How to apply the General Code to your scheme

The General Code has been a victim of its own anticipation, built up over years as the industry patiently awaited its arrival.

Like the new Dune film, it is possible that the hype may have been too much or unjustified. I often get the sense that even the Pensions Regulator (TPR) would have wanted a bit less noise around the General Code.

At its heart, the code is a summary of the legal and best-practice principles behind running a pension scheme – with the notable exceptions around funding and covenant, which are dealt with separately.

One of the key roles a trustee board must ensure it is executing is the ability to identify, assess, mitigate or control, and monitor the risks involved in the operations of the scheme’s business.

This means, if you’re a pensions secretary, manager or a trustee and you would like to know what the regulator expects on a particular topic, you can now turn to that module and find out. But this should not be groundbreaking for many schemes that already have well established governance structures.

What’s new pussy cat?

The new elements of the code can be summarised as three new policies, the ‘effective system of governance’ and the Own Risk Assessment (ORA).

The three new policies mean all schemes will now need to establish a remuneration policy, a cyber controls policy and a climate change policy. The latter in particular may require some work for trustees to get up to speed.

Many schemes may have taken steps to address these issues over recent years but from a common base starting position there will need to be an understanding of the risks involved, which in turn will require some training as these can be complex areas.

Trustees will also have to conduct an exercise to assess and recognise the risks and how these will impact the scheme’s operations. This could impact operational and decision-making processes, and will also need to be reviewed over time.

The remuneration policy needs to be a high-level consideration of how trustees pay for services and ensure value for money is achieved.

The effective system of governance describes how the processes and policies work together to create a system in which people know their roles and responsibilities and can execute these efficiently and with the required level of oversight. This sounds simple, but may be a challenge for schemes that don’t have this structure in place.

Finally, schemes will need to conduct an ORA – a triennial review of how those policies and procedures have held together and where there could be room for improvement.

For many schemes, the new code is a great opportunity to update established policies to reflect changing best practice and expectations. In particular, a welcome thread through the General Code is the areas in which equality, diversity and inclusion issues can be considered in member communications and the way the board operates. Trustee boards should be alive to these developments.

There is, perhaps, less proportionality than some schemes would like. However, of the new items, the ORA and the remuneration policy are not compulsory and schemes are invited to consider the complexities of their own situation when considering what steps to take on compliance.

Buyout pass

Lots of people are wondering whether the General Code can be ignored because, as they will be completing a risk transfer in the foreseeable future, what’s the point?

While individual circumstances may differ, I would challenge this thought process on two grounds. The first is fundamental, in that it is the law that these processes and policies are in place and so should be followed.

Second, the process behind a risk transfer will lean overtly on many aspects of having a good quality effective system of governance in place.

For example, decision making and acting on advice are accelerated with trustees asked to make many decisions. The robustness of those decisions relies on all parties involved being aware of their powers, roles and responsibilities.

Moreover, a big part of the risk transfer process is getting assets in the right place at the right time – and, indeed, monitoring these assets to ensure the values do not drift and cause pricing issues. Data and record keeping is another key part of ensuring the price is right and the right benefits are secured. Without the right processes this may not be achieved.

Executing a risk transfer may mean an ORA isn’t eventually necessary, but the governance system that underpins everything certainly is.

Undoubtedly, the General Code was a major event in the 2024 calendar for trustees and something all schemes will need to address in some way.

However, this is far from a revolution. Rather, it is the beginning of an exercise to improve scheme operations, clarify accountability and improve outcomes for members.

David Brooks is head of policy at Broadstone