The Pensions Regulator’s long-awaited General Code of Practice (previously known as the Single Code) was published today and should come into force towards the end of March. 

It aims to improve governance, and while it is largely based on consolidating ten of the Regulator’s existing Codes, updated for the passage of time and regulatory change, it does introduce some new requirements. Some schemes have already been assessing their governance frameworks against the new effective system of governance (“ESOG”) requirements as set out in the draft code. Now it’s time for all schemes to begin addressing any gaps, which include priorities such as establishing an internal audit function, risk management function and a remuneration policy, and considering their first own risk assessment (“ORA”) in earnest.

Rachika Cooray, Partner and Head of Governance at LCP, said:

“The Code hasn’t changed much in substance from the March 2021 consultation draft, but its publication now means that the clock is ticking for trustees to take action on some of their governance obligations.

“The most significant of the new obligations in the Code is to establish an effective system of governance (“ESOG”), and for schemes with 100 or more members, to undertake an own risk assessment (“ORA”) – an examination of how well the ESOG is working and how any potential risks are being mitigated. Regardless of where you are on your General Code journey, it’s time to start planning for your first ORA and the steps that need to be completed beforehand.

“If trustees haven’t already, they should compare their scheme’s existing governance frameworks against the ESOG requirements and identify any gaps to be addressed. This will enable trustees to address the changes and help them prioritise the areas which will add the most value to how they operate.”

“One welcome change from our perspective is the softening of the Own Risk Assessment requirement, which is now triennial rather than annual. Trustees and sponsors may also be pleased to hear that there is no longer a requirement for the remuneration policy to be published online.”

Whilst LCP expects most well-governed schemes to fare well against the Code, there will be areas that need further work and documentation, for example, climate change and cyber risk.

In conclusion, Rachika Cooray said:

“The biggest challenge for schemes will be how to address the Code’s new requirements proportionately, within the available time and budgets. Nevertheless, giving time and attention now to how trustees operate can only lead to improvements in how boards make decisions, get better accountability and ultimately deliver better outcomes for members.”