All DC trustees should read the TPR’s new Code of Practice on the governance and administration of trust-based (or occupational) DC schemes. It is the first Code that is specific to DC schemes. It pulls together many key elements of DC governance in one place.
However, it is not exhaustive and trustees will still need to refer to other Codes or Guidance for more detail on a range of topics, like internal controls and conflict of interest.
A separate Introduction sets out TPR’s six DC principles and its 38 DC quality features in summary form. And there is more to come: Guidance fleshing out the Code, and a statement of TPR’s overall regulatory approach to DC. These are expected by the time the Code comes into effect later this autumn.
The Code and the Guidance will provide a diagnostic tool that will help trustees to identify the strengths and weaknesses of their scheme, and to address the latter.
The big picture provides a helpful framework. TPR says the ends and means of DC governance are:
- an ultimate aim of adequate retirement income depending on schemes delivering…
- …the 6 elements of good member outcomes which are achieved by adopting…
- …the 6 DC principles breaking down into…
- …the 38 DC quality features.
In TPR’s visual form:
Click here to view.
The elements to good member outcomes are:
- appropriate decisions on contributions,
- appropriate decisions on investment,
- effective and efficient administration,
- protection for the assets,
- value for money and
- appropriate decisions on decumulation.
The six DC principles are:
- essential characteristics: schemes to be durable, fair and deliver good outcomes for members,
- establishing governance: set a comprehensive governance framework with clear accountabilities, and agreed and transparent responsibilities,
- people: those accountable for decisions and activity understand their duties and are fit and proper persons,
- governance and monitoring: to be effective over the scheme’s full lifecycle,
- administration: good administration with timely, accurate and comprehensive processes and records and
- communications to members: to be designed and delivered to ensure members are able to make informed decisions.
The DC quality features are all expressed as actions for the trustees to carry out on the ground.
Code of Practice
The final Code is clearer and more concise than the consultation draft. It gives extended guidance on law and practice in five core governance areas:
- know your scheme,
- risk management,
- governance of conflicts of interest and
It breaks down each of these into different aspects, succinctly stating the legal requirements and identifying the related DC principles and quality features.
As an example, the section on investment divides into:
- setting investment objectives and a default strategy,
- security and liquidity of scheme assets,
- monitoring and reviewing the default strategy,
- reviewing investment performance,
- investment decision-making and trustee knowledge and
- acting in best interests of members and beneficiaries.
The Code is high level. The Guidance in the autumn is likely to include a considerable number of practical tips, not least on costs and communication.
Personal pension schemes
In terms, the Code does not apply to personal pension schemes because these are largely under the jurisdiction of the Financial Conduct Authority (FCA). But TPR continues to work with the FCA on the regulation of work-based personal pensions and there are plans to publish more guidance later this year.