Pension schemes with more than 100 members will be required to carry out an annual “own risk assessment” (ORA), under proposals published by The Pensions Regulator (TPR) today.
The ORA requirement is included in TPR’s consultation on its consolidation of 17 years’ worth of guidance for pension schemes. Since TPR was created in 2004 it has issued fifteen separate codes of practice covering a range of topics. The consultation will bring 10 of the 15 codes into one document.
The regulator has acknowledged that they can be difficult to navigate, duplicate material published elsewhere and in some cases are now out of date.
Today’s consultation is on a single document which updates and brings together all of these codes of practice.
The consultation says that the ORA “is an assessment of how well governance systems are working, and the way potential risks are managed”.
It goes on to say “the ORA is a substantial process, and the governing body may need to expand its risk assessments to fulfil our expectations.”
TPR expects governing bodies to use the ORA to assess how well their policies and procedures address various risks, financial and operational, that their scheme faces.
There are two pages of detailed content for the ORA prescribed in the code. Schemes in scope, both DB and DC, should prepare and document their first ORA within one year of the code coming into force and then annually thereafter.
The consultation document states that it will be phased in, probably later this year so trustees should plan to carry out an ORA some time in 2022, says LCP.
LCP suggests this assessment could feed in to the growing pressure from regulators and ministers for smaller schemes to consider consolidating if they cannot demonstrate that they are well run and at an efficient scale.
TPR says the new regulations will require trustees to have an effective system of governance proportionate to the size, nature, scale and complexity of their scheme.
Other areas of new requirements for schemes are climate change, stewardship, cyber-security, investment, administration and remuneration policy.
The document also sets out the requirements for the ‘effective system of governance’ mandated under the European Union’s “IORP II” Directive.
David Fairs, TPR’s executive director for regulatory policy, analysis and advice, says: “The new code of practice represents TPR’s ambition to create a single point of consistent and up-to-date information for all pension scheme governing bodies.
“It will determine how governing bodies should approach governance and administration and provide consistent expectations across different types of scheme, set at a level we consider appropriate for any well-run scheme.
“This user-friendly new 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. Providing feedback on the new code will help us to make it as clear as possible for the people who need it to run their pension schemes.”
LCP senior consultant Tony Bacon says: “This new document is more than a cut-and-paste of existing guidance. As well as setting out new duties in areas not previously covered such as cyber-security and climate change, it brings in additional duties 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 the pension scheme consolidation which government and regulators want to see. 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”.