New DC governance code consultation: a comparison with the master trust assurance framework
“I now call on this audience to respond to the consultation to help ensure the code is as useful as it can be in assisting delivery of the high standards of governance and administration required to safeguard members’ retirement savings.” – Andrew Warwick-Thompson, Executive Director at The Pensions Regulator (TPR)
The Pensions Regulator published on 24 November 2015 a consultation for a revised simpler code on DC governance. The intention is for master trust and other DC pension scheme boards to know what their legal duties are, in light of recent major reforms, towards getting better outcomes for their members. The consultation begins from 24 November 2015 to 29 January 2016.
Expected standards from trustees proposed are outlined in 6 key sections:
- The trustee board – including appointing a chair of trustees, member-nominated trustees, and master trusts.
- Scheme management skills – such as managing risk, trustee knowledge and understanding, and conflicts of interest.
- Administration – including core financial transactions and record-keeping
- Investment governance – including documenting investment matters, monitoring and reviewing investment strategies, and security and liquidity of assets.
- Value for members – such as restrictions on costs and charges, and the adjustment measure.
- Communicating and reporting – for example at-retirement communications, scams, and the annual chair’s statement.
The revised code comes off the back of master trust assurance framework (Tech 07/14 AAF) (MAF) published in May 2014 by the Institute of Chartered Accountants in England and Wales with the Pensions Regulator to enable DC trustees (particularly master trust trustees) and others to assess the quality of their administration, communication and governance.
To help assess the impact of the proposed revised code, Assure UK have prepared a summary “compare and contrast” table of this code to the MAF Appendix 1 Table 2 DC control objectives. An extract is given below for sections (1) The trustee board and (2) Scheme management skills.
If you have any questions on these or would like to receive our full summary for all six areas please contact Andrew.Riley@assureuk.co.uk or call 020 7462 8410.
(1) The trustee board – including appointing a chair of trustees, member-nominated trustees, and master trusts.
| TPR proposed revised code (Nov 2015) | ICAEW master trust framework (May 2014) | |
| Code para # | Control objective # with description | |
| 18, 19, 20, 21 | The trustee board met fiduciary requirements including fitness and propriety, recruitment processes | #22, 23, 24 Conflicts of interest are identified, recorded and managed. Fitness and propriety requirements are recorded, managed, regularly reviewed and monitored prior to appointment and thereafter. |
| 22, 23, 24, 25, 26 | Appointing a chair of trustees requirements, with joint and several accountability of trustees. Chair appointment to be robust and documented | |
| 27 | Documented processes for appointing member-nominated trustees | |
| 28, 29, 30, 31, 32, 33 | Appointing trustees in multi-employer schemes (including master trusts) demonstrating unaffiliation and transparency in appointment | # 22, 23,24 Conflicts of interest are identified, recorded and managed. Fitness and propriety requirements are recorded, managed, regularly reviewed and monitored prior to appointment and thereafter. |
| 34, 35 | 5 year time limit for being non-affiliated | |
| 36 | Process in place to make members view known to trustees | # 37. Scheme communications are accurate, clear and understandable and are produced in accordance with a documented communications plan. The communications plan should include: • The process for assessing the accuracy and quality of communications. • The process for gauging whether communications are understandable and engaging. |
| 37 | Additional rules apply to all relevant multi-employer schemes, including those whose only members work or worked for employers that no longer participate in the scheme | |
(2) Scheme management skills – such as managing risk, trustee knowledge and understanding, and conflicts of interest.
