The General Code in Bite-Sized Chunks ­– Proportionality is the Special Ingredient

Happy_general_code_day

Welcome to our new blog series exploring the various ingredients that go into a successful general code of practice compliance programme. We have been cooking up a range of strategies over the last couple of years and are now happy to share our recipe for success!      

Background

The general code sets very high standards for pension trustees in terms of the breadth and depth of their governance arrangements. Large, complicated and ongoing schemes will be expected to address each aspect that is relevant to them – there are over 50 elements in total. Thankfully for other schemes there are grounds for trustees to formulate a proportionate approach, taking account of the specific circumstances of their scheme. But what does proportionality look like and in which circumstances might it be available to trustees?

The Original Concept

The 2018 Governance Regulations (which amended the Pensions Act 2004) required The Pensions Regulator (TPR) to develop a code of practice. The regulations set out the key elements that should be included in the code, including the effective system of governance and the own risk assessment. They also specifically provided grounds for proportionality by inserting a new provision into section 249A of the Pensions Act 2004:

“The system of governance must be proportionate to the size, nature, scale and complexity of the activities of the occupational pension scheme.”

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Top Tips For Identifying And Addressing Poor Service in Pensions

As a contentious lawyer, I tend not to be involved in pensions issues when everything is going smoothly – my phone normally rings when trustees or employers are facing a problem of reasonable magnitude. I often wish that I had been involved at an earlier stage, at the point that the problem was (or could have been) first identified.

The long-awaited general code of practice came into force on 28 March 2024 and this provides an excellent opportunity for trustees to review their governance processes. I would encourage trustees to pay attention to the expectations of The Pensions Regulator (TPR) around the management of service providers and reconsider how they measure service standards and how they set trigger points that identify poor service. Whilst this blog focuses on pensions administration, the general messages apply to all service providers.

If trustees are receiving poor service, what should they do?

Pension scheme trustees often have long-standing relationships with the administrators who manage the day-to day scheme activity on the trustees’ behalf. It can be difficult to address unsatisfactory performance if improvements are promised by a trusted contact. Poor performance might be short term – for example due to unexpected absences of key staff. In this instance, in addition to checking the contractual documentation, trustees should increase the frequency of monitoring the service until the performance returns to satisfactory levels (for example, weekly or fortnightly catch-up calls). However, short term problems may be indicative of more serious issues (such as a high turnover of staff, under resourcing or insufficient training).

Trustees should not allow underperformance to continue – this is likely to result in member complaints and Pensions Ombudsman determinations against the scheme. Longer term problems could lead to intervention from TPR and reputational damage. In the general code of practice, TPR says that trustees should “constructively manage issues with administrator performance and consider using any contractual terms to drive improvements.”

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The DOL Updates the QPAM Exemption from Prohibited Transaction Restrictions under ERISA (US)

ERISA and the Internal Revenue Code broadly prohibit transactions between employee benefit plans or Individual Retirement Accounts and certain “parties in interest” or “disqualified persons”. However, certain transactions are exempted from such prohibition. One such exemption applies to transactions involving independent qualified professional asset managers, which includes banks, savings and loan associations, insurance companies and registered investment advisers meeting certain requirements. The U.S. Department of Labor has recently amended the rules of this exemption. My blog explores the impact of the change.

Pensions Dashboards – Avoid the Legal Ruck

Hand of referee with red card.

The rugby Six Nations Championship has been a recent topic of conversation. But do you know how long pensions dashboards have been a topic of conversation? Almost 10 years – ever since the issue was raised in a report by the Financial Conduct Authority in December 2014! We are now about to witness kick-off as the industry prepares to connect pension schemes to the dashboards architecture.

Any day now, the Department for Work and Pensions (DWP) will issue guidance setting out a line-up of expected connection dates, split by scheme size and type. Do not be fooled by the word “guidance” – compliance is not optional. Legislation requires trustees to “have regard to” this (and other) dashboards guidance and The Pensions Regulator (TPR) has said that non-compliance with connection dates will be a breach, for which it can award penalties. We can expect to hear a lot more from TPR in the coming weeks/months, including its compliance and enforcement policy.

