New code and accompanying guidance: Money purchase benefits

Pensions Alert (UK)

On 28 July the updated version of the Regulator's code of practice on the governance and administration of occupational trust-based schemes providing money purchase benefits came into force. The code sets out the standards of conduct and practice that the Regulator expects trustee boards to meet in complying with legislation. It is accompanied by six guidance documents (one relating to each section of the code) which provide practical information and examples.

The code applies to occupational schemes which offer money purchase benefits including DC schemes, the DC sections of schemes offering mixed benefits, DC AVCs within DB schemes and DC benefits with a DB underpin (although it should be noted that not all of the legal requirements apply to schemes where the only DC benefits are AVCs). The new documents cover the following areas.

  • The trustee board including issues such as appointing a chair of trustees, succession planning, the role of the chair and the scheme secretary, and content and frequency of meetings.
  • Scheme management skills including managing risk, trustee knowledge and understanding, appointing and managing relationships with advisers and service providers, working with the employer, and conflicts of interest.
  • Administration covering issues such as working with the administrator, administration reporting, prompt processing of core financial transactions, and record-keeping.
  • Investment governance including setting investment objectives and strategies, monitoring and reviewing investment strategies and fund performance, and security and liquidity of assets.
  • Value for members, with the guidance including an illustrative approach to assessing this.
  • Communicating and reporting which covers requirements including signposting Pension Wise, the provision of generic retirement risk warnings, and the chair's annual statement.

The broad areas in which changes have been made since the previous version of the code was published in November 2013 include the following.

The new code does not set out in detail all the requirements of the law instead assuming that trustees have a good level of knowledge. The Regulator also thinks that the standards set out in the 2013 code are now well established. This reduces the level of guidance needed in the code meaning that it is now much shorter but there is more accompanying guidance.

  • The new code does not include the 31 DC quality features that underpinned the 2013 code although the Regulator states that the features formed the basis for the standards.
  • The documents have been updated in light of changes to legislation including: the introduction of the DC flexibilities; the charge cap and other charge controls; the statutory governance standards; the requirement to produce a chair's annual statement; and changes to disclosure requirements to introduce obligations to signpost Pension Wise to members and provide them with generic retirement risk warnings.

Trustees should assess their scheme against the standards in the code. The Regulator has published a self-assessment template which trustees can use to complete this exercise and identify areas where action is required to improve standards. The template includes information showing how the features in the 2013 version of the code relate to the standards in the new code.

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