The Pensions Authority has now published the final form of its new Code of Practice for trustees of occupational pension schemes and trust RACs. This follows completion of a consultation process that received 38 submissions.
The Authority has also announced new website sections covering the Code, its new defined benefit financial risk measure, and two trustee qualifications that it has identified as satisfying the code.
This all follows the announcement covering the timing of Own Risk Assessments and the content of the 2021 Annual Compliance Statement, while the Authority also offered FAQs addressing investment and borrowing for one-member schemes, earlier this week.
A new Chapter dealing with Master Trusts
The Code introduced a new chapter addressing Master Trusts, covering matters such as conflict and trustee independence, continuity planning, capital adequacy, marketing and of course some policies and procedures.
In this note, we wish to concentrate on changes to the areas covered by the previous draft and to read more on Master Trusts and this part of the Code, please read our client note here.
Changes made to areas covered by the original draft
The final form of the Code includes very many changes when compared to the previous draft but, as the vast majority of those changes are clarifications on particular points of detail or relatively minor edits, this note can focus on some key points:
Minutes and recording decision
The Draft Code would have imposed requirements about keeping detailed minutes and recording the reasons for decisions and we are happy to see that these have been replaced by a more reasonable standard. We presume that this change is in response to feedback about the potential for unintended legal consequences from the original, more detailed approach.
Internal audit and review of internal controls
There are changes that appear aimed at reducing the costs of internal audit:
- Reviews of internal controls may now take place on a three-yearly cycle, compared to the annual cycle suggested in the original draft.
- Internal audit review of administration activities is now obligatory only where the administration is in-house.
- The need for trustees to specify what professional standards should be followed by their internal auditor has been removed, a step that may open the door to new forms of provider.
Investment
In the Investment area, there has been some extensive re-drafting:
- There is a change in name and a clarification of purpose for the previously-confusing ‘statement of investment process’ which is now styled a ‘statement of investment governance’ with an appropriate new focus. This reduces potential for confusion between this document and the SIPP, which remains unchanged.
- A more balanced approach has been taken regarding the choice between implementing investment strategy via direct manager appointments or via a delegated or fiduciary management approach.
- The final Code moderates of the requirements to agree in advance the criteria to be used in selecting an investment manager, namely the removal of the requirement to set weightings to be applied to each of the criteria. We welcome this and the clarification that all costs, not just management fees, should be assessed and considered in this evaluation process.
- We also note the new provisions requiring management of advisory conflicts. The trustees must give consideration to conflicts of interest that may arise for their advisers when the latter are asked to advise on the appointment of investment managers. In such situations, the trustees must carefully weigh such potential conflicts of interest when appointing investment advisers and considering advice received, and are encouraged, where possible, to seek independent advice.
- Finally, there is clarification that the requirements in respect of depositaries, only apply where a depositary is directly appointed by a scheme and not where they are indirectly appointed within a pooled fund.
Critical review of administrators and investment mangers
The requirements to carry out triennial reviews of administrators and critical reviews of investment managers have changed. Both are now “critical reviews” that will involve an in-depth performance review but without previous suggestions of automatic re-tenders, although a re-tender process should be considered if the “…assessment gives rise to substantial issues of concern”.
Fitness and probity
There are some other interesting points throughout the code:
- The qualifications requirement for Risk Management Key Function Holders has been extended to include those who hold a professional qualification that, while not included on the Irish National Framework of Qualifications, is equivalent to a level 7 qualification and is considered by the trustees to be relevant. This change does not apply to the position of Internal Audit Key Function Holder.
- Where trustees are addressing situations in which probity requirements are not satisfied, and those trustees must rely on another party for action, there is a requirement to seek that action from the other party and to subsequently make a report to the Pensions Authority if it is not taken.
- Trustees may rely on the veracity of information provided by others in respect of their fitness and probity for a role.
Logging member communications
The problematic need to log all communications and complaints has been somewhat reduced to a need to log queries and complaints. This improvement still leaves a concern for larger schemes about the logging of trivial queries.
