Knowledge and understanding

General code in force: 28 March 2024

This module forms part of our expectations for trustees of those schemes required to operate an effective system of governance, see Systems of governance.

1. All governing bodies should maintain a list of items the members of the governing body should be familiar with. The list should be available in an accessible format and reviewed regularly. The governing body should regularly carry out an audit of skills and experience and review its members’ experience to identify gaps and imbalances, which will help inform training and recruitment needs. Our expectations for learning and development are set out in Governance of knowledge and understanding.
2. Our expectations of knowledge and understanding apply equally to any individual who exercises any trustee function within a company acting as trustee of the scheme¹.
3. Within public service schemes the requirements for knowledge and understanding fall on pension board members². It is good practice for the scheme managers, or their delegates, to achieve at least basic competence.
4. Professional trustees, and those appointed because of their specialist expertise, should be able to demonstrate a greater level of knowledge than members without such expertise. In addition to the matters listed below, and as good practice, professional trustees should be able to demonstrate progress towards, completion of, or compliance with, a relevant standard for professional trustees or a recognised appropriate qualification.
5. Our expectations in relation to learning and maintaining knowledge can be found in Governance of knowledge and understanding.

Specific expectations for trustees of occupational pension schemes

6. Trustees must³ be familiar with:
   1. the trust deed and rules of the scheme
   2. any statement of investment principles
   3. in relation to a scheme providing defined benefits (DB), any statement of funding principles
   4. any other policy relating to the administration of the scheme generally
7. Trustees must also have knowledge and understanding, at a level that is sufficient to enable them to properly exercise their role, of:
   1. the law relating to pensions and trusts
   2. the principles of funding pension schemes
   3. investing assets of pension schemes

General expectations for all relevant governing bodies

8. Anyone who has a requirement for knowledge and understanding should have a working knowledge of the items listed in 9 to 15 below. The lists are not exhaustive, and some elements of them will not be relevant to certain schemes; governing bodies and pension boards should tailor this list to the circumstances of their own scheme.
9. Pensions law and associated legislation:
   1. The roles, responsibilities, and duties of the governing body.
   2. The governing body’s liabilities and potential liability for decisions made.
   3. The law relating to pensions and trusts.
   4. The definition and nature of a pension trust (if applicable).
   5. The separation of the scheme’s assets (if applicable) from any sponsoring employer.
   6. Fiduciary duties and safeguarding the financial interests of all beneficiaries.
   7. The responsibility to act prudently and according to the scheme rules.
   8. Other legislation that might affect the scheme and the governing body, for example:
      • anti-discrimination
      • data protection
   9. Our codes of practice as they apply to the scheme.
   10. Proposals for legislative change.
   11. Tax treatment of pension schemes.
   12. Main features of the state pension provision.
   13. Key elements of automatic enrolment legislation.
10. The scheme:
    1. Trust deed, rules, and any amendments (if applicable).
    2. Scheme regulations and statutory guidance (public service schemes only).
    3. The governing body’s powers and discretions.
    4. The benefit structure, including the pension or decumulation options available to members.
    5. The balance of powers between the governing body and the employer.
    6. Any written policies and procedures relating to:
       • internal dispute resolution
       • the appointment of members of the governing body
    7. Statements of policy about the exercise of discretionary functions.
    8. How policies, practices, and scheme rules are reviewed and amended.
    9. Terms of reference, structure, and operational policies of any sub-committees of the governing body.
    10. Any admission body policies (public service schemes only).
    11. Any categories of membership of the scheme.
    12. The annual chair’s statement (certain defined contribution (DC) schemes). See Chair’s statement.
    13. The scheme’s remuneration policy (where applicable).
11. Scheme funding and investments:
    1. Statement of investment principles (if applicable).
    2. Statement of funding principles (if applicable).
    3. Any policies the governing body has adopted about stewardship of investments, environmental, social and governance matters and climate change. See Stewardship and Climate change.
    4. The choice of investments, if any, offered to members, and any default arrangement.
    5. The contribution rate(s) or amount(s) payable by employers participating in the scheme.
    6. The contribution rate(s) or amount(s) payable by scheme members participating in the scheme.
    7. The impact of investment charges and fees. See also Value for members.
    8. The key features and processes of investment management.
12. Principles of investment (excluding LGPS):
    1. How investments can affect scheme member outcomes.
    2. Awareness of diversity and inclusion on investment decisions, such as if scheme investments are aligned with member’s responsible investment preferences or religious beliefs.
    3. Custody arrangements, including monitoring and record keeping.
    4. The operation of financial markets.
    5. The major asset classes and their characteristics.
    6. Characteristics of alternative asset classes, financial instruments, and investment techniques.
    7. The implications of overseas investment, including foreign exchange risk and political risk.
    8. The nature of financial risk, including:
       • risk/reward profile of each major asset class
       • basic principles of matching assets to liabilities (DB)
       • basic principles of matching assets to pension expectations (DC)
       • managing risk by diversifying assets.
    9. The investment strategy adopted by the governing body.
13. Risk management:
    1. The risk register.
    2. The schemes’ own risk assessment, where applicable.
    3. Risk assessment framework and risk management policies for the scheme.
    4. Any policies and procedures, including documentation relating to:
       • Conflicts of interest
       • Reporting breaches
       • Maintaining scheme contributions
       • Gifts and hospitality
    5. The governing body’s cyber security policies (see Cyber controls).
14. Scheme administration and service providers:
    1. The need to obtain professional advice in certain circumstances.
    2. The pension administration strategy or equivalent documents, setting, for example, details of performance targets.
    3. The law and our expectations in relation to financial transactions (see Financial transactions).
    4. Whether the scheme is being used for automatic enrolment.
    5. The roles and responsibilities of appointed advisers and service providers.
    6. Any policies and procedures, including documentation relating to:
       • Record-keeping
       • Cleaning and maintaining data
       • collection of data
15. Scheme communications:
    1. Any scheme-approved booklets, announcements, and other key communications to scheme members and employers.
    2. Statements of policy about communications with scheme members and employers. See General principles for member communications.
    3. Policies relating to the public provision of information and information given on request.
    4. Where applicable, procedures for dealing with freedom of information requests.

