Comment: Consolidation of TPR's code of practice

In July of this year The Pensions Regulator (TPR) announced its intention to review its codes of practice in light of the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018.

Those regulations of course put the obligation on TPR to reflect these governance requirements in the form of codes of practice. These codes have not yet been published. In a statement, TPR declared it expected that the outcome of the review would involve combining the content of its existing fifteen codes of practice into one single, shorter code.

TPR's stated intention behind the move to a single code is to make the codes of practice "quicker to find, use and update, so that trustees and managers of all types of scheme can be more responsive to changes in regulation". But will the move achieve this desired effect?

Most of us will probably agree that the numbers of and length of the existing codes of practice can make them a challenge to navigate and there is an overlap between some of them. So when trustees and managers of pension schemes need to refer to the codes it is not necessarily clear which code they should be looking at when trying to find TPR's guidance on a particular area. This can be particularly problematic for hybrid schemes that need to comply with both the DB and DC codes of practice. A single, shorter code is likely to make it far easier to use, particularly if it is structured in an easy to navigate format.

Another point that is relevant to TPR’s announcement is that many of the existing codes of practice were issued over 10 years ago and do not always reflect current industry practice. Funding is a good example. Whilst TPR has consulted on a new funding code, the existing code of practice on funding defined benefits does not reflect TPR's new "clearer, quicker, tougher" mantra. Consolidating the codes of practice into one place would therefore allow TPR to ensure that the single code reflects all regulatory and legislative developments - provided the single code is updated as and when required.

The move will also reflect the increased emphasis on looking at governance in the round, rather than focusing on isolated segments. A single code of practice should therefore help to encourage individual trustees or trustee directors who see themselves as experts on one area of governance to expand their knowledge in other areas and take a more holistic approach to governance.

However, it is worth noting that every scheme is different and is subject to different obligations. At the moment, trustees and managers are able to refer to those codes of practice which are applicable to their scheme, whilst ignoring those that are irrelevant. For instance, a scheme which has a single professional trustee as its trustee would not need to pay attention to the code of practice on member nominated directors. Therefore, by condensing all of the information in the various codes of practice into a single code there is a risk that some trustees will find large sections of the revised code irrelevant. On the other hand, they may take the opposite view.

Whilst there is a risk that large sections of the revised code could be irrelevant to some trustees, there is also a possibility that TPR's intention for the new code to be 'shorter' means that sections of helpful detail could be lost. It remains to be seen how TPR intends to reduce the length of the consolidated code without losing sections of useful guidance.

In short, the question of whether the revised code will be a success or not depends on the final form and content of the code when it is released. There are other questions too. Should there be a separate DB and DC code? How will the master trust code be incorporated? What about future developments on superfund consolidators?

TPR's intentions represent a good opportunity to develop a more focused code, reflecting current industry practice and the need to move away from an isolated approach to governance. However, TPR will need to be careful to ensure that important detail is not lost and that the revised code is easy to navigate for Trustees who may not find every section of the code relevant to their scheme.

Written by Mayer Brown co-head of pensions, Jay Doraisamy, and associate, George Carr.

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