The government has published regulations bringing the governance requirements of the second European Pensions Directive (IORP II) into UK law.
The regulations, which align with the recent direction of travel in UK pensions policy, will update the current law on pension scheme governance, requiring trustees of pension schemes to establish ‘an effective system of governance’, including internal controls.
Employers operating occupational pension schemes should be aware that, while the regulations come into force on 13 January 2019, the government has stated that it intends to give schemes sufficient time for familiarisation and planning, with the detail of the new requirements to be set out in revised codes of practice published by The Pensions Regulator (TPR). There will be a consultation on the revised codes during next year and any changes are therefore unlikely to take effect before late 2019.
In preparation for the new requirements, organisations may wish to reach out to pension scheme trustees and make sure they have the new requirements on their radar.
Part of the new regime will see pension schemes having three key functions: risk management, actuarial and internal audit. The latter is described in the regulations as the function which ‘internally evaluates adequacy and effectiveness’ of the system of governance. Subject to thinking through any conflict issues, and factoring in the detailed requirements from the forthcoming codes of practice, it may be that any employer internal audit resource could be used to assist trustees, or at least help shape their thinking on compliance.
We do not expect pension schemes that already have good governance systems in place to need to make quantum leaps in terms of compliance. However, arrangements will need to be reviewed against the codes of practice, when they are available.
Ferdinand Lovett is associate director at Sackers