Glossary

Accessibility

Making sure that communications and online services can be used and understood by as many people as possible. This includes those with impaired vision or hearing, motor difficulties, cognitive impairments and learning disabilities. The government has produced helpful guidance on this: https://www.gov.uk/government/publications/inclusive-communication/accessible-communication-formats

Beneficiary

A person who benefits from a trust; the member, spouse, or children, for example.

Custody arrangement

An arrangement where a third party holds assets on behalf of someone else (a pension scheme, for example). The custodian may carry out certain reconciliation and transaction activities.

Decumulation

The phase during which a member converts their pension savings into retirement income or makes a legitimate withdrawal from their pension pot.

Employer covenant

The extent of the employer’s legal obligation and financial ability to support the pension scheme now and in the future.

Money laundering

The concealment of the origins of illegally obtained money.

Passive management

Passive management (also called passive investing) is an investing strategy that tracks a market-weighted index or portfolio rather than making decisions about specific stocks or assets to hold.

Pension Protection Fund

A statutory fund in the United Kingdom, intended to provide limited protection to DB scheme members if their pension scheme winds up without sufficient funds to pay all the benefits.

Professional trustee

A person whose business includes trusteeship. Someone will normally be considered a professional trustee if they have represented themselves to one or more unrelated schemes as having expertise in trustee matters generally (rather than just in certain areas). See https://www.thepensionsregulator.gov.uk/en/trustees/professional-pension-trustee-standards

Recovery plan

A plan put in place to enable a DB scheme to return to being fully funded on a statutory basis.

Scheme rules

The rules and associated documentation setting out how a given scheme is to operate.

Working knowledge

Sufficient knowledge of the items, so that they can be used effectively when required to do so.

Legal references

¹ Section 247 and 248 Pensions Act 2004

² Section 248A Pensions Act 2004

³ Section 247 Pensions Act 2004

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