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Changes to the UK Water Special Administration Regime – Do Pension Trustees of Water Industry Schemes Need to Care?

Changes are afoot to the statutory regime governing special administrations for regulated water companies (the SAR) following the publication of a suite of new legislation.

Impact of the changes on pension trustees

Further details of the changes are set out in a blog post by restructuring colleagues Helena Clarke and Charlotte Moller. Helena and Charlotte note that perhaps the most significant change for creditors generally, and pension trustees in particular, is the update to the insolvency waterfall to allow for priority payment of government funds. In a nutshell, this means that any funds provided by the Secretary of State to the special administrator by way of loan or grant will be paid out in priority to any s75 debt that may be owed to pension trustees. Given the potential size of such government grants, this could have a sizeable impact on recoveries for pension schemes and all unsecured creditors. Read more here.

Coverage Testing – The Forgotten Nondiscrimination Rule

This blog post addresses retirement plans that are intended to be tax-qualified under Section 401(a) of the Internal Revenue Code (Code).

Specifically, this post will provide information related to:

  • “Coverage Testing” rules under Code Section 410(b)
  • Related “Controlled Group” rules under Code Section 414

Quite often, we see employers, particularly smaller employers, design and implement tax-qualified retirement plans without a basic understanding of how these rules apply to their plans. This results in confusion over if the plan is required to take corrective action under these rules in a particular plan year.

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Beyond The Frenzy – Reflections On The General Code

Team Brainstorming

When The News Broke…

Last Wednesday I was on a Teams call with a client discussing some forthcoming cyber security training when a news alert flashed up. I had to interrupt – “Oh gosh, the general code is finally out!” We shared a brief silence, each mentally reviewing our to do lists and working out how this was going to fit in. Then we grimaced and returned to the task in hand. After the call it dawned on me that I was also due to give a (now even more timely) legal update slot at a conference the following week. Gulp.

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Don’t Fall Into The Surplus Trap! How Sponsors And Trustees Can Manage Issues Around Pension Scheme Surpluses

Significant market and interest rate movements over recent years have seen funding positions improve for many defined benefit pension plans across the UK, and in a lot of cases this has resulted in pension plans finding themselves with an unexpected surplus. If sponsors and trustees are not anticipating a surplus, this can lead to uncertainty as to how the surplus should be dealt with.

Once money has been paid into a pension plan it becomes subject to the terms and conditions of the plan. These terms may limit the sponsor’s ability to recover surplus money beyond the amount required ultimately to secure the plan liabilities in the insurance market, leading to a situation of “trapped surplus”.

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Reputational Risks: Lessons From the Odey Crisis

Reputation. Cutout words

The investigations into Odey Asset Management and its founder, Crispin Odey, which are currently capturing the headlines in the financial press, tell a familiar story of how fast a financial institution can fall from grace when disaster strikes. Institutional investors (and by extension some retail funds that had been invested in Odey’s strategies) have already caused the suspension of five Odey managed funds. The pattern that we saw in the wake of the Woodford saga of investors fleeing the sinking ship is very familiar, with suspensions of redemptions and finger pointing at the FCA.

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Is the Clock Ticking for UK Pensions Law?

Brexit Clock

The Brexit Freedoms Bill will enable the UK government to remove years of burdensome EU regulation in favour of a more agile, home-grown regulatory approach that benefits people and businesses across the UK”.

(Government press release, 22 September 2022)

This has nothing to do with the merits of Brexit. It’s about how we make law in the UK. The bill is a recipe for legal uncertainty and, not for the first time, concentrates vast powers in the hands of ministers with less opportunity for democratic input.”

(Jonathan Jones KC -this quotation appeared in the Law Society Gazette)

The Retained EU Law (Revocation and Reform) Bill, which was introduced into the House of Commons in September 2022, was heralded by the government as the Brexit Freedoms Bill, and by others as a “bonfire of EU laws”. It is clearly not without its controversy. That controversy has continued to play out in Parliament over the last few months. 

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