Why the reg's DC code is near impossible for lay trustees

What exactly are these codes of practice and are they really that important? They are not statements of law and there is no penalty for non-compliance, so in reality trustees could just ignore them or simply pay lip service.

A more sympathetic approach for a lay trustee would be welcome

However, the regulator’s website also confirms that underlying legal requirements need to be met and penalties for non-compliance could be imposed. Trustees need to take note. 

But, if you have read the code you will know that it runs to 57 pages, setting out six main principles and covering 31 quality measures. The six principles are broad, covering knowing your scheme, risk management, investment, governance, administration and member communication.

The regulator clearly has a duty to ensure schemes are meeting their legal requirements including promoting and improving good administration of work-based pensions, ultimately to protect member benefits.

The question is, what can be expected of trustees in managing their schemes? Many of these trustees are lay – ie they either have full-time jobs within the scheme's sponsoring employer or they might be pensioners of the scheme.

While all trustees would want to ensure they comply with everything set out, how feasible is it from a time and cost perspective? I have spoken to some lay trustees and they feel their role is becoming increasingly difficult, indeed almost impossible to fulfil. They cite some of the following reasons:

• Pressure on time. In some instances their line managers are frustrated and unhelpful in allowing them time away from their jobs.

• Pressure on costs. Principally the adviser’s costs in helping to run their scheme, driven up by increasing regulatory and compliance requirements.

• Apathy of many members who feel schemes are complicated and difficult to understand and are not providing good value for money. This view is encouraged by recent negative publicity around investment charges and annuity rates.

Trustees take their role seriously, want to do a good job and want to understand their scheme so that members feel membership is worthwhile.

But the constant changes in legislation and added regulatory requirements is rapidly making the role of the lay trustee virtually impossible to fulfil.

We have to accept the majority of schemes are managed by trustees with the intention of ensuring those schemes are well run and comply with the requirements. They are supported by advisers who generally are helpful and will work closely with the trustees to ensure that is the case. 

To work with trustees, the regulator and other bodies need to be seen to be supportive in assisting them with fulfilling their obligations. More regulation and guidance does not generally help. 

The DC code is a long and complex document which many trustees will not have the time to read in detail and fully understand the implications.  They will rely on advisers who will charge fees for the interpretation of the requirements.

On behalf of the lay trustee population, could future codes of practice and guidance focus on specific areas, presented in a simplified way which would allow for easier understanding? 

Is it really likely, as reported, that a quarter of all schemes are non-compliant with the DC code? If you looked at every requirement in the code, it is highly probable the percentage would be higher.

We would all like to think the majority of schemes complied with intent and are working towards improving governance and, above all, to improve member outcomes – which is why schemes exist.

The regulator has improved levels of governance and understanding in the industry, but in some respects a more sympathetic approach for a lay trustee would be welcome.

Paul Couchman is president of the Pensions Management Institute