In June we issued an alert on the new Code of Good Practice on incentive exercises. Here we noted that the Pensions Regulator, part of the Steering Group for the new Code, was expected to update its guidance on the subject in order to dovetail with the Code. This has now been done.

The Regulator has scrapped its extensive guidance and replaced it with a new 'statement' which cross-refers to the Code. Although it is slimmed down to reflect the existence of the Code, the statement nevertheless runs to five pages. There are no major surprises in it, but a few points are worthy of note.

The main relevance of the statement will be to trustees. As noted in our earlier analysis, the Code is deliberately light on guidance for trustees. The Regulator does however address some comments to this group directly:

  • The statement repeats the Regulator's position from its previous guidance that trustees should be consulted and engaged when an incentive exercise is proposed.
  • It also repeats the Regulator's view that trustees should start from a presumption that incentive exercises are not in most members' interests.
  • It recommends that trustees should take advice when an incentive exercise is proposed, to ensure they understand the extent of their legal obligations.

The statement repeats the 'principles' from the guidance it replaces, which do not directly match those in the Code. It will now be necessary to have regard to both the statement and the Code.

The statement says that the Regulator will investigate incentive exercises that give it cause for concern. If the Regulator investigates an incentive exercise, it will consider the trustees' involvement and their understanding of their duties. If the Regulator is unsatisfied, it may undertake a wider review of the scheme's administration and governance.

The Regulator will have regard to the Code when conducting any regulatory proceedings relating to incentive exercises.

Finally, the statement also confirms that the Regulator will consider information produced by the Code's monitoring body on adherence and standards, while also keeping its own position under review. It will be interesting to see whether the future of pensions regulation will take the shape of quasi-voluntary Codes written by industry working groups and supported by the authorities.