Public sector schemes wary of TPR’s new code of practice

Pensions Expert has reported previously on the problems facing TPR’s new code, which aims to combine 10 of the 15 existing codes of practice into one accessible, modular document.

The industry expressed concern about the large amount of new information being included, such as measures around climate change, cyber security, investment, administration and remuneration policies.

Some in the industry were unhappy at the way the consultation bundled these things together, while also criticising the decision to hold the consultation at a time when large parts of the industry were on holiday and the short time allotted for responses.

Last month, TPR had to withdraw proposed regulations governing unregulated investments, while the fate of its proposed “own risk assessment”, which it previously said schemes with fewer than 100 members would have to complete annually, is also uncertain.

Aon noted that most of the attention has been on the new code’s implications for the private sector. But around a quarter of the consultation responses came from public sector schemes, suggesting it is high on their list of priorities.

Alison Murray, partner at Aon, said there was no reason for public sector schemes to “delay reviewing how they need to comply and then putting in the work to make it happen”. 

“As a minimum, schemes should ensure they comply with the current code, but we also strongly recommend that they start looking at the new areas in the code — both as best practice and to ensure they are ready for any new requirements that emerge next summer,” she said.

“Demonstrating compliance is also important, so they need to make sure they have a good audit trail or methodology for reporting to their local pension board or committee.”

Public sector schemes hesitant

However, responses to the consultation from the Local Government Association and the Local Government Pension Scheme Advisory Board suggest deep misgivings within the public sector about the drafting of the new code.

A key area of concern is precisely which parts of the code apply to the LGPS, and what definition of “governing body” is being used by the regulator.

LGPS advisory board secretary Jeff Houston wrote that there are “considerable concerns” about the use of the term “governing body” as “a broad term to be applied across significantly different types of pension scheme”.

The inadequacies of the term meant the draft code was not sufficiently clear in its expectations, and how they are to be applied to the LGPS, or which obligations fall on which type of governing body — for instance, between pension boards and scheme managers — he warned.

There are a number of different structures in place in the LGPS and other public sector pension schemes, and the code is not always clear which types are subject to which requirements, or, indeed, which parts of the code legally apply to the LGPS and which are only examples of best practice that should be followed, he explained.

“Although the approach of LGPS authorities will in the majority of cases be in line with that set out, that may not always be the case. It would perhaps be preferable if such statements were clearer and couched in language more appropriate to LGPS authorities,” he wrote.

“We are concerned that authorities will not be clear about the circumstances in which they may find themselves inadvertently in breach of the code.”

In its consultation, TPR acknowledged it had “received requests for a LGPS-specific version of the code”. 

“We have examined this request but, due to the various management structures that exist across the funds and their associated authorities, it would be impractical to do so. Governing bodies of LGPS funds should consider their own governance arrangements and where responsibilities ultimately sit within them,” it said.

However, Houston countered that it “would not be onerous for TPR to set out where the law applies differently to the LGPS”. 

“It must be in TPR’s interests for LGPS authorities to be clear what their legal obligations are. As an alternative, we would suggest that the LGPS scheme advisory board will need to produce a ‘guide’ to the TPR code,” he said.

Murray commented: “We were aware that some areas of the code, such as the definition of the term ‘governing body’, would need further work to clarify their meaning, particularly for the LGPS.

“Aon’s response to the consultation focused on the need for clearer direction on who that body could be and whether in each module it applies to the scheme manager, the pension board, or, in some cases, the pension committee. We would therefore welcome clarity from TPR on this key point.”

Conflicts and uncertainties

In its response, the LGA highlighted problems with a number of areas of the code, including administration, transfers, scheme records, monitoring and resolving contributions, dispute resolution procedures, and others.

For example, under administration, it highlighted that the draft code stated: “Every governing body should have some of the following measures in place, although the measures will vary depending on the nature of the scheme and the legal obligations to which it is subject.” 

Houston, who is also head of pensions at the LGA, wrote in his response: “It is not easily identifiable which of the measures should be in place for the LGPS scheme managers and this could lead to different interpretations.” 

He also noted that the “planning and preparation” section “seems heavily focused on third-party administration, which is not applicable to the majority of LGPS-administering authorities”, while the online code contains a link to “detailed guidance” that leads readers to a section on managing defined contribution benefits.

This “is not appropriate for the LGPS and could be confusing for users”, he wrote.

The section on transfers contains a drafting error in relation to cash equivalent transfer values and transfer payments, while the draft recommends “retaining written confirmation that advice was received by the member for at least six years”. 

“We appreciate the words ‘at least’ but given that most claims for mis-selling/incorrect advice arise years later, often only when a member comes to take payment of their benefits, we would recommend a much longer retention period,” Houston stated.

The draft code also suggests that a projection of benefits should be included in annual statements, contradicting earlier regulations that state there is no such requirement applicable to the LGPS.

The section on receiving contributions appears to contradict itself on whether it applies to the LGPS, while the section on monitoring contributions leaves it unclear whether and in what circumstances the LGPS should report to the regulator, Houston continued.

He said the section on dispute resolutions is also “unhelpfully vague” and once again conflicts with requirements set out in other LGPS regulations.