We held the consultation on our proposed new code of practice from 17 March to 26 May 2021.
Here, we provide some background on the responses we received, for example the number of respondents and key issues raised. We also outline the steps before laying the final code of practice.
Background to consultation
The catalyst for the new code was the government introducing the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018. These transcribed elements of the European Union's IORP II directive into UK law. Many of these elements required us to write or amend our codes of practice.
On examining what was necessary to introduce appropriate changes to our codes of practice it became apparent that we needed to update several of our existing codes. We used the process of rewriting codes to move towards a more modern, flexible and user-friendly design for our code.
The main features of the rewrite were to convert the content of 10 codes into a series of interlinked modules. We also took the opportunity to make the expectations we have in relation to different types of schemes consistent insofar as legislation permits.
Stakeholder engagement
While developing the code we were able to share some draft modules with stakeholders. This informal engagement gave us some useful insights which we were able to incorporate into the version of the code we consulted on.
During the consultation period we carried out an extensive programme of stakeholder engagement to communicate the aims of the new code and our approach taken in designing it. This enabled us to speak to over 1,000 members of the pensions community, representing a genuine cross-section of interested parties.
We thank those organisations who helped us to reach so many stakeholders.
This engagement generated a lot of useful feedback and gave us an early insight into the key themes that would emerge in the formal responses.
Consultation responses
We received 103 responses from a broad range of stakeholders including private and public service schemes and those providing services to schemes. The breakdown of respondents was:
| Public service scheme | 24 |
|---|---|
| Representative body | 17 |
| Private sector scheme | 16 |
| Legal firm | 15 |
| Consultant | 12 |
| Trustee company | 7 |
| Insurance company | 6 |
| Administrator | 3 |
| Other | 3 |
Having asked about 260 questions, the responses we received varied from those that concentrated on just one or two key points to those that answered every question. We thank everyone who took the time to respond to our consultation and to those who provided feedback throughout the consultation process.
We supplied standard response forms for those wishing to respond to the consultation. While many respondents used the forms, others were unable to do so or presented their response in another format. In total we received around 10,000 individual answers to questions.
The responses provided many good challenges and ideas, with a wide range of views from different areas of the pensions industry. We also received several well-argued direct challenges to aspects of our work.
Because of the scope of the consultation, and impact of the code, it is essential that we allow the necessary time to fully consider our responses. We are therefore releasing this interim response until the full consultation response is finalised.
A longer period of review and analysis will allow us to develop our policy positions further. It may also allow us, as some respondents mentioned, to incorporate code content arising from the Pension Schemes Act 2021 in the first iteration of the new code.
Key issues raised
Common expectations
We received general support for the principle of, wherever possible, setting common expectations in relation to all schemes.
Respondents also welcomed the modular format of the new code. While some respondents raised concerns about the presentation, these mainly related to the version presented as a PDF document, rather than as something designed specifically for viewing online.
Intended audience for modules
A concern from a wide range of respondents, though more often from those representing public service schemes, was the degree to which modules applied to a given audience.
This was an issue that we identified while drafting the code. It was always our intention that the final online design of the code would address these matters. However, as many respondents have clearly relied on the PDF version of the code, we will explore ways to make the audience for each module clearer.
Use of the ‘governing body’
The new code introduces several new terms from legislation, but ‘governing body’ was one we created ourselves. In our efforts to produce an all-encompassing code we recognised the need for a term that described the governance structure of all schemes.
We were nervous about introducing another new term into an already crowded field and asked for specific opinions about it. Most responses on this point have been positive and have raised no concerns about its use. A few respondents, especially from public service schemes, did however raise concerns. These mostly arise from the specific organisation and structural differences that the schemes and their administering authorities face.
We accept and acknowledge the challenges described, although their cause is outside of our remit as a regulator. However, we have received at least one response suggesting ways to resolve the difficulties of using ‘the governing body’ for this group of schemes. We will examine this in greater detail.
Unregulated investments
We received strongly argued comments concerning a limit on unregulated investments, often referred to as the 80% or 20% rule. Some respondents had interpreted this proposal as a restriction on illiquid investments.
Our intention had been, and remains, to protect members of poorly run, and typically small, schemes from investments in poor quality or inappropriate assets. In setting out that expectation we inadvertently created a position that would affect well governed, typically larger, schemes that hold unregulated assets as part of a well-managed investment strategy.
We will not be proceeding with this expectation in the way it is drafted. However, we will explore options for achieving our original policy objective whilst allowing schemes with liquidity risk management plans and prudent investment strategies to maintain exposures to unregulated assets.
Own risk assessment
Perhaps unsurprisingly, the greatest attention focused on one of the new legislative requirements reflected in the new code, the own risk assessment (ORA).
Most respondents appear to have correctly understood the purpose of the ORA as a review of a scheme’s existing risk controls. Few, if any, respondents objected to the principle of this new process. However, some did raise concerns about the amount of work it would entail, the timeframe, what the finished product would look like and the burden it would place on smaller schemes.
Following feedback, we remain of the view that trustees should prepare their first ORA in a timely fashion, i.e. taking the legislative timescales as a maximum but preparing the document in a shorter timescale as a matter of best practice. We will also consider how often governing bodies should review the ORA.
We continue to work through the responses in this area to identify other possible changes or guidance requirements, particularly for smaller schemes.
Next steps
We are carrying out a full review of the comments received on each of the modules and will consider each carefully. In considering our next steps, and preparing the final version of modules, we may contact stakeholders to examine whether our proposals address the issues they identified. We would particularly like to thank those organisations who have already volunteered to assist in this way.
We do not currently have a firm final publication date for the new code. However, we do not expect to lay the new code in Parliament before spring 2022. It is, therefore, unlikely to become effective before summer 2022.