DC Code of Practice - tips for trustees

8 minute read
22 January 2016

Consultation on the Pensions Regulator's new Defined Contribution (DC) Code of Practice on the governance and administration of occupational DC schemes (the Code) closes on 29 January 2016.

The Code replaces the previous code (in force since November 2013) which has been extensively revised to reflect the changes in the DC world. Although certain themes remain constant, the Code sets them out differently.

The Regulator has developed the Code with the following three principles in mind:

  • to have all of the standards expected of trustees in one place - the Code intends to set out all of the standards of conduct and practice that apply to occupational trust-based schemes providing money purchase benefits, rather than having them spread across a number of separate documents;
  • to be clear and unambiguous;
  • to be short and simple - practical guidance and 'how to' guides are not part of the Code. These will be provided in separate supporting guidance (due to be published for consultation in Spring 2016).

These principles combine to produce a code that is more comprehensive than the 2013 version but is also materially shorter. It assumes a certain degree of knowledge (e.g. the Regulator states that the 31 DC quality features are now "well established and should be business as usual for trustees") and the Regulator directs trustees to the Trustee toolkit if they need more detail about what their obligations in this area are.

Who will the Code apply to?

the Code will apply to a wide range of schemes.

If you are a trustee of:

  • an occupational trust-based pension scheme;
  • with two or more members (whether active, deferred or pensioner); and
  • offering money purchase benefits;

you will need to comply with the Code.

There is a broad range of schemes that are considered to be offering money purchase benefits and are therefore subject to the Code, including:

  • DC schemes;
  • DC sections within schemes offering mixed benefits;
  • money purchase additional voluntary contributions (AVCs) within occupational defined benefit (DB) schemes;
  • money purchase benefits with a DB underpin; and
  • money purchase underpin benefits where these are provided by a scheme (where the relevant legislation applies to them.

Key points to note

The new Code sets out the standards that the Regulator expects trustees to comply with in meeting the legal duties for DC schemes which were introduced last year. In certain areas, the Code goes beyond these legal requirements.

The Regulator expects trustees to act in accordance with these standards and, if they can't, trustees should "assess and if necessary report breaches of the law".

Here are just a few of the key areas in the Code that trustees will need to think about:

Value for members - this is an area that has been getting a lot of attention in the last year and is something trustees have been focussing on. the Code states that value for members does not necessarily equate to "low cost". The key areas the Regulator expects trustees to consider as a minimum when assessing value for money are:

  • scheme management and governance;
  • administration;
  • investment governance;
  • communications.

Trustees will need to be able to demonstrate how they have carried out their assessment and will need to include details of this in the Chair's annual statement.

Trustees will need to be able to demonstrate how they have carried out their assessment and will need to include details of this in the Chair's annual statement.

Communicating - one of the Regulator's stated aims of the Code is to continue to raise standards of governance and administration in DC schemes. How trustees communicate with members is an important part of achieving this. There are certain legal requirements for communicating with members but the Regulator also expects trustees to consider what additional information members might need in order to make informed decisions about their benefits.

This is a fine line for trustees to tread. The provision of information to members is important but trustees will need to be careful to limit this to the facts - members will need to make their own choices and decide whether or not they need to take financial advice to do this. Trustees should consider obtaining a legal review of member communications to manage the risk of any claims arising as a result what has been said in those communications.

Reporting - the Chair's statement must be provided within seven months of the end of each scheme year. Many schemes will be preparing their first statement this year. There are fines for non-compliance and the Code sets out details of what the Regulator will be expecting.

The Regulator expects the Chair's statement to provide a meaningful explanation of how and the extent to which governance standards have been complied with. It must include clear statements of the measures the trustees have taken to achieve compliance and details on how they have reached their conclusions. Trustees will also need to evidence the actions described in the statement if requested.

There is a lot of work to do to prepare the Chair's statement and this is something that should be started well in advance of the statutory deadline.

Administration - this is going to have to be a substantive item at every trustee meeting from now on. Most schemes are already doing this but rather than just being taken through an administration report, trustees will need to understand the scope of what their administrators do.

The Regulator expects trustees to adopt procedures to check that whoever carries out their scheme administration is doing so to a standard which enables the trustees to meet their legal obligations.

Response to consultation

Responses on the consultation can be submitted by completing the response form published by the Regulator and e-mailing it to the Regulator at DCconsultation@tpr.gov.uk.

Alternatively, we will be submitting a response to the consultation so if you would like us to include any comments on your behalf please contact Joanne Tibbott.

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