Of interest to all schemes providing DC benefits is TPR’s publication of six new guides to accompany the revised DC Code published in November 2015, and on which we reported in our December 2015 update. While the Code sets out the standards TPR expects schemes to meet when complying with the law, the guides provide information on how those standards might be met in practice. Consultation on the guides closes on 11 May 2016, with the final versions being published alongside the new Code in July 2016 when it comes into force.
Each of the six guides focuses on one key area of the new, shorter DC Code, as set out below:
The trustee board (15 pages). This guide covers matters such as assessing the fitness and propriety of prospective trustees, the role of the chair, composition of the trustee board and establishing sub-committees. The guide also includes a section on the requirements in relation to trustees of master trusts. In relation to the chair of trustees, the guide states that although they “should have a good overall knowledge of pensions” they “do not need to be an expert in every area”.
Scheme management skills (20 pages). This guide includes sections on obtaining and improving knowledge and skills, evaluating trustees' knowledge and understanding and evaluating the effectiveness of the trustee board as a whole. The guide also covers the selection and appointment of advisers and service providers (including a checklist for reviewing contracts for services) and sections on monitoring performance, conflicts of interest and risk management.
Administration (24 pages). This guide deals with the importance of facilitating a working relationship between the employer and the scheme administrator together with administration reporting (including details of what the administration report should contain as a minimum). Also included are sections on processing core financial transactions promptly, putting in place service level agreements, transfers and record-keeping.
Investment governance (26 pages). This guide deals with investment governance structures, designing investment arrangements (including default arrangements), selecting individual funds and monitoring and reviewing the default strategy and the performance of the default arrangement. It also includes sections on reviewing the longer term performance of individual funds, changing investment funds and security of assets.
Value for members (19 pages). In this guide, TPR notes that, although trustees are required to carry out a full review of value for members at least once a year, they should also have arrangements in place to enable the ongoing monitoring of services provided to the scheme. In addition, value for members should be a rolling agenda item for board meetings. To assist trustees in the process, the guide includes a detailed illustrative approach to assessing value for members.
Communicating and reporting (24 pages). This guide includes sections on communicating with members as they approach retirement, including a good practice process for providing information at retirement, the requirements in relation to the annual chair's statement and the provision of risk warnings. An example of generic risk warning wording is given, reflecting the new post-6 April 2016 disclosure requirements concerning DC flexibility.
TPR has also produced a video providing an overview of the guides. In addition, there is a scheme assessment template which will be retained online. It is intended for use by trustees to assess their scheme against the standards of practice and conduct set out in the new Code and to support the development of an effective Chair’s statement. The assessment tool does not reference the 31 quality features which were the framework for the previous code, but TPR states that schemes which put in place processes to reflect those features will find they remain relevant.
The revised, shorter Code was welcomed generally as it was seen as a simpler version than the predecessor Code in which much of the content had been rendered out of date by legal developments. TPR’s clear distinction between legal requirements and its actual expectations was also viewed positively.
Although we sounded a note of caution about the potential length and complexity of the forthcoming guidance to accompany the new Code, it seems TPR has divided this into fairly manageable chunks. It is stated that the guides are not intended to be prescriptive, although TPR does indicate what it considers to be best practice, and provides examples of approaches that could be taken and factors to be considered, which trustees will welcome. The intention behind keeping the guides separate from the new Code is to enable new or revised guidance to be produced as the need arises or in response to industry demand, which seems sensible given the speed of change generally in the pensions arena.