Corporate report

Explanatory memorandum to The Pensions Regulator General Code of Practice 2024

Published 10 January 2024

1. Introduction

1.1. This explanatory memorandum has been prepared by The Department for Work and Pensions and is laid before Parliament by Command of His Majesty.

2. Purpose of the instrument

2.1. The Pensions Regulator’s^{[footnote 1]} revised draft code of practice (“the draft Code”) consolidates ten existing codes of practice (“the old codes”) covering aspects of governance common to all types of schemes^{[footnote 2]}. It also takes account of recent legislative changes which set new requirements for trustees and managers of occupational pension schemes to establish and operate an effective system of governance including internal controls. The draft Code explains to trustees and scheme managers of private and public sector pension schemes the standards of conduct and practice expected of them when carrying out functions under pensions legislation and will assist them to comply with the legal requirements.

3. Matters of special interest to Parliament

Matters of special interest to the Joint Committee on Statutory Instruments

3.1. None.

4. Extent and Territorial Application

4.1. The extent of this instrument (that is, the jurisdiction(s) which the instrument forms part of the law of) is the United Kingdom.

4.2. The territorial application of this instrument (that is, where the instrument produces a practical effect) is the United Kingdom.

4.3. The draft Code will also be laid in the Northern Ireland Assembly in accordance with Articles 85 and 86 of the Pensions (Northern Ireland) Order 2005^{[footnote 3]}.

5. European Convention on Human Rights

5.1. As the instrument is not subject to parliamentary procedure, no statement is required.

6. Legislative Context

6.1. Section 90(1) or 90A(1) of the Pensions Act 2004 (“the Act”)^{[footnote 4]} confers power on The Pensions Regulator (“The Regulator”) to issue codes of practice. In addition, section 90(2) or 90A(2) of the Act requires The Regulator to issue a code of practice in relation to specified matters. Further, section 90(3) or 90A(3) of the Act confers power on The Regulator to revise the whole or any part of a code of practice issued under section 90(1) or 90A(1) respectively of the Act and issue that revised code. Section 91 of the Act outlines the procedure for bringing a code of practice into force.

6.2. The draft Code is not a statement of the law, and it is not necessary for all the provisions of the draft Code to be followed in every circumstance. However, any alternative approach to that appearing in the draft Code will nevertheless need to meet the underlying legal requirements. When determining whether the legal requirements have been met, a court or tribunal must take any relevant provisions of the draft Code into account under section 90(5) or 90A(5) of the Act.

7. Policy background

What is being done and why?

7.1. Codes of practice provide practical guidelines in relation to the exercise of functions under pensions legislation and set out the standards of conduct and practice expected of those who exercise such functions. Over the years, The Regulator has published several codes of practice.

7.2. An assessment of certain existing codes of practice issued by The Regulator was carried out to take account of recent legislative changes introduced by the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018 (“the Regulations”)^{[footnote 5]}. That assessment identified issues related to outdated content, duplication, poor user experience and a lack of user awareness^{[footnote 6]}.

7.3. The draft Code combines ten codes of practice issued by The Regulator, which has been restructured and updated to give practical guidance on matters relating to the governance of all types of schemes. The draft Code will meet better the needs of trustees and scheme managers and their advisers and support modern scheme governance.

7.4. The topics in the draft Code include:

• selecting and appointing members of the governing body
• knowledge and understanding
• risk management
• using service providers
• investment governance

Explanations: What did any law do before the changes to be made by this instrument?

7.5. The draft Code does not make changes to the law. In many instances the instrument simply re-states the existing expectations while in others it updates expectations in line with changes in legislation since those codes were written.

7.6. The draft Code provides sharper and easy to understand explanations of The Regulator’s expectations from industry. In addition, it also provides a greater focus on effective systems of governance that all types of schemes should maintain to ensure schemes are well run.

Why is it being changed?

7.7. Following a review of several of the Regulator’s existing codes of Practice, The Regulator concluded in some instances content was duplicated or out of date.

7.8. The draft Code is intended to create a more universal code, which takes into account recent legislative changes, and to make it easier for users to find the information they need.

What will it now do?

7.9. The draft Code updates the old codes, taking account of feedback from the industry on the content of the code and advances in best practice since the old codes were issued, and explains the recent legislative requirements set out in the Regulations. It is also presented in a new topic focussed way, designed to be read as modules on the internet, rather than as a single document. In addition, expectations are presented as bullet points, intended to provoke discussion amongst those responsible for running the scheme.

8. European Union Withdrawal and Future Relationship

8.1. This instrument does not relate to withdrawal from the European Union / trigger the statement requirements under the European Union (Withdrawal) Act 2018.

9. Consolidation

9.1. This instrument consolidates ten existing codes of practice issued by The Regulator.

10. Consultation outcome

10.1. The Regulator consulted on the draft code of practice between 17 March 2021 and 26 May 2021^{[footnote 7]}. The consultation was principally aimed at anyone to whom the legislation applies or is directly relevant. This includes trustees, scheme managers and professional advisers such as actuaries and service providers. The Regulator received 103 responses to its consultation. The Regulator published an interim response to the consultation on 24 August 2021^{[footnote 8]} and intends to publish a final response once the draft Code has been laid.

10.2. As a result of this consultation, The Regulator made changes to several sections of the draft Code. Some changes were made to make it clearer which schemes each module applies to.

10.3. In addition, certain sections of the draft Code have been redesigned and some content has been re-introduced from existing codes of practice. Most changes, however, have been minor and designed to respond to matters of interpretation or consistency.

11. Guidance

11.1. The Regulator has provided additional supporting guidance to support the old codes and if it identifies that any segment needs to be updated following the review of its content, it will provide updated supporting guidance^{[footnote 9]}. In addition, if The Regulator identifies it is necessary to publish any additional guidance to support compliance with the recent legislative changes introduced by the Regulations, it will provide the supporting guidance.

12. Impact

12.1. There is no, or no significant, impact on business, charities, or voluntary bodies.

12.2. There is no, or no significant, impact on the public sector.

12.3. A full Impact Assessment has not been prepared for this instrument because the draft code does not create any new legal obligations. An impact assessment of the legislative change introduced by the Regulations^{[footnote 10]} was published.

13. Regulating small business

13.1. The draft Code does not create any new legal obligations and we do not expect it to add any further additional costs.

14. Monitoring & review

14.1. There is no requirement to carry out a statutory review. However, The Regulator regularly reviews its guidance and codes of practice to ensure they meet stakeholders’ needs, to assist The Regulator in meeting its statutory objectives.

15. Contact

15.1. Peter Jones at the Department for Work and Pensions, peter.jones8@dwp.gov.uk can be contacted with any queries regarding the instrument.

15.2. Fiona Frobisher, Deputy Director for Defined Benefit Pensions, at the Department for Work and Pensions can confirm that this Explanatory Memorandum meets the required standard.

15.3. Paul Maynard, Minister for Pensions, at the Department for Work and Pensions can confirm that this Explanatory Memorandum meets the required standard.

1. What we do and who we are ↩

2. New code of practice ↩

3. The Pensions (Northern Ireland) Order 2005 ↩

4. Pensions Act 2004 ↩

5. The Occupational Pension Schemes (Governance) (Amendment) Regulations 2018- table of contents ↩

6. Interim response to the consultation on TPR’s new code of practice ↩

7. New code of practice consultation ↩

8. Interim response to the consultation on TPR’s new code of practice ↩

9. Scheme management detailed guidance ↩

10. https://www.legislation.gov.uk/uksi/2018/1103/pdfs/uksiod_20181103_en_001.pdf ↩