New General Code – Rules of the Road: will your scheme pass its MOT?

The Pensions Regulator’s General Code is effective from 27 March 2024 and most trustee boards need to take some steps to adhere to the legal requirements and guidance.

Think of a pension scheme as a car – a myriad of moving parts, each performing its unique function to contribute to the overall operation. Just like in a car, all these components must work together to effectively drive the scheme forward and ensure a smooth journey.

Trustees are the drivers; responsible for managing and directing the scheme and making decisions about the route ahead and the speed. We all know some drivers are better than others, but fortunately for everyone, the really bad drivers are few and far between!
The output of the trustee body’s Effective System of Governance (ESoG) might be like the car manual. A go-to source of information that provides details on the policies, procedures, and processes – like a comprehensive set of instructions on how to operate the car. This will guide trustees to identify potential risks, ensure compliance with legal requirements, make informed decisions, and ultimately, deliver the scheme’s objectives efficiently and effectively.

The General Code is encouraging Trustees not just to make sure they know how to drive, but to ensure they are checking the parts of a car that keep people safe and the journey efficient, with an appropriate risk management framework and internal controls. Before undertaking a long journey, most drivers will undertake some checks on their vehicle. ‘Have I got enough fuel?’, ‘Does the windscreen wash need topping up?’ …

The level of checks will probably be proportionate to the length or importance of the journey – before undertaking a 300 mile journey, or travelling to a close family member’s wedding, sensible drivers might also check the tyre tread depth, tyre pressure, and make sure their lights are working. This is not dissimilar to the proportionate approach tPR encourages trustees to take in applying the code.

For Trustees, being a sensible driver will include reviewing their risk register, conflicts and data protection policies, and reviewing their advisors periodically, for example. Documenting all of these “safety checks”, or internal controls, is crucial to the ESoG.
Some drivers will choose to implement and document their safety checks, and perhaps even complete simple remedial work themselves.

Others will be more comfortable paying Halfords* to do a full vehicle check before embarking on a long or important journey. Many will do checks themselves but get a specialist to fix any problems identified.

Similarly, the General Code does not require trustees to become experts in all aspects of running a pension scheme, but trustees should make sure they’re getting the right information to assess whether internal controls are working (for example, assurance reporting from advisers), and be able to identify when specialist input is needed. Checking if the tyre tread is worn down is the driver’s responsibility as is knowing how to obtain a new tyre – but actually changing the tyre…most drivers these days leave that to Kwik-Fit*. But there’s no one size fits all approach – and the level of work that can be done in house will be dependent on the skill, experience and resource of the trustee board.

Continuing the analogy, we can think of the Own Risk Assessment (ORA) as a scheme’s MOT. Just as an MOT identifies potential faults in a car and ensures the vehicle is safe to drive, an ORA is a crucial evaluation that helps trustees to identify risks, evaluate their potential impact and ensure the pension scheme is legally compliant and well-prepared to function effectively.

This ORA will provide a comprehensive understanding of the scheme’s current and future risks, with the output feeding back into the ESoG, in turn strengthening decision-making and strategic planning. Therefore, carrying out the ORA ensures trustees are not only in compliance but also ‘driving a vehicle’ that is fit for purpose and built to withstand any bumps in the road.

Some cars will undoubtedly pass first time, others might require some easy fixes (such as a new windscreen wiper blade). There will of course be some more fundamental failures which will need more comprehensive work. And many MOTs will pass but with some ‘advisories’ – areas to monitor or improve before the next MOT.

With an ESoG in place, trustees are better equipped to drive the pension scheme effectively and safely , and ultimately ensure the most positive outcomes are achieved for members.

If you need support designing your manual (ESoG), documenting safety checks (risk management framework), or would like an independent MOT (ORA) then Isio are geared up and ready to service!

*Other providers are available