Pension trustees should work out where the gaps are in their current governance frameworks to avoid being “caught out” when new governance requirements come into force later this year, LCP has stated.

The Pensions Regulator’s (TPR) single Code of Practice is due to introduce new requirements for governing bodies of both defined benefit (DB) and defined contribution (DC) schemes, mainly around having an effective system of governance (ESOG) and completing an annual Own Risk Assessment (ORA).

To help simplify the requirements of the code, LCP has published a guide to the ESOG, which aims to clearly set out the policies and procedures governing bodies should or must have in place.

The guide warned that although many pension schemes already have robust governance frameworks in place and meet most of the regulator’s expectations, it was likely that some changes to schemes’ existing processes will be required to meet new requirements, and new policies may need to be introduced.

LCP’s guidance also raised the point that, while TPR has set high-level expectations for all schemes, the systems and controls put in place should be proportionate to the size, scale and complexity of a scheme.

The guide noted that there was currently no guidance on this and therefore advised trustees to discuss their approach with their legal advisers.

LCP partner and head of governance, Rachika Cooray, commented: “At first glance, the ESOG looks like an alphabet soup of processes and policies, and it can feel overwhelming.

“We hope that our ‘Guide to the ESOG’ simplifies the requirements and helps governing bodies to feel more confident about the changes.

“This is very much the year of governance and I encourage governing bodies to embrace the code and take steps now to identify any gaps and formulate a plan to address them over the year.”

Schemes with more than 100 members are required to establish and operate an ESOG, which is a collection of policies and procedures covering key aspects of good governance, including scheme management, investment and communications.

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