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Ensuring compliance with the new pensions code

1 August 2017

Ignorance certainly does not constitute bliss in the area of pension scheme management, where The Pensions Regulator (TPR) does not view it as a valid excuse for non compliance.

Indeed, we have noticed a significant increase in the financial penalties and further investigations that the regulator has been imposing.

Smaller employers have traditionally proved most vulnerable in this respect, as they lack the in-house resources of many of their larger counterparts to deal with all the red tape, and the introduction last year of significant new requirements has made their task even harder still.  

With effect from July 2016 – or September 2016 in the case of Northern Ireland – TPR introduced Code of Practice 13, a more stringent governance and administration code for occupational defined contribution (DC) schemes to set out the standards of conduct and practice that trustee boards are expected to meet.

Although relevant to all sizes of scheme, they help to address particular concerns TPR has been expressing about small occupational schemes, which it feels may provide poor retirement outcomes for members as a result of inadequate levels of governance by trustees and the fact that there are few available economies of scale.

The new reporting requirements, which are in addition to those already required to HMRC, include the production of an annual Chairman’s statement as well as providing suitable documentation around the appointment of member-nominated trustees and the production of a Statement of Investment Principles. 

The code does not apply to group personal pensions or other contract-based schemes but is relevant to most trust-based DC occupational schemes, even if there are no longer any ongoing contributions. The exceptions are schemes with only one member, Additional Voluntary Contribution (AVC) schemes on their own and ‘relevant small schemes’ – defined as those with less than 12 members when all members are trustees.

Most potential issues with non-compliance are likely to result from older trust-based occupational schemes because, although newer schemes are relevant to the code, they tend to have proper governance. Furthermore, a particular issue with the older schemes is that many employers simply aren’t aware that they have them.

So the first step for any employer is to look at their scheme records to find out whether they sponsor any affected schemes – including even Small Self Administered Schemes (SSASs) for directors. If an insurance company or other pension scheme provider is involved they cannot be expected to do this on the employer’s behalf. (It is not their duty to do so, it is the duty of the trustees.)

Should such a scheme exist, the employer then needs to check they are complying with the new code by reviewing the governance activity. For example, have there been any recent trustee meetings and is there a structure to make sure submissions will be made to TPR?

Different approaches may be appropriate for different schemes, so trustee boards will need to make judgement calls as to what is a reasonable and proportionate method of compliance in their particular case.

Additionally, employers might wish to consider whether or not they could be better off by switching to another type of scheme that is not subject to the new requirements, thereby reducing costs and avoiding the need for trustee meetings.

Chase de Vere is well placed to help with all these tasks, and we are frequently finding that clients have old paid-up occupational DC schemes which are no longer of any real use to the workforce but are required to comply with all the new reporting requirements. 

In such cases we often advise that the scheme should be wound up. But there can be good reasons for not doing this. A scheme may, for example, have guaranteed returns on investments or guaranteed annuities – although even in such cases there can still be ways of winding it up without losing the guarantees.              

If you would like to find out more about how Chase de Vere can assist you with finding out whether you have a pension scheme relevant to TPR’s new code, whether it is compliant and whether you might be better off with another type of scheme then please do not hesitate to contact Chase de Vere on 0345 300 6256 or complete this simple form and we’ll call you.