Knowledge sets the bar in regulator's draft DC code

The need for strong DC governance is becoming increasingly evident as membership levels increase and the appeal of pensions grows in the wake of freedom and choice.

The regulator this week released a draft of the revised code, which is a little over half the length of the incumbent code containing 31 quality features and marks the start of a consultation running until the end of January.

The new DC code will be presented to parliament in May next year and is expected to come into force next July.

Trustee knowledge and understanding

Andrew Warwick-Thompson, executive director of the regulator, said the existing code of practice was “starting from what we see as a very low knowledge base”, but the draft code assumes a higher level of knowledge and is therefore much shorter than the original.

He said: “We’re pitching it at the TKU level, our assumption is that if a trustee looks at this and doesn’t understand it, they may need to do more training.”

Tim Smith, senior associate at law firm Eversheds, said the focus on governance was evidenced by the regulator “wanting trustees to evidence compliance and the actions and processes they’ve taken”.

He added there was an increased focus on TKU, but also on the softer skills surrounding trusteeship.

In particular, Smith singled out paragraph 26 of the report on the process for appointing a chair of trustees.

The paragraph reads: “We expect the process to consider the leadership qualities of candidates and their ability to drive good practice within the scheme.”

Smith said: “[There is a] big emphasis on knowledge and understanding. Really big focus on having effective trustees in place.”

Another aspect of the code is a focus on speed of processes. It outlines the view that where tasks or transactions such as pension transfers have a legislative timescale, that timescale should be considered the absolute maximum amount of time that can be taken, and not be thought of as an “equivalent to ‘prompt’”.

Warwick-Thompson said: “Due to the feedback we got from the informal stakeholder engagement, we felt we needed to be clear, particularly in light of people being able to access their pots through freedom and choice.”

Value for members

The code outlines “value for members” as distinct from value for money, noting it “does not necessarily equate to ‘low cost’... A scheme which fully complies with the charge controls will not necessarily provide good value for members.”

Georgina Jones, associate director at law firm Sackers, welcomed the distinction: “[The regulator] is acknowledging that what is value for money in one scheme won’t necessarily be value for money in another scheme.”

Mark Futcher, partner at consultancy Barnett Waddingham, however, questioned the need for a section on value.

“It’s strange being a section in its own right,” he said, “because as you get everything else right you’ll have value for money.”

Nicola Rondel, chair of the Society of Pension Professionals DC committee, said the true implications of the code would not become clear until the regulator releases its guidance next year.

“It’s hard to assess the code without consulting the guides,” she said. “The devil is always in the detail.”