The Regulator has laid its draft code of practice on the governance and administration of trust-based DC schemes before Parliament. It is due to come into force in November 2013.

The code is divided into five main sections with each one having a basic statement of the relevant quality requirement followed by more detailed guidance.

DC code of practice Main quality requirements

Know your scheme
  • understand their duties and be fit and proper to carry them out; and
  • ensure that sufficient time and resources are identified and made available for maintaining the ongoing governance of the scheme.

Risk management
  • establish and maintain adequate internal controls which mitigate significant operational; financial, regulatory and compliance risks; and
  • ensure that sufficient time and resources are identified and made available for maintaining the ongoing governance of the scheme.

Investment
  • ensure that investment objectives for each investment option are identified and documented in order for them to be regularly monitored;
  • ensure that the number and risk profile of investment options offered reflects the needs of the membership;
  • ensure that a default strategy is provided which is suitable for the needs of the membership; and
  • act in the best interests of all beneficiaries.

Conflicts and advisers
  • be able to effectively demonstrate how they manage conflicts of interest;
  • understand and put arrangements in place to mitigate the impact to members of business and/or commercial risks;
  • establish and maintain procedures and controls to ensure the effectiveness and performance of the services offered by scheme advisers and service providers; and
  • ensure that accountability and delegated responsibilities for all elements of running the scheme are identified, documented and understood by those involved.

Administration and contributions
  • ensure that member data across all membership categories is complete and accurate and is subject to regular data evaluation;
  • support employers in understanding their responsibilities for providing accurate information, on a timely basis, to scheme advisers and service providers;
  • monitor contributions and deal appropriately with contributions which have not been paid in accordance with the payment schedule;
  • ensure that core scheme financial transactions are processed promptly and accurately;
  • ensure that administration systems are able to cope with scale and are underpinned by adequate business and disaster recovery arrangements;
  • understand the levels of financial protection available to members and carefully consider situations where compensation is not available; and
  • understand and put arrangements in place to mitigate the impact to members of business and/or commercial risks.

The sections of the code on investment and contributions require trustees to have a high level of understanding of the security of assets and protections available (including those relating to platform providers where relevant). They include expectations on the monitoring of investment performance and on the continued appropriateness of any particular investment option (including any default fund) and an understanding of where investments may not be subject to compensation protection. Trustees should set performance review triggers but the code does not set down any specific requirements: "Trustees should set triggers which are appropriate to the long-term nature of pension scheme investments and should not take decisions based upon short-term performance".

The code of practice is not a statement of law but sets out the standards which the Regulator believes are necessary for trustees to meet the underlying legal requirements.

The draft code of practice can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.