Preparations in hand for Pensions Regulator: codes, structures and training planned

Although the Pensions Act has only just received Royal Assent, a considerable amount of work has already been undertaken to ensure that the correct systems and structures are in place in time for the introduction of the new Pensions Regulator in April 2005.

The new arrangements are being developed jointly by the Department for Work and Pensions (DWP), which is leading the project, and the existing regulator, the Occupational Pensions Regulatory Authority (OPRA).

Project areas

The three areas on which the joint team is working are:

  • developing the organisational and information technology infrastructure that will support the new regulator's role in collecting data, and identifying and investigating risks;

  • developing training programmes for existing OPRA staff to prepare them for their new roles with the regulator; and

  • establishing how the new regulator will interact with all the different interested parties, which can range from scheme members through to professional advisers.

    The Pensions Regulator will be based in OPRA's existing office in Brighton. However, to underscore the fact that it will operate on a different basis from OPRA, it will have a new organisational structure. Details have yet to be announced of the changes that will result from this, but the latest OPRA Bulletin* indicates that staff numbers will increase.

    At present, the organisation employs about 250 people in Brighton and 50 in Newcastle, and it is understood that about 50 extra staff will be taken on over a period of time. Tony Hobman, chief executive of OPRA, retains the same role at the new regulator.

    Proactive not reactive

    The National Audit Office criticised OPRA for having no statement of its objectives after five years of operation, and for having no mechanisms for identifying potential rather than actual breaches of the law (OP, December 2002). These criticisms were instrumental in determining some of the principles under which the new regulator will operate. Firstly, it will have the following statutory objectives:

  • to protect the benefits of members of work-based pensions;

  • to reduce the risk of situations arising that may result in calls on the Pension Protection Fund; and

  • to promote, and to improve the understanding of, the good administration of work-based schemes.

    Secondly, it will be proactive, which means that it will actively seek to identify schemes that are actually and potentially at risk, rather than waiting until it is notified of a problem. To achieve this aim, the regulator will be given extensive powers regarding the collection and recording of scheme data. As the regulator has to be in a position to perform this function when it commences operation in April 2005, OPRA has already commenced work on the returns that schemes will need to complete.

    It has piloted a draft scheme return form with a number of larger schemes. The comments of those schemes have been taken into account in the preparation of the final form. OPRA is starting to publicise these scheme returns with large schemes in December. In January, it will commence a large publicity drive to increase awareness of all schemes of the Pensions Regulator's data requirements. At the same time, it is working on systems to establish automatic triggers if returns are sent in that indicate actual or potential problems.

    Codes of Practice

    A key part of the regulator's role will be to issue Codes of Practice for all those involved in the administration and management of work-based pensions, together with their advisers. These will consist of practical guidance on how compliance with pensions legislation may be achieved. Although adherence to the codes is unlikely to be mandatory, they will be admissible as evidence in any actions concerning pension arrangements. If a scheme has not followed a particular code, it will bear the burden of proving that it has complied with legislation in some other manner in any legal action that concerns it.

    At the moment it is intended that there will be 12 Codes of Practice, of which 11 are already being developed by the DWP and OPRA. A list of the topics to be covered by the codes is set out in the accompanying box. Of these, the joint working party hopes to have the first three, on reporting breaches, notifiable events and internal disputes resolution, agreed and ready for use when the regulator becomes operational in April. The remaining codes will be brought in after that date.

    Trustees' knowledge

    One of the Codes of Practice to be brought into force in the early stages of the regulator's operation will be that covering trustees' knowledge and understanding. Under the terms of the Pensions Act, trustees are required to be "conversant with", among other things, investment matters pertaining to their own schemes. They are also expected to have "knowledge and understanding" of a wide range of trust and pension issues.

    To assist in the production of this code, OPRA published two questionnaires on its website for completion by the end of November. One related to fully-insured schemes and the other to schemes with other forms of investments.

    These set out extensive lists of items that trustees may be expected to know with the intention of reaching a consensus on a comprehensive checklist of matters relating to pensions that trustees "need to know". However, OPRA commented that it did not wish to make the lists any longer and hoped that a way could be found of shortening them.

    OPRA and the DWP are also working on the meaning of the phrase "be conversant with" which is contained in the Act. At present they are intending to consult on these matters early in 2005.

    * "Bulletin 32", available only online from OPRA's website (www.opra.gov.uk) via "publications".


    Subjects to be covered by codes of practice

    The Pensions Regulator will issue Codes of Practice on the following topics:

  • reporting breaches;

  • notifiable events;

  • internal dispute resolution;

  • trustee knowledge and understanding;

  • disclosure of information to members;

  • scheme-specific funding;

  • early leavers;

  • member-nominated trustees;

  • late payments (there will be two codes on this subject);

  • modification of past rights; and

  • internal controls.

    Source: OPRA.