The Society of Pension Professionals and the Pensions Management Institute have both criticised the timeframe of the Pensions Regulator’s consultation on its combined code of practice, raising the prospect of its flawed and costly implementation.
Pensions Expert has reported previously on the new code, which ostensibly combines 10 of the 15 existing codes of practice but which also adds a range of new and prescriptive requirements on investment governance, stewardship, climate change, cyber security and a number of other areas.
New guidance such as this warrants its own consultation rather than be buried in the consolidated code
Tim Middleton, PMI
TPR opened the consultation, which was due to last 10 weeks, in March; it closes on Tuesday.
At the time, David Fairs, director of regulatory policy, analysis and advice at TPR, said the “user-friendly [code] should make it easier for governing bodies, and those providing them with professional services, to distinguish between legal duties they must meet and what we expect should be done to comply with those duties”.
But analysis by LCP noted that the document was more than a “cut-and-paste” job, with senior consultant Tony Bacon highlighting the “additional duties” it imposes on schemes.
“A key new duty will be for schemes to annually evaluate how well they are governed and this could be a further driver for pension scheme consolidation, which the government and regulators want to see,” he said.
“Our main concern is that this new document seems to bring a range of prescriptive governance requirements, which will be another substantial item on already crowded trustee agendas.”
‘Insufficient’ time frame could prove costly
Previewing its response to the consultation, which will be published on Tuesday, the SPP’s legislation committee chair, Mark Bondi, warned that the single code is “a complex and significant undertaking”, but “the timescale given to the industry to review the full draft has been insufficient”.
“As a result, we fear the resulting code risks being flawed and costly to implement, undermining its value,” he said.
“We suggest TPR focuses this year on bringing in the new code areas in an improved way, together with accompanying guidance such as for the IORP II regulations, so it is fit for the range of schemes the expectations will apply to.
“The additional work to update existing codes and guidance can follow in a more manageable way later, with increased guidance in the meantime for areas of greater regulatory focus such as the implementation statement and [the statement of investment principles].”
Tim Middleton, director of policy and external affairs at the PMI, sounded a similar note, expressing his disappointment “that TPR has given the industry such a short deadline”.
The PMI had hoped and expected that the regulator might follow a similar process to that involved in the defined contribution code, he added.
No clear distinctions
Middleton echoed the PMI’s concern that the draft code “does not adequately distinguish new requirements from content that is consolidated from existing guidance”.
“The investment regulations, for example, state that no more than 20 per cent of a scheme’s assets be held in unregulated markets. New guidance such as this warrants its own consultation rather than be buried in the consolidated code,” he said.
“It is very important that the completed code incorporates a clear audit trail that shows the history of all updates.”
The criticism by the PMI and SPP follows a poll carried out by Barnett Waddingham, which found that 86 per cent of trustees believed their scheme would have to make “significant changes” to accommodate the new code.
The survey found that half of trustees have not reviewed their scheme’s exposures to environmental, social and governance risks, despite TPR’s increased focus on ESG factors in investment strategies.
This prompted some to wonder whether enough guidance had been given to help trustees understand what is about to hit them.
Sara Cook, Barnett Waddingham’s principal and senior pension management consultant, said trustees “should be setting aside some agenda time now to start considering how the code impacts their existing processes and risk management framework”.
“For some, that might be additional planning and resources with the right skills to ensure they comply with the final code,” she said.
Responding to the points raised by the PMI and SPP, a TPR spokesperson told Pensions Expert: “We are working to clarify our existing codes into one single new code of practice, which will determine how scheme governance and administration should be approached in the future and harmonise expectations across all schemes we regulate.
TPR’s new code of practice has ‘major implications’
The Pensions Regulator’s proposed new code of practice has “major implications” for pension schemes, introducing a raft of new duties and requirements around climate change, stewardship, investment and administration, experts have said.
“It is intended to provide one clear, up-to-date and consistent source of information on scheme governance, and more consistent expectations across different types of scheme set at a level we consider appropriate for any well-run scheme,” they said.
“We launched a 10-week consultation on the new code in mid-March and welcome feedback before May 26 including suggestions for areas where further guidance would be useful.”
