Keep calm and carry on with the General Code

In March 2021, when the draft 'single' code of practice was published, pension scheme governance was given its time in the spotlight, with much enthusiasm about the positive impact the code could have on governance standards.

Many trustees saw the merit in reviewing and understanding their governance structures straight away – not just because of the code, but because robust governance would better manage risk, process and outcomes. 

Now, nearly three years on, we have the final General Code of practice. It’s been a long time coming - have trustees (and the pensions industry in general) retreated back to the old ways while we waited?

Thanks in no small part to Covid-19, various cyber incidents and a small(!) issue with Liability Driven Investment, since 2021 we've seen why an effective system of governance (ESOG) is so valuable. We have been busy supporting schemes who have been gaining insights and making great progress in the waiting period – and far from falling back to the bottom of the agenda, governance continues to be an increasingly important topic for discussion.

So, with the publication of the General Code our message remains – keep calm and carry on!  

What’s new in the final version of the General Code? 

What has changed in the final version of the General Code? Well, not that much really – so all the hard work already done by many schemes will be a great platform for the next steps that need to be considered.

"With the publication of the General Code our message remains – keep calm and carry on!"

Most of the differences between the draft and final versions of the General Code are down to formatting and order – there have actually been very few material changes to the content. Subtle changes have also been made to the emphasis placed on certain requirements, with “must” and “should” peppered throughout and a greater focus on the role of the chair of trustees. It is also welcome to see greater detail included in certain areas that will help trustees to form their proportionate approach to code compliance. 

The Own Risk Assessment (ORA) requirements (applicable to schemes with more than 100 members), which were initially quite stringent, have been moderated, with the ORA now forming part of the ESOG. Outputs from both ESOG and ORA documents are to work interactively, with any significant changes to risks now needing to be captured in both the ESOG and ORA.

The ESOG is to be reviewed at least every three years or in the event of a major change, with the first ORA to be completed by the end of the second scheme year following publication of the General Code (so if your year end is 31 December then your first ORA must be completed by 31 December 2026).

Similarly to the ESOG, the ORA has to be reviewed at least every three years and importantly TPR “may consider failure to complete an ORA as an indicator of poor governance”. 

Clarification has also been given in relation to remuneration policies, which only now need to cover costs for which  schemes’ governing bodies are responsible. The requirement to make them available to members has also been removed.    

Enhancements have been made to existing guidance in areas including environmental, social and governance (ESG), scheme continuity planning and cyber controls. More emphasis has also been placed on diversity, equity and inclusion (DE&I), especially in terms of the governing body make-up, recruitment and trustee knowledge and understanding. These are welcome inclusions but not unexpected, given TPR’s recent guidance on a number of these areas over the last year. 

What should trustees do next?  

"For trustees who chose to wait for the final code before taking any steps to consider their ESOG, now is the time to take action!"

Trustees of well-prepared schemes, which already have a documented ESOG in place, just need to carry on with what they’ve been doing. We don’t expect the publishing of the final General Code to result in significant additional work for these schemes.

Policies/procedures will need to be considered for any new requirements in the General Code and existing policies/procedures reviewed and updated where there has been a material change. Any minor changes to existing policies/procedures can be picked up as part of the regular review cycle. 

For trustees who chose to wait for the final code before taking any steps to consider their ESOG, now is the time to take action!

A good starting place is to review existing arrangements against the General Code to identify any gaps in governance processes, document what you have (and don’t have), and then create an action plan for future work.  

Remember, the need to be “proportionate to the size, nature, scale and complexity of the activities of the scheme” has not gone away – so it is important that trustees consider the detail of the final code alongside the value it will add to the future running of the scheme. Proportionality should be considered throughout; good governance shouldn’t be a box-ticking or 'once and done' exercise. 

The message we gave out when the draft code was published remains; the General Code is not about writing lots of policies and putting them back in the drawer to gather dust. Good governance requires trustees to embed these policies into practice and take an integrated approach in applying them to the stewardship of their scheme. It may mean adjustments to how issues are tackled, a look at trustee resource and training, or perhaps just a better understanding of who is responsible for what when it comes to running the scheme. You just have to look at those schemes which had robust governance processes in place when Covid hit, or when markets turned upside down in September/October 2022, to see how important an ESOG is – hindsight is a wonderful thing, but not as wonderful as a proactive approach to mitigating risks. 

Don’t know where to start? 

• Identify where your gaps are – and which are important to the scheme.
• Make a plan of how to address these over time.
• Be clear about who is responsible for what. 
• Identify and secure resources. 
• Engage with the sponsor. 
• Monitor progress against your plan. 
• Embed new processes. 
• Consider trustee training needs. 
• Review outcomes.

Wherever you are on your General Code compliance journey, we’re here to help 

Our General Code knowledge centre is a good place to visit for information. This hub is continually being updated with new material as and when available, so keep checking in to avoid missing out on the latest developments. 

Our online Trustee Meeting Handbook is a great resource for effective meeting management and training new trustees. We’ve had fantastic feedback from trustees since we launched it in 2020 and it’s currently being reviewed to allow for the General Code.  

If you’d like support with meeting any of the General Code requirements, please contact us. We’ve supported many schemes through their initial governance review and helped them to rectify any gaps identified using our dedicated ESOG framework.

Our team of governance experts can help with meeting your ESOG and ORA requirements, including trustee effectiveness, adviser and risk management reviews.