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Working knowledge of pensions

Important

Early draft of the code of practice

This code is not in force yet. It is an early version for the new code of practice consultation.

To give us feedback on issues such as the design, usability and navigation of this code, email us your website feedback.

To provide feedback about the text of the code, submit a response to the consultation.

Published: 17 March 2021

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. Our expectations for learning and development are set out in Building and maintaining knowledge.

Our expectations of knowledge and understanding apply equally to any individual who exercises any trustee function within a company acting as trustee of the scheme.

Professional trustees and those appointed because of specialist expertise should be able to demonstrate a greater level of knowledge than members without such expertise.

The items we consider to be key are listed below. This list is not exhaustive, and some governing bodies may add other items. Some elements of this list will not be relevant to certain schemes.

Pension law and associated legislation

  • The roles, responsibilities and duties of the governing body.
  • The governing body’s liabilities and potential liability for decisions made.
  • The law relating to pensions and trusts.
  • The definition and nature of a pension trust (if applicable).
  • The separation of the scheme’s assets (if applicable) and any sponsoring employer.
  • Fiduciary duties and safeguarding the financial interests of all beneficiaries.
  • The responsibility to act prudently and in accordance with the scheme rules.
  • The law relating to pensions and trusts.
  • Other legislation that might affect the scheme, for example:
    • anti-discrimination
    • data protection.
  • The Pensions Regulator’s codes of practice.
  • Proposals for legislative change.
  • Tax treatment of pension schemes.
  • Main features of the state pension provision.
  • Key elements of automatic enrolment legislation.

The scheme

  • Trust deed and rules and any amendments (if applicable).
  • Scheme regulations and statutory guidance (public service schemes only).
  • The governing body’s powers and discretions.
  • The benefit structure, including the pension or decumulation options available to members.
  • The balance of powers between the governing body and the employer.
  • Any written policies and procedures relating to:
    • internal dispute resolution
    • the appointment of members of the governing body.
  • Statements of policy about the exercise of discretionary functions.
  • How policies, practices and scheme rules are reviewed and amended.
  • Terms of reference, structure and operational policies of any sub-committees of the governing body.
  • Any admission body policies (public service schemes only).
  • Any categories of membership of the scheme.
  • The annual chair’s statement (certain DC schemes). See Chair’s statement.

Scheme funding and investments (excluding LGPS)

  • Statement of investment principles (if applicable).
  • Statement of funding principles (if applicable).
  • Any policies the governing body has adopted in relation to stewardship of investments and ESG matters.
  • The choice of investments, if any, offered to members and any default arrangement.
  • The contribution rate(s) or amount(s) payable by employers participating in the scheme.
  • The contribution rate(s) or amount(s) payable by scheme members participating in the scheme.
  • The investment of scheme assets and the governing body’s investment objectives.
  • The importance of the employer covenant.
  • Recovery plan and covenant analysis (if applicable).
  • The Pension Protection Fund (PPF) where applicable.
  • The scheme’s investment mandates.
  • Strategic asset allocation.
  • Measurement and reporting of investment performance.
  • The impact of investment charges and fees. See also Value for members.
  • The key features and processes of investment management.
  • The processes and principles used for selecting fund managers.

Principles of investment (excluding LGPS)

  • How investment can affect scheme member outcomes.
  • Custody arrangements including monitoring and record-keeping.
  • The operation of financial markets.
  • The major asset classes and their characteristics.
  • Characteristics of alternative asset classes, financial instruments and investment techniques.
  • The implications of overseas investment including foreign exchange risk and political risk.
  • 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 diversification of assets.
  • The investment strategy adopted by the governing body.

Risk management

  • The risk register.
  • Risk assessment framework and risk management policies for the scheme.
  • Any policies and procedures including documentation relating to:
    • conflicts of interest
    • reporting breaches
    • maintaining contributions to the scheme
    • gifts and hospitality.

Scheme administration and service providers

  • The need to obtain professional advice in certain circumstances.
  • The pension administration strategy, or equivalent documents setting details of performance targets etc.
  • Whether the scheme is being used for automatic enrolment.
  • The roles and responsibilities of appointed advisers and service providers.
  • Any policies and procedures including documentation relating to:
    • record-keeping
    • cleaning and maintaining data
    • collection of data.

In relation to scheme communications governing bodies should be familiar with

  • Any scheme-approved booklets, announcements and other key communications to scheme members and employers.
  • Statements of policy about communications with scheme members and employers.
  • Policies relating to the public provision of information and information given on request.
  • 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 accessible communication formats

Beneficiary

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

Decumulation

Accumulation is where your pension grows (by contributions or investment return, for example). Decumulation is where you take money out of your pension to fund your retirement, for example, as a lump sum or by buying an annuity.

Employer covenant

The ability of the sponsoring employer to financially support a DB pension scheme

Custody arrangement

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

Money laundering

The concealment of the origins of illegally obtained money

Passive management

Involves setting up your investment framework (having divided your investments upfront) and leaving the investments to grow

Pension Protection Fund (PPF)

The Pension Protection Fund is a statutory fund in the United Kingdom, intended to provide limited protection to DB scheme members if their pension fund winds up without sufficient funds to pay 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).

Recovery plan

A plan put in place to enable a defined benefit 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