TPR consults on revised DC Code of Practice

Introduction

On 24 November 2015, TPR issued a consultation on a revised Code of Practice on the governance and administration of occupational DC trust based schemes (“the Draft Code”).

The purpose of the Draft Code is to “set out the standards of conduct and practice that [TPR expects] trustee boards to meet in complying with their duties in legislation”.

Key points

The Draft Code is much shorter than the current DC code and takes into account changes to legislation, such as the minimum governance standards and charges measures (see our Alert for details) which have occurred since the publication of the original (see our Alert for details).
Unlike the current DC code, the Draft Code is only aimed at DC AVCs in DB schemes “insofar as the relevant pensions legislation applies”.
If trustees are not confident that, as a board, they are conversant with the legislation relevant to running a DC scheme, TPR urges them to consider whether they are meeting the TKU requirements and to undertake appropriate training and seek professional advice.
References to the “DC quality features” have been removed. Instead, the Draft Code will be supported by a number of pieces of guidance, designed to help trustee boards with running a high quality scheme. The guidance will set out (and clearly distinguish between) recommended good practice and suggested approaches that trustee boards may choose to take, where appropriate, to suit the circumstances of their scheme.
In the consultation document, TPR confirms that it will no longer expect trustee boards to produce a voluntary governance statement demonstrating how their scheme has performed against the DC quality features.

Background

TPR has published the Draft Code for consultation with the aim of further raising standards of governance and administration in DC schemes.

The Draft Code addresses recent changes to DC regulation and is intended to better support DC trustee boards and managers as they adapt to this year’s major reforms.

Structure of the Draft Code

Although the Draft Code is now significantly shorter, aside from dealing with legislative changes since the original publication, the overall content is broadly the same as before. However, the document has been completely reworked, with information now divided into the following, more practically titled, sections:

The Trustee Board
Scheme Management Skills
Administration
Investment governance
Value for members
Communicating and reporting.

TPR aims to clearly identify its required standards of conduct and practice with use of the phrase, “we expect”. However, it recognises that different approaches may be appropriate for different schemes, noting that it will often be up to the trustee board “to make judgment calls as to what is a reasonable and appropriate method of ensuring compliance”.

Who will the Draft Code apply to?

The current DC code applies to trustees of all occupational DC trust-based pension schemes with two or more members (whether active, deferred or pensioner) which offer the following types of benefit:

DC benefits, including AVCs under occupational DB trust-based schemes or sections and the DC element of hybrid schemes
DC benefits with a DB underpin (TPR stated that it expects such benefits to be treated as DC throughout their lifetime).

In a shift away from the current code, the Draft Code is only intended to apply to DC AVCs and DC benefits with a DB underpin “insofar as the relevant pensions legislation applies to them”.

Chair’s statement

TPR views the chair’s statement as a starting point for improving the quality of schemes. It expects the statement to “provide a meaningful narrative of how the legislative governance requirements have been complied with”.

Interestingly, ahead of completing the statement, TPR suggests trustees think about what further quality measures best suit the needs of their scheme membership and consider whether to include their assessment of how those have also been met in the statement. It notes that trustees who have previously assessed their scheme against the DC quality features will already have useful processes in place which could be adapted for this purpose.

Value for members

Currently, “value for money” (or “VfM”) is only dealt with in guidance supporting the DC code. Following changes to legislation, a value assessment is now a legislative requirement and, as such, has been promoted to the Draft Code.

TPR will expect trustee boards to consider the following, as a minimum, in their assessment:

scheme management and governance
administration
investment
communications.

The standards which TPR “expects” trustees to meet in each of these areas are set out in the Code; TPR “expects” these to be used as a starting point. Where trustee boards identify areas which do not provide good value for members, TPR “expects” them to document the issues and to take steps to improve value for members in those areas. If this is not possible, TPR “expects” trustee boards to document the reasons for this.

Next steps

The consultation closes on 29 January 2016.

TPR intends to consult on the new “how to” guides (which will supplement the Draft Code) in spring 2016, with the Draft Code and guidance due to take effect from July 2016. Until then, the current DC code remains in force.