General Code – what to do while you wait

The latest deadline (the end of June) for the much-anticipated General Code to be put before Parliament has been and gone, so it now appears that the wait will stretch beyond the summer.

This latest delay may leave some trustees feeling unmotivated to keep working on improving their scheme governance – and we have even heard some people ask whether the Code will ever materialise at all. However, although we don’t yet have a confirmed framework to work to – as we don’t know the final specifics of the Code - we do know that scheme governance is an important issue for trustees to consider and we do at least have the draft Code to refer to.

We’ve mapped out below, mirrored on our General Code Knowledge Hub, what trustees can be doing during this further period of waiting to ensure they are still taking meaningful steps forward.

Effective system of Governance

In short, our message to trustees and scheme sponsors is “Keep calm and carry on”.

The need for schemes to have good governance is not a new concept; the requirement for schemes to have adequate systems of internal controls was introduced in 2003 by a European Directive, and then enshrined into UK law in 2004. 

Governance requirements were strengthened with the passing of a further European Directive, which resulted in SI 1103 2018 and the need to have an Effective System of Governance (ESoG). This theoretically at least became effective in January 2019, so from this date schemes were required to have an ESoG.  

Trustees should therefore have been working towards having a good governance structure for several years. So whilst we wait for further information about matters such as remuneration policies and own-risk assessments, trustees should be continuing to review, document, and where appropriate, improve their governance processes, focussing on areas such as succession planning, DEI and sustainability.

Keep in mind that the General Code is the bringing together, and extension, of The Pensions Regulator’s (TPR’s) guidance as to what an ESoG should look like, as well as the setting out of what else is needed to comply with the legal requirements. We have been told by TPR that whilst they have made adjustments to individual modules of the General Code, especially in relation to their applicability, the substance of each is very much unchanged from the draft. 

Hindsight is a wonderful thing

Our view is that trustees should be documenting what they do and don’t have, and then prioritising any gaps within an action plan.

An ESoG can’t be distilled into a “box ticking” exercise to ensure compliance – it’s something that requires proper thought, monitoring and review. It can add huge value by identifying and mitigating key scheme risks. In our experience to date, those schemes who have already undertaken an ESoG review have found considerable value in the project – particularly the documentation of what they have and don’t have. As a result of these process, they have identified areas for review and improvement such as trustee effectiveness, succession planning, business continuity plans and cyber risk.  

Good governance is often overlooked, and only appreciated with hindsight – but having sub-par governance processes can seriously hinder the smooth running of a scheme.

For some, the LDI crisis last year was exacerbated due to operational shortcomings – ones that could have been avoided if a solid governance platform had been in place. Well-prepared schemes perhaps weren’t hit any less hard financially but, due to their prior preparations, were better placed to ride out the storm with minimal interruption. The events of September/October 2022 showed that good governance does not always have to be complicated - simple actions such as regularly reviewing signatory lists or having emergency contact lists could have made some trustees’ lives considerably less stressful.

Ahead of the game

Putting in the work now doesn’t mean there will be nothing to be done once the General Code is published, but schemes that start now will be taking big steps towards having robust and appropriate governance processes in place for their scheme.

Our message was, and continues to be, that reviewing your ESoG does not have to be a complicated and expensive project. Remember that the ESoG should be “proportionate to the size, nature, scale and complexity of the activities of the scheme”. This is a team effort - trustees should work together with their advisers and sponsors to identify which areas need most focus, or will add most value to the future running of the scheme.

We’re already working with clients to help get them ahead of the curve. We have updated our policy and procedure templates (taking into account sustainability and DEI matters), and have worked with many schemes to undertake an initial governance review. Work on our online ESoG data capture and reporting tool is also well underway.

We are continuing to speak with TPR - and their frustrations about the Code delay match ours – but we are aligned in the view that the General Code is an important step to improving pension scheme governance and trustees should not put off starting the journey now.

If you would like to find out how we can help you to review and/or improve your governance, please visit our General Code knowledge hub, or contact our Pension Executive and Management Services team.