The Pensions Regulator has launched a series of guides to help trustees implement the revised defined contribution code. Jonathan Stapleton takes a look.
- The Pensions Regulator launches series of six guides for trustees to support revised DC code
- Regulator is taking an educate and enable approach to drive up standards on basic duties
- But TPR warns failure to meet duties will result in trustees being fined
The Pensions Regulator (TPR) has launched a consultation on a series of how to guides to help trustees implement its revised defined contribution (DC) code, which is due to come into force in July.
The six guides - designed to support the new shorter code and explain to trustees how they can demonstrate compliance with the law - set out what the regulator regards as the basic duties of a scheme to remain compliant.
The guides reflect the key areas of the revised code: the trustee board, scheme management skills, administration, investment governance, value for members, and communicating and reporting.
TPR executive director of regulatory policy Andrew Warwick Thompson (pictured) explains: "While the code sets out the standards we expect trustees to meet when complying with the law, the guides provide information on how they can meet those standards in practice.
"By taking an 'educate and enabl'e approach we aim to drive up standards on basic duties, such as scheme returns, which some schemes are not meeting but which are extremely important. Ultimately, failure to meet these duties will result in trustees being fined."
Andrew Warwick-Thompson discusses the guides
Hymans Robertson partner Rona Train welcomed the publication of the guides, which she says will "put a bit more meat on the bones behind the DC Code of Practice", and also give trustees practical tips on how to deal with specific issues.
But she says there are areas that will remain a challenge for trustees - particularly in relation to the ‘value for members' assessment.
She explains: "The regulator is calling on large schemes to use information sharing through their consultants and professional trustees as one way of assessing value.
"As part of good governance, we already actively review value on behalf of our clients on a regular basis. Our overall scale and our strong relationships with providers help to positively influence the outcomes. So we would naturally expect our client base to have more competitive fees than comparable schemes who don't regularly test the market. Therefore schemes that don't have the same level of governance and adviser support and influence will inevitably struggle to achieve the same value for money on fees. Wider industry comparisons still seem a long way off but are critical if value is to be assessed effectively.
"The ‘value for members' guide also encourages trustees to seek a breakdown of fees in bundled arrangements. Breaking down charges into their component parts remains a significant challenge. It's difficult to see how this can be easily overcome as this is commercially sensitive information for providers."
The Security of DC Assets Working Party also has some concerns around the new code.
Barry Parr, the chairman of the working party, says he is pleased TPR has referenced the group's recent guide for trustees, which gives trustees a list of questions to ask to ensure member assets are safe.
But Parr says he is "concerned" TPR is expecting trustees to communicate to members the results of their findings, especially when the position remains so unclear.
LCP partner and working party member Andrew Cheseldine agrees: "The regulator has suggested that schemes contact the Financial Services Compensation Scheme (FSCS) direct to discuss their own arrangements.
"The working party has been engaging with the FSCS recently and we don't believe this is realistic. The FSCS is not geared up to take queries of this type and, more importantly, they are not in a position to give a definitive answer to trustees' questions. A more effective starting point will be the investment manager(s) that the trustees contract with as well as their investment consultants."
About the new DC Code
TPR published a new draft DC code of practice for consultation in November.
The revised code is shorter and simpler than the original and sets out the standards of conduct TPR expects trustee boards to meet in complying with their legal duties, and to deliver better long term outcomes for retirement savers.
Importantly, the revised code recognises that different approaches may be appropriate for different schemes, so the code is not prescriptive about all the specific actions trustee boards should take to meet their duties.
It also assumes a higher level of knowledge than the previous code. The new DC code is divided into sections and sets out conduct and practice in the following areas:
- The trustee board - including appointing a chair of trustees, member-nominated trustees, and master trusts
- Scheme management skills - such as managing risk, trustee knowledge and understanding, and conflicts of interest
- Administration - including core financial transactions and record-keeping
- Investment governance - including documenting investment matters, monitoring and reviewing investment strategies, and security of assets
- Value for members - such as restrictions on costs and charges
- Communicating and reporting - for example at-retirement communications, scams, and the annual chair's statement
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