1. Introduction
The Pensions Regulator's General Code of Practice(the Code) took effect on 28 March 2024.
This briefing covers the section of the Code relating toReporting to the Regulator, which includes detail on:
- Registrable information and scheme returns, and updating this information.
- Whistleblowing – reporting breaches of the law.
- Reporting payment failures.
This section of the Code is almost entirely derived from former Code of Practice 1: Reporting breaches of the law and former Codes of Practice 5 and 6 on reporting late payments of contributions.
These topics do not form part of a scheme's effective system of governance and do not need to be reviewed under an own risk assessment. However, they set out the Regulator's expectations for compliance with various legal requirements and merit appropriate consideration by trustees reviewing their governance and risk processes.
Thedigital version of the Codeis now available on the Regulator's website, and this is integrated with the remaining six Codes of Practice that were not part of the consolidation. In particular the digital section of the Code on Reporting to the Regulator includes the existingCode of Practice 2 on Notifiable events.
The Code consolidates and replaces ten former Codes of Practice, and this briefing forms part of aserieswhich also covers the other sections of the Code (Governing Bodies and the Effective System of Governance; Funding and Investment; Administration; and Communications and Disclosure).
2. Registrable information and scheme returns
Updating registrable information
When a scheme first registers with the Regulator, it has to provide certain 'registrable information', which varies depending upon the type of scheme. When any of that information changes, the law requires trustees to update the Regulator "as soon as reasonably practicable". A non-exhaustive list of the information that needs to be kept up to date can be found inRegulator guidance. Updating can generally be done via the Regulator's online Exchange platform.
The Regulator says it has noticed a trend of schemes only updating registrable information in their next scheme return, which is normally too late. It has therefore now used the Code to say (for the first time) that trustees must inform the Regulator of changes in registrable information "... at the very latest within five working days of ... becoming aware of the change". We note that the use of the word "must" in this context is arguably too strong, because the legislation does not specify an absolute five working day deadline. The Regulator's consultation response (but not the Code itself) mentions that there will be circumstances where a longer period may be reasonable – but also that there will be circumstances where five working days may be too long.
Submitting scheme returns
The Code reiterates that trustees are accountable for the information provided in a scheme return submitted to the Regulator (even if the scheme return is prepared by someone else, such as an administrator or adviser) and that trustees should have measures in place to ensure the accuracy of the information in the scheme return before its submission.
In our experience, scheme returns are often prepared by administrators, advisers or others supporting trustees. Trustees may therefore want to consider the process they have in place for reviewing their scheme returns, particularly in light of the additional questions introduced this year as part of the expanded scheme return for DB/hybrid schemes (see ourbriefingon this). In addition, as it is a criminal offence for anyone knowingly or recklessly to provide false or misleading information in the scheme return, trustees should ensure that this is given proper consideration.
Actions: Review and, where appropriate, consider strengthening processes for:
- Checking that trustees, and (where applicable) administrators or other relevant support functions, are aware of the information that is "registrable information" for the scheme so that changes can be easily and quickly flagged.
- Updating the Regulator as soon as reasonably practicable when any registrable information changes (e.g. within 5 working days).
- Reviewing and ensuring the accuracy of information in the scheme return each year before it is submitted.
3. Whistleblowing – reporting breaches of the law
Certain people are required to report breaches of the law to the Regulator when they have reasonable cause to believe that:
- alegal dutywhich is relevant to the administration of a scheme has not been, or is not being, complied with; and
- the failure to comply is likely to be ofmaterial significanceto the Regulator in exercising any of its functions.
The Regulator confirms in the Code that it interprets this legal duty very widely – it covers not only day-to-day administrative tasks (such as processing benefits and record-keeping) but also anything that could affect member benefits, and therefore extends to matters such as investment management, custody of assets and scheme funding.
Those who have a duty to report include (for example) trustees, employers, service providers and professional advisers. The reporting duty overrides other duties, notably duties of confidentiality, but not legal privilege (so, for example, potential reporters can discuss issues with their legal advisers without fear of being reported).
The two-stage test described above requires two judgement calls to be made to determine whether a matter is reportable: first, whether a breach has in fact occurred, and second, whether it is likely to be of material significance to the Regulator. The Code broadly reiterates content from the previous relevant code about when the Regulator considers that a breach is likely to be of material significance. This sets out factors, with new examples, under the following headings:
- The cause of the breach
- The effect of the breach
- Reaction to the breach
- The wider implications of the breach
These factors operate largely as might be expected. For example, the Regulator says it would not normally consider a breach to be materially significant if it has limited effect and prompt and effective action is taken to investigate and correct the matter, and/or it arose from an isolated incident. Breaches caused by dishonesty or recklessness, or deliberate breaches, are likely to be of material significance.
