The Pensions Regulator

Code of practice 09
Internal controls

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Introduction

1. Codes of practice are issued by The Pensions Regulator (the regulator), the body that regulates work-based pension arrangements (occupational pension schemes and certain aspects of stakeholder and other personal pensions). The regulator has issued this code
   under section 90(2)(k) of the Pensions Act 2004.
2. The regulator’s statutory objectives are to protect the benefits of pension scheme members, to reduce the risk of calls on the Pension Protection Fund, and to promote the good administration of workbased pension schemes.
3. The regulator has a number of regulatory tools, including issuing codes of practice, to enable it to meet its statutory objectives.¹ The regulator will target its resources on those areas where members’ benefits are at greatest risk.
4. Codes of practice provide practical guidelines on the requirements of pensions legislation and set out the standards of conduct and practice expected of those who must meet these requirements. The intention is that the standards set out in the code are consistent with how a well-run pension scheme would choose to meet its legal obligations.

The status of codes of practice

5. Codes of practice are not statements of the law and there is no penalty for failing to comply with them. It is not necessary for all the provisions of a code of practice to be followed in every circumstance. Any alternative approach to that appearing in a code will nevertheless need to meet the underlying legal requirements, and a penalty may be imposed if these legal requirements are not met. When determining whether legal requirements have been met, a court or tribunal must take any relevant codes of practice into account.

Other regulatory requirements

6. There is no explicit legislative requirement to report a lack of adequate internal controls. However, persistent failure to put in place adequate internal controls may, for example, be a contributory cause of an administrative breach or, in more extreme cases, result in the reduction or loss of scheme assets. Where the effect and wider implication of not having in place adequate internal controls are likely to be materially significant, the regulator would expect to receive a report, commonly referred to as a ‘whistleblowing’ report, outlining relevant information in relation to the breach. Detailed guidelines on whistleblowing reports are published in the regulator’s code of practice No. 1 (Reporting breaches of the law).

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