Pensions Cake

Have you ever asked a seemingly straightforward question, only to be met with an answer that starts with “Well, it depends…..”? This can be a touch irritating. However, it may be the first part of the answer given to trustees who ask for advice on what aspects of the Pensions Regulator’s (TPR) general code of practice apply, if the scheme has fewer than 100 members.

By way of background, trustees of schemes with at least 100 members are required to meet specific governance requirements under the 2018 Governance Regulations. This includes the requirement to carry out an Own Risk Assessment (ORA) and to have a remuneration and fee policy in place. The general code covers TPR’s expectations around how governance requirements should be met and a quick search can identify the modules applicable to schemes with at least 100 members. But how do trustees with smaller membership numbers determine whether full compliance is necessary or proportionate? Well, it depends…

Oh Crumbs! On What Does it Depend?

Firstly, it depends on who counts as a “member”. There is no definition of “member” in the 2018 Governance Regulations or the general code. Conversely, some other regulations, such as the pensions dashboards regulations, do contain a definition of who counts as a relevant member for those specific regulations.

If we go back to primary legislation to find an answer, the Pensions Act 2004, which contains TPR’s powers to issue codes of practice (including the general code), defines member as any active, deferred, pensioner or pension credit member, and feels like the safest reference point. An alternative, but conflicting, interpretation can be found in the IORP II Directive (from where the 2018 Governance Regulations derive), where the definition of member excludes pensioner members.

So, do pensioner members count or not when it comes to deciding whether your scheme has at least 100 members? The safest answer is “yes”, but, to some extent – you have guessed it – it depends…

More Ingredients to Consider

  • Schemes of all membership sizes are required to establish an effective system of governance, unless they are specifically exempt.
  • TPR encourages trustees to consider complying with all relevant aspects of the general code as a matter of good practice, irrespective of their member headcount.
  • Trustees have a duty to act in the best interests of members. This may involve a light-touch and proportionate approach to some aspects of the general code, but it does not mean that trustees should look for exemptions, using their preferred definition of “member” as a justification.   

It may be that TPR gives a view on the definition of member in due course, but in the absence of this, where do we go from here?

Whisking up a Conclusion

Trustees should consider the spirit of the general code. If, for example, your scheme is made up of 400 pensioner members and 50 non-pensioner members, it would not feel within the spirit of the general code to decide that pensioner members should be excluded from the headcount just so you can conclude that the scheme does not have to comply with requirements such as the ORA. However, if your scheme has 100 members and 97 of these are pensioners, your conclusion may be different.

It is important that the general code is used to enhance scheme governance in a way that meets trustees’ objectives. This will differ for each scheme. For those trustees considering whether or not you have at least 100 members, we would encourage you to consider the compliance route that feels best for the scheme, seek the comfort of legal advice on your approach, and press ahead with strengthening your governance framework.  Even if you conclude your scheme has at least 100 members, but only just, it is likely to be reasonable for you to take a proportionate approach to general code compliance overall.  Please keep an eye out for a future blog on this point.