Although much of the Single Code of Practice will be made up of new existing expectations, Trustees are beginning to feel the effects of the code coming into place. The three key new requirements of the code are:
- The own risk assessment (ORA)
- Effective systems of governance (ESOG)
- Remuneration policy
Many believe that the ORA will be the crucial challenge when implementing the code, however schemes should focus on getting their ESOG in place first, being an essential step towards the ORA. The ESOG will allow you to make sure your governance is effective and that your scheme is following the principles set out in the code.
So what is an ESOG?
An ESOG is a collection of processes, procedures and policies that your Scheme should have in place in order to operate in an effective manner. These procedures and polices are required be reviewed triennially or sooner should there be a significant change or heightened risk. The ESOG framework will require procedures and policies to cover modules in relation to the following:
- Investment matters
- Communications and disclosure
- Management of activities
- Organisational structure
- Internal controls
A gap analysis of current policies should first be complete against the ESOG framework to identify gaps and allow Trustees to articulate a plan to address the subsequent gaps. Many pension schemes will already have a strong governance framework and will meet the requirements of the ESOG however changes will be required to ensure compliance with the code.
It should be reiterated that the ORA is not the immediate requirement to worry about, but making sure governance is effective and you’re following the principles set out in the code.
If you would like to learn more about the Single Code of Practice and our recommended approach to assist Trustees, get in touch with us by emailing email@example.com or you can call us on 020 7112 8300.