased focus on legislative requirements including the new laws introduced in April 2016 but assumes trustee boards have a good knowledge of the law;
- is intended to be dynamic and user-friendly including for people using tablets and mobile devices, offering the ability to navigate directly from the code to relevant legislation and companion DC guidance online, rather than reading through all of the material;
- provides that trustee boards of schemes providing only AVCs should consider the risks to members in the context of the significance of the value of AVCs relative to members’ overall benefits in the scheme, and where the law applies to AVCs, apply a proportionate approach to meeting the relevant standards in the DC code.
In many instances the DC code is not prescriptive about particular methods that trustee boards should use to meet the standards, in recognition that different approaches may be appropriate for different schemes, e.g. what is appropriate for a large master trust may not be appropriate for a small single employer scheme. The Regulator expects trustee boards to make judgement calls as to what is a reasonable and proportionate method of ensuring compliance for their scheme.
The Regulator confirms that it will use information reported through the DC scheme return to produce more best practice guidance to highlight industry standards and help trustee boards scrutinise their own processes.
Additional "best practice" guidance materials published
- Six DC "how-to" guides to accompany the revised DC Code. The DC Code contains the standards which the Regulator expect schemes to meet, and the guides set out practical guidance for how that might be done. The guidance sets out (and clearly distinguishes between) recommended best practice and suggested approaches that trustee boards may choose to take, where appropriate, for the circumstances of their scheme.
- Updated compliance and enforcement policy for occupational DC schemes, describing the Regulator's expectations for compliance with legislation and how it will enforce the law. In the Regulator's press release, Mr Warwick-Thompson states: "We will act where trustees demonstrate that they are not meeting even the basic 'hygiene' duties of preparing their chair’s statement or completing a scheme return, as this is often an indicator of more serious stewardship failings."
- Alongside the above DC governance materials, the Regulator has produced a "self-assessment template" tool to help trustees to assess their scheme against the standards in the DC code, so that they can identify areas requiring improvement.