Focus on DC schemes: new and revised codes of practice

In recent months the Pensions Regulator has been focussing on DC governance. As well as issuing and updating codes of practice as part of its continuing drive to focus on governance of defined contribution (DC) schemes, it has issued statements on its strategy for regulating DC schemes and its compliance and enforcement policy. In this section we seek to pull all the different strands together for trustees.

Code of Practice 5: Reporting Late Payment of Contributions

On 20 September 2013, a revised code of practice on reporting late payment of contributions to occupational trust-based DC schemes came into force. It replaced the previous code which was issued in May 2006.

As in the last code, late payments should be reported where there is reasonable cause to believe that the failure to pay is likely to be of material significance to the Regulator, and should always be reported if they remain unpaid after 90 days. Once the trustees have reasonable cause to believe that a material payment failure has occurred, they should report the failure to members within 30 days of making a report to the Regulator.

Unlike the old code, the new code is split into three distinct sections: monitoring contributions, providing information to members and reporting material payment failures (the latter being the principal focus of the old code).

  • Monitoring contributions: the Pensions Regulator expects trustees to have risk-based processes in place to monitor the payment of contributions. The aim is to ensure that trustees have access to sufficient relevant information from the employer so they can check that contributions due under the payment schedule are actually being paid. Information should include what contributions are paid by the employer and on behalf of members and the pay figures used by the employer to calculate those contributions.
  • Providing information to members: the Regulator reminds trustees of the various disclosure requirements requiring basic scheme information on joining and annual statements. The Regulator also expects information to be provided to members in “accessible, transparent form”.
  • Material payment failures: where contributions are late, trustees are now expected to make at least three attempts (with one being by telephone) to contact the employer within the 90 day period and keep records of each attempt.

For the first time, the code is accompanied by guidance on reporting late payments, which provides further, practical guidance on the monitoring of contributions and example processes for the recovery of outstanding contributions. A similar updated code and accompanying guidance has been for personal pension schemes (including group personal pension schemes).


The legislation on reporting late payments has not changed, but despite the so-called red tape challenge, it is disappointing that yet another tick box requirement has been imposed on trustees, ie the “three attempts” contact and record requirement.

Technical information

To view the revised Code of Practice no.5 (reporting late payment of contributions to occupational pension schemes), click here

To view the short accompanying guidance, click here

To view the revised code of practice for personal pension schemes, click here

Strategy for Regulating Defined Contribution Pension Schemes

In October, the Pensions Regulator published its overall strategy for regulating defined contribution pension schemes to promote good governance and administration. In its strategy document, it detailed six key principles of DC governance and 31 detailed “DC quality features” representing the standards of governance and administration which the Pensions Regulator expects from trustees.

Code of Practice 13: Governance and Administration of Occupational DC Trust-based Schemes

The strategy document was swiftly followed by a new code of practice which came into force on 21 November 2013. The new code focuses on five key areas: (1) know your scheme, (2) risk management, (3) investment, (4) governance of conflicts of interest and advisers appointments, and (5) administration. It helpfully sets out for the trustees a brief summary of the legal requirements and the DC quality features which the Pensions Regulator expects to be present in the scheme, suggesting practical guidance to achieve these.

Trustees are expected to be familiar with the code, although the Regulator suggests that trustees prioritise and work through the different sections systematically. As well as applying to DC trust-based schemes, the code will also apply to those trustees who manage a defined benefit scheme with a DC element, eg additional voluntary contributions are paid to the scheme by members on a money purchase basis.

Eagle-eyed trustees who are already conversant with other codes of practice will not find  any surprises in this new code, which pulls together, in one handy place, all the various issues which the Pensions Regulator is keen to see addressed in DC trust-based schemes. So, “know your scheme” is based on code of practice 7 – trustee knowledge and understanding and “risk management” is largely sections of code of practice 13 – internal controls.

Regulatory Guidance for Defined Contribution Schemes

The new code of practice on governance was accompanied by Regulatory Guidance for Defined Contribution Schemes. In a change of emphasis from the code of practice itself, the guidance focuses on four key areas: investment, governance, administration and member communications.


The most useful section of the new code is that on administration which focuses (as you would expect) on DC aspects only. One easy way to find your way around the code is to use the key issues table in the introduction to the DC code document which also contains some example trustee tasks.

The accompanying regulatory guidance is practical and mostly common-sense, with the section on charges particularly useful. It is also good to see the Pensions Regulator encouraging employers and trustees to send joint communications, have a co-ordinated approach to member communications and take account of budgetary constraints when sending communications.

We also noted with some amusement that the Regulator does not always follow its own advice on the avoidance of jargon. In addition to “wake-up letters”, (the letter sent to an individual member at least six months before retirement) catchy acronyms such as VFM (value for money) and TER (total expense ratio), to name but two, would be better avoided to ensure the lay reader is not perplexed and put off by the seeming complexity of it all…

Compliance and Enforcement Policy for Occupational DC Trust-based Schemes

To round off its flourish of activity, in November 2013 the Pensions Regulator also issued its compliance and enforcement policy in relation to occupational DC trust-based schemes. The policy sets out the key areas of risk which the Regulator considers exist in relation to DC trust- based schemes, namely poor governance, poor investment governance and decision-making, poor administration practices and fraud.

It then sets out the Pensions Regulator’s proposals to monitor these risks, with the chief components being whistleblowing and a rolling programme of “thematic reviews” in which it will work with selected sample schemes to look at particular areas of risk and examine practices in particular segments of the DC market. The policy also outlines the Pensions Regulator’s powers to take enforcement action against trustees for breaches of the law and its enforcement approach. The approach accords with previous announcements – ie a proportionate, risk- based approach.

Technical information

To view the Pension Regulator’s Strategy for Regulating Defined Contribution Pension Schemes click here

To view the new code of practice on the Governance and Administration of Occupational DC Trust-based Schemes, click here

To view the Pension Regulator’s useful introduction to the code of practice, click here

To view the new regulatory guidance on defined contribution schemes, click here

To view the Regulator’s compliance and enforcement policy, click here