| TPR proposed revised code (Nov 2015) | ICAEW master trust framework (May 2014) | |
| Para # | Control objective # with description | |
| 38 | Members benefit from good governance | |
| 39 | Trustee boards possess right knowledge, understanding and skills | # 25 Trustee skills and knowledge are managed and maintained in accordance with an approved training programme. |
| 40 | Trustees spend appropriate amount of time running their scheme | # 26 A plan is maintained and regularly reviewed to ensure that resources are properly allocated. |
| 41, 42, 43 | Managing risk through adequate internal controls, risk assessment and mitigation with regular review and target dates | # 29 A risk management framework is established to identify, manage and monitor significant operational, financial, regulatory and compliance risks. |
| 44 | Trustee boards regularly discuss key risks and issues, including topics on which they must report in the annual chair’s statement, and extent to which the scheme is meeting the standards set out in the code | # 29 Trustees should review the risk register at least annually and evaluate their risk assessment arrangements, procedures and systems for material changes. They should record these changes (usually on the risk register itself) with any agreed actions to mitigate the risk. The risk management and internal controls framework should take into account requirements set out in the Regulator’s DC code of practice. |
| 45, 46,47, 48, 49 | Trustees have working knowledge of their scheme, pensions, trust law, investment principles individually, and as a whole to properly run the scheme. New trustees six months to attain required level. Professional trustees to bring greater knowledge and specialisms | # 25 Trustees training programme is regularly reviewed and updated. Each year an assessment is undertaken to identify knowledge and skill gaps on the trustee board and assess whether trustees have sufficient knowledge and skills for their role. Training records are maintained by all trustees. Trustees should successfully complete the Regulator’s Trustee toolkit within 6 months of their appointment or demonstrate that they otherwise meet the requirement for appropriate knowledge and understanding. |
| 50 | Trustee board need to identify where they have discretion to review and change policies and practices | |
| 51 | Trustee board should know whether their scheme is being used by employers to comply with automatic enrolment duties | |
| 52 | Expect trustee boards to meet standards set out in Code of practice 7: Trustee knowledge and understanding (TKU) | |
| 53 | Trustees demonstrate achieved level of knowledge through completion of the TPR trustee toolkit or alternative measure, and have training and development plans in place to maintain knowledge and understanding | # 25 Trustee skills and knowledge are managed and maintained in accordance with an approved training programme. The training programme is regularly reviewed and updated. Each year an assessment is undertaken to identify knowledge and skill gaps on the trustee board and assess whether trustees have sufficient knowledge and skills for their role. Training records are maintained by all trustee |
| 54 | Law requires trustees describe annually in the chair’s statement how they have met the legislative requirements for TKU | |
| 55, 56, 57 | Appointing and managing relations with advisers and service providers by effectively managing commercial relationships | # 27 Roles, responsibilities and duties of all trustees, advisers and service providers are documented, approved and regularly reviewed. Services provided by all third parties and/ or organisations related to the Master Trust (including fund managers) are specified clearly in contractual documents, including the roles, responsibilities and duties of each party. |
| 58, 59 | Trustee boards obtain all the information and advice they need to make key decisions, and fully understand any advice they receive and be able to challenge advice | |
| 60 | Trustee boards confident that any service providers they appoint operate in accordance with legal operations, for example, core transactions are processed promptly and accurately. Expect monitoring of performance of service providers | 28. Activities undertaken by all scheme advisers and service providers are properly managed and subject to regular performance reviews which are documented and approved. The performance and quality of all scheme advisers and service providers (including fund managers) are managed and monitored through application of formal agreements, regular documented reviews (for example assurance reviews) and service quality measures (including service level agreements). Trustees will need to determine what levels of assurance can be provided by service providers in the absence of independent assurance reviews, in the case of administration for example. The trustees have a mechanism for measuring poor performance which is acted upon. Due diligence is carried out before appointing advisers and service providers. Documented criteria are used to assess the suitability of advisers and service providers prior to appointment, or compliance with other defined procurement requirements. |
| 61 | Trustee boards regularly communicate with service providers | |
| 62 | If not satisfied with advisers or service provider trustee board consider other alternatives disregarding any trust deed or scheme rule prescriptions or descriptions to work in members’ best interests | 28. The trustees have a mechanism for measuring poor performance which is acted upon. |
| 63, 64 | Trustee boards have a full understanding of employer’s responsibilities, and work with employers to help them carry out their responsibilities. Trustees regularly review processes and mechanisms employers use to provide information, taking steps where possible to improve those processes | |
| 65, 66 | Adequate controls are in place to identify and manage any conflicts of interest. Expected controls are as a minimum: a written policy, a register of interests (reviewed at every regular board meeting), declarations of interests and conflicts made at the appointment of all trustees and advisers, contracts and terms of appointment to require advisers and service providers to operate their own conflicts policy and disclose all conflicts to the trustee board | 22. Trustees should maintain a documented conflicts of interest policy which sets out their approach for identifying, recording and managing conflicts of interest that affect or could affect the Master Trust and its trustees, employers, members and providers. As part of the conflicts management procedure, trustees maintain a register of interests for all trustees and the conflicts of interest identified. These are managed in accordance with the conflicts of interest policy. In particular, conflicts which need to be managed carefully arise when employees of the provider are appointed as trustee and/or the provider (or a related party) of the Master Trust is also providing investment management, and/or administration services or when they also provide annuities. Trustees need to be able to demonstrate that the use of related parties is in the interest of the membership. The trust deed and rules give the trustees the power to change any service supplier including the scheme administrator and investment manager. |
If you have any questions on these or would like to receive our full summary for all six areas please contact Andrew.Riley@assureuk.co.uk or call 020 7112 8300.