New guidance on governance standards for Defined Contribution and hybrid schemes

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A new Code of Practice on governance of occupational schemes, issued by the Pensions Regulator, will apply to schemes providing Defined Contribution benefits only and also to Defined Benefit schemes which include a money purchase element such as Defined Contribution AVCs. 

Draft Code of Practice 13 - Governance and administration of occupational trust-based schemes providing money purchase benefits has now been finalised and laid before Parliament by the Pensions Regulator. It is expected to come into force in June 2016. This is a second version of the Code and entirely replaces the version that was published in 2013. 

As well as applying to schemes providing Defined Contribution (DC) benefits only, the Code will also apply to Defined Benefit (DB) schemes which include a money purchase element such as scheme including DC additional voluntary contributions (AVCs) and any DC underpins. It will also apply to any DC schemes with a DB underpin. The Code clarifies the approach that the Pensions Regulator expects trustee boards to take where the only DC benefits provided by their scheme are in relation to AVCs.

Trustees of schemes to which the Code will apply should already have taken steps to comply with the earlier version of the Code which was published and came into force in 2013, but there are changes contained in the new version which trustees will need to familiarise themselves with and ensure that compliance is maintained.

The key areas covered by the Code include:

The Trustee board 

  • Appointing a chair of trustees - The Code sets out the requirements for and role of the chair of trustees, as well as the requirement to have , a robust and documented process in place for appointing a chair.
  • Member-nominated trustees – The Code confirms the requirement for most trustee boards to have a processes in place for appointing a minimum number of member- nominated trustees.
  • Relevant multi-employer schemes (including master-trusts) – The Code sets out specific requirements in relation to the trustee board for multi-employer schemes and the requirement for any trustee boards for schemes of this type to be able to demonstrate that it meets the requirements for openness and transparency.

Scheme Management Skills 

  • Managing risk – The Code confirms the Pensions Regulators expectation that trustees should regularly discuss key risks and issues, including topics on which they must report on in their annual statement and the extent to which they meet the standards set..
  • Trustee Knowledge and understanding – The Code reiterates the level of understanding that the Pensions Regulator expects trustees to have, and also the requirement to report on this in their annual statement.
  • Appointing and managing relationships with advisers and service providers – The Code confirms the Pensions Regulator's expectations that the ability to manage commercial relationships is a key skill that they would expect a trustee board members have, and reminds trustees that they are fully accountable for any advisers and service providers, to regularly monitor the performance of any service providers in place, and to ensure regular communication , is maintained including involvement in trustee meetings where appropriate.
  • Working effectively with the employer - The Code reiterates the employers role in the successful running of a DC scheme and the fact that trustees should understand the employers responsibilities and support them in fulfilling these.
  • Conflicts of interest – The Code confirms the minimum controls the Pensions Regulator would expect a scheme to have in place to identify and manage conflicts of interest.


  • Core financial transactions – The Code sets out the requirement for scheme administration to be a standing agenda item for any trustee meeting, and also that there should be adequate business continuity plans in place, alongside requirements for core financial transactions to be processed promptly and accurately.

Investment Governance

  • Documenting investment matters – The Code confirms documentation that trustees should have in place and maintain in relation to good investment governance, including the statement of investment principles.
  • Setting investment objectives and investment strategies – The Code sets out the factors which the Pensions Regulator expects trustees to take into account in setting investment objectives and strategies, and highlights the importance of effective member engagement in allowing members to make informed decisions about investment choices.
  • Monitoring and reviewing investment strategies and fund performance - The Code confirms the Pensions Regulators expectations regarding the regular assessment of the performance of each investment fund, including the default option, and the factors that trustees should take into account when reviewing their investment strategy and when advice should be taken.
  • Security and liquidity of assets – The Code reminds trustees of their duties in regard to security and liquidity of assets. It also confirms the expectations of the Pensions Regulator that the extent to which any loss of assets may be covered by insurance or a compensation scheme should be considered by the trustees and communicated to members.
  • Default arrangements - The Code confirms the framework for default arrangements, the requirements where these are being used for the purposes of Automatic Enrolment and also the position where members are "mapped" to a new arrangement. It is made clear that where it is not obvious that an arrangement falls into the definition of being a default arrangement, the Pensions Regulator would expect the trustees to take professional advice .

Value for members

  • Assessing value for members - The Code confirms the factors that the Pensions Regulator expects trustees to be taking into account when assessing value for members, including scheme management and governance, administration, investment governance and communications.
  • Restrictions on costs and charges – The Code sets out guidance in relation to the charges restrictions introduced in 2015, how compliance with these should be assessed and the information to be disclosed in the annual chair's statement.
  • The adjustment measure – The Code explains the adjustment measure that may be applied to a default arrangement that is unlikely to comply with the charges cap.

Communication and reporting

  • Communicating with members – The Code confirms which issues would need communicating to members and points out considerations related to method, timing, accuracy and clarity of the communications. It also includes particular details about retirement communications and what information should be included in wake-up packs including risk warnings.
  • Reporting - The Code covers the requirements of the annual chair's statement, the scheme statement of investment principles and information that is required by the Pensions Regulator, including registrable information and the scheme return.

The Pensions Regulator has made clear that information on how to comply with certain aspects of the Code will be included in supporting guidance which will be informed by the information collected during consultation on the Code.

Author: Vicki Thomas

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Colin Greig


I am a Partner specialising in pensions law.