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Scheme governance

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 at webfeedback@tpr.gov.uk.

You can also read more information about the consultation.

Published: 17 March 2021

All pension schemes need to have systems of governance and internal controls that:

  • provide the governing body with oversight of the day-to-day operations of the scheme
  • include any delegated activities for which the governing body remains accountable
  • provide the governing body with assurances that their scheme is operating correctly and in accordance with the law

The standards of governance required by law depends on the type of scheme the governing body operates.

Under section 249A of the Pensions Act 2004,SC1 governing bodies of certain schemes must establish and operate an effective system of governance including internal controls (see Managing risk using internal controls). However, there are certain exemptions.SC2

Under section 249B of the Pensions Act 2004,SC3 scheme managers of public service pension schemesSC4 are required to establish and operate internal controls, which are adequate for securing that the scheme is administered and managed in accordance with the scheme rulesSC5 and with the requirements of the law.

A system of governance will include anything that can reasonably be considered part of the operation of a pension scheme. Internal controls are a key feature of any system of governance and are:

  • the arrangements and procedures to be followed in the administration and management of the scheme
  • the systems and arrangements for monitoring the administration and management
  • the arrangements and procedures to be followed for the safe custody and security of the assets of the schemeSC6

We have broadly the same expectations for each type of scheme. However, the standard required to meet those expectations frequently differs according to scheme type and size.

Where an expectation is different or applies differently in law for a specific type of scheme, this is made clear in this code. Where an expectation does not apply to a scheme because the law doesn’t apply, the governing body may wish to consider whether the principles should be adopted as best practice.

The systems and controls put in place by a scheme should be proportionate to its size, nature, scale and complexity. This proportionality is a feature of legislation for some schemes.SC7

Effective system of governance

An effective system of governance should include processes and procedures to ensure compliance with the following modules.

Some of the modules contain only expectations for an effective system of governance (ESOG), and some contain expectations for ESOG and separate legal obligations. Expectations in respect of those legal obligations should be followed as part of ESOG as well as for wider legal compliance.

Where a module identifies a matter as best practice, this will not form part of our expectations for ESOG.

The expectations set out are subject to some exceptions for certain schemes, which are detailed in each module.

Management of activities

Organisational structure

Investment matters

Communications and disclosure

Internal review

Governing bodies should ensure that the elements of their ESOG are subject to a regular internal review. This should assess whether each element is functioning as intended, and whether changes are required.

The governing body should establish and maintain policies for the review of each element of the ESOG. These policies should be agreed before any review is carried out and reviewed at least every three years.

An ESOG should have a process that ensures that any necessary changes are made to the ESOG or review policies.

Unless specified otherwise in law or code, each element of an ESOG should be reviewed according to a timetable established by the governing body. This should ensure that each element of the ESOG is reviewed at least every three years. It is not necessary for all elements of an ESOG to be reviewed at the same time.

Options for formal internal audit and external assurance reporting are discussed in Assurance of governance and internal controls.

Own risk assessment

Governing bodies of schemes with 100SC8 or more members should carry out and document an own risk assessment  of their ESOG.

Internal controls

The modules set out below contain systems, arrangements or procedures that governing bodies should have in place to comply with the requirements for internal controls. They also apply to schemes required to maintain an ESOG. The expectations set out are subject to some exceptions or limitations in scope for certain schemes, which are detailed in each module.

Internal controls

Administration and management

Legal references

SC1Article 226A of The Pensions (Northern Ireland) Order 2005

SC2Section 249A(3) of the Pensions Act 2004
[Article 226A (3) of The Pensions (Northern Ireland) Order 2005]

SC3Article 226B of The Pensions (Northern Ireland) Order 2005

SC4As defined in section 318(1) of the Pensions Act 2004
[Article 2(2) of The Pensions (Northern Ireland) Order 2005]

SC5As defined in Section 318(2) of the Pensions Act 2004
[Article 2(3) of The Pensions (Northern Ireland) Order 2005]

SC6Section 249A(5) of the Pensions Act 2004
[Article 226A(5) of The Pensions (Northern Ireland) Order 2005]

SC7Section 249A(1A) of the Pensions Act 2004
[Article 226A(1A) of The Pensions (Northern Ireland) Order 2005]

SC8Regulation 3(9) The Occupational Pension Schemes (Governance) (Amendment) Regulations 2018
[Regulation 3(9) The Occupational Pension Schemes (Governance) (Amendment) Regulations (Northern Ireland) 2018]