The Pension Regulator’s new DC Code came into effect on 28 July 2016, as part of an increasing focus on defined contribution (DC) scheme governance.
The purpose of the Code is to set out the standards of conduct and practice that the Pensions Regulator expects trustee boards to meet to comply with legislation and applies to all schemes offering money purchase benefits.
Managing DC benefits
At the same time as publishing the new Code of Practice, the Regulator also helpfully published accompanying "how-to" guides to support trustees in meeting the standards expected.
The six sections of the Code and accompanying guides are split as follows:
- The trustee board: covering the appointment of a chair of trustees, member-nominated trustees and the new rules for master-trust-type arrangements.
- Scheme management skills: managing risk, trustee knowledge and understanding, managing relationships with advisers and service providers, working effectively with sponsoring employers and conflicts of interest.
- Administration: the need for adequate business continuity plans, along with core financial transactions to be processed promptly and accurately.
- Investment governance: documenting investment matters, setting objectives and strategies, monitoring and reviewing investment and fund performance, security of assets and liquidity, and default arrangements.
- Value for members: assessment for members, restrictions on costs and charges and adjustment measures to comply with the charges cap.
- Communication: with considerations to method, timing, accuracy and clarity of communications along with reporting retirements.
Business as usual
The Executive Director for Regulatory Policy Andrew Warwick-Thompson has commented that given the auto-enrolment of millions into DC pensions, it is "essential" for schemes to be managed to a high standard. However, ultimately, there is not much change expected for well-run DC schemes.
Although new DC Code does represent a change in approach, embodying a shorter code supported by practical guidance, the Pensions Regulator has advised that where schemes are already performing well there should be a “business as usual” approach.
The new slimmed down Code should be welcomed by trustees to help set out the key minimum standards expected by the Pensions Regulator. Trustees should also welcome the accompanying guides, which provide practical information, illustrative approaches, checklists, ‘key questions’ and examples to demonstrate best practice.
Author: Lucinda BurgoineThis 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.