The Pensions Regulator is currently consulting on a new DC Code of Practice. The consultation closes late in January 2016, there will then be a few months of cogitation, before a second and final version is published, laid before Parliament and, finally, adopted. This will probably be early summer next year (2016).
The new code (number 13) will replace a current code (also number 13!) and is billed as a simplification exercise. It’s certainly that. The original code, which is only just over two years old, wasn’t just 20 pages longer (58 compared to 38) it’s structure was a leviathan incubated over a two year period of several drafts developed through workshops with various constituencies (I hold my hand up to sitting on a couple of those): for there to be a good member outcome a good scheme had to have six essential elements, underpinned by six principles and demonstrated by 31 quality features (earlier drafts had 36 quality features, but clearly someone took exception to the mathematical logic, not to mention memory jogability of that formula. Thus 6 x 6 = 31!) arranged over five chapters. Trustees were expected, and many telephoned by the regulator to see if they had, to prepare a statement setting out how they had complied with each of the quality features or, in the event that they hadn’t, explaining why. The regulatory impact assessment for that original version predicted minor compliance costs and was massively wrong.
It was a monster, albeit a highly worthy monster. It left trustees with no doubt what they had to do.
The new code does appear less prescriptive (although it does give us 18 new dates to add to the scheme diary and 13 new documents to write), which is welcome. It contains much the same content but at a much higher level. It should be easier to work with and, as a consequence, there is a much reduced risk of it being approached with a checklist mentality.
So, nice new teeth. Smaller and shinier.
What both codes miss, however, is one key point.
Good trustees already do much, if not all, of the stuff the regulator advocates, albeit, perhaps in a different way or different form and, always aware that they can improve, will dutifully pick up and study the new code to see what they can learn and do differently. In sum, with good trustees, old code, new code, neither has nor will fundamentally change much – other than compliance costs.
Bad trustees, however, even if they complied with the old code, approached it as a tick box exercise. At best, they will have bunged their consultant a few grand to write the compliance statement which probably saw existing controls contorted and stretched to accommodate the framework. A new code won’t cause them to rethink. In sum, with bad trustees, old code, new code, neither has nor will fundamentally change much – other than compliance costs.
The feature that could fundamentally change DC and improve the chances of good member outcomes is this: the regulator will have their shiny nice new teeth and they must use them. They must bite down hard on the bad trustees in particular. And they should make the act of biting public. Other bad trustees must see that if they continue to fail to raise their game they run the risk of being bitten themselves.
Old code, new code – doesn’t much matter. The real question is whether it’s old regulator or new regulator.