Several respondents to the consultation urged the Regulator to retain the 'traffic light' approach to reporting requirements in the existing code-related guidance. Theupdated guidancedoes indeed retain this and it provides a helpful steer in indicating the Regulator's likely view of whether different types of breaches would be reportable.
The Code then sets out how practically to make a report. Under the legislation, reports are to be made "as soon as reasonably practicable". In new content, the Regulator now says that in most cases reports should be made within ten working days of the breach being identified. If a report is made later than that, trustees should record the reasons and retain any evidence.
In light of the judgement calls required, trustees should consider if they have appropriate processes in place not only to make any required reports, but also to make the initial assessment of whether a breach is reportable. It would be good practice for trustees to record all breaches, even if not reportable, as any such previous non-reportable breaches may be relevant in deciding whether to report future breaches (e.g. because, taken together, they could be indicative of a systemic issue).
Actions: Consider:
- whether any training is required (including for others involved in the scheme) on the duty to report breaches of the law, to make sure that this is fully understood.
- reviewing whether appropriate processes are in place to assess, record and, if necessary, report any breaches of the law to the Regulator (e.g. within ten working days).
4. Reporting payment failures
The final section of this part of the Code focus on contribution payment failures. The legal obligation to report payment failures generally applies to trustees or scheme managers rather than other parties but, as for whistleblowing, a report is only required where trustees or managers have reasonable cause to believe the payment failure is likely to be of material significance to the Regulator.
The Code sets out different factors for identifying when the Regulator may consider that a payment failure is and is not likely to be of material significance. For example, a payment failure is likely to be of material significance where it involves:
- possible dishonesty or misuse of assets;
- an apparent fraudulent evasion by an employer of the obligation to pay contributions that have been deducted from employees' earnings;
- the employer being unable to pay;
- any case where contributions have been outstanding for 90 days.
Conversely, one-off payment failures or administrative errors, or cases where payment is late but made in full and within 90 days of the due date, may not (depending on the circumstances) be of material significance.
Under the former codes of practice, reports were expected within ten working days of the trustees having reasonable cause to believe that there had been a material payment failure; now they will be expected within 14 days (but this will not be different unless the period includes a bank holiday). As before, members should be told of the issue within 30 days of the report being made to the Regulator.
Note that the 'Administration'section of the Code includes separate sections on monitoring contributions and resolving overdue contributions. See our briefingon the Administration section of the Code for more on this.
Action:Consider if appropriate systems are in place to monitor the payment of contributions, resolve any issues and (if necessary) submit payment failure reports.
5. Notifiable events
The digital section of the Code on Reporting to the Regulator includes the existingCode of Practice 2: Notifiable events, which was not part of the consolidation exercise and remains in place unchanged. It relates to the requirement to notify the Regulator of certain corporate activity relevant to its anti-avoidance powers.
We still await the introduction, not to mention final details, of the proposed expanded notifiable events regime under the Pension Schemes Act 2021. The Notifiable events code of practice will need to be updated if and when that legislation is made: the Regulator expects that it will then be incorporated formally into the Code.
6. Complying with the Code
Although the Code is not legally binding, it can be used in legal proceedings as evidence in support of a claim of non-compliance with a legal requirement. The Regulator may also cite its expectations, as set out in the Code, when taking enforcement action. Our early experience is that many schemes are therefore actively allocating time and resources to making sure they are complying with the Code. Schemes may want to consider the extent to which their existing policies, processes and governance structures already meet the expectations of the Code, and whether there are other areas that may need updating or documenting more fully.
In our briefings, we use the language "should" to refer to the Pensions Regulator's expectations of trustees as set out in the Code. However, the Code states that trustees should "use their judgement as to what is a reasonable and suitable method for ensuring compliance for their scheme". As noted in our previous briefings, legislation states that ESOGs must be "proportionate" to the scheme's "size, nature, scale and complexity of [its] activities". Consequently, there is a degree of flexibility for schemes in their approach to the Code by thinking about what is reasonable and proportionate in their relevant circumstances. We have not included in this briefing the aspects of the Code applicable to public service pension schemes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.