The Single Code of Practice – gaining momentum

The Pensions Regulator has confirmed that news on the progress of the Single Code will be out soon. Many schemes, having made early progress with compliance, are now waiting to see the final detail. Gap analyses have been completed and action plans drafted. But with still no firm date as to when the new Code will go live, we are in a waiting period, the calm before the storm.

Several questions remain outstanding:

• How often will the Own Risk Assessment be required and what exactly is TPR expecting to see?

• What exactly is meant by the ‘internal audit function’? Given the set-up of pension schemes, how is this going to be clearly delineated from the risk management function? It will likely be disproportionate for most schemes to engage an external party to fulfil this, and so end up being a subset of the Trustee board. Greater clarity from TPR is required

• What does it really mean to have an ‘Effective System of Governance’? This is the question I turn to in the rest of this blog.

The Single Code focuses heavily on arrangements, procedures, processes, and documentation. It does not however say much about the factors which are less tangible, but which are critical to great scheme governance. These include the culture and dynamics of the trustee board. A really well governed scheme will often exhibit a strong culture of diversity of opinion and quality debate that focuses on the high-level strategic issues rather than details of a more operational nature. The board culture will be inclusive, welcoming dissent that is expressed appropriately, and containing sufficient challenge towards advisers and service providers, albeit all fostering collaborative relationships where each party is clear on their roles and responsibilities.

Today’s trustee boards will be equally comfortable working virtually or face-to-face and meet as often as required. Whilst robust policies and procedures are of course important, the new Code does not, in its draft form, consider some of these more intangible factors. Nevertheless, its introduction is an opportunity to consider all aspects of a scheme’s governance, and to get to the heart of what true effectiveness means.

How are sole trustees gearing up for the Single Code?

Schemes operating under a fully professionalised sole trustee model should expect governance to be at least as good as a board structure and a key question under the new Single Code will be how they demonstrate a strong culture of diversity of opinion and quality debate. 

As noted in our sole trustee report this summer, many firms have been spending time developing technology solutions to support the more operational aspects of the Effective System of Governance.  This has involved putting robust processes in place to ensure policies, processes and procedures are carried out when due.  This also creates clear lines of reporting for AAF assurance reports, which the sole trustee code of practice requires professional corporate sole trustees (PCSTs)to have in place.

Do these operational upgrades create an Effective System of Governance?  Not on their own, no, but some professional trustee firms are also looking at how they can simulate diversity of opinions and quality debate too.  Some firms will either have sole trustee teams or broader support teams, often accredited trustees in their own right, used to ‘replicate’ a board structure.

We’ve heard reassuring messages across the PCST landscape around focussing on improving diversity and inclusion in sole trusteeship and demonstrating trustee effectiveness.  The Single Code is an opportunity for all PCSTs to reflect on whether this is being demonstrated consistently.

If you have any questions about anything covered in the blog, or about setting up a governance committee, please get in touch.