Pension scheme governance: trustee obligations and regulatory expectations
The governance of occupational pension schemes is regulated by The Pensions Regulator (TPR), which has substantially strengthened its supervisory approach following the Pensions Act 2021 and the introduction of enhanced trustee duties, mandatory governance standards, and significantly increased civil penalty powers. Trustees of defined contribution (DC) and defined benefit (DB) schemes face a demanding compliance environment in which the standards expected of lay trustees have risen to levels that require substantive professional support. The TPR's General Code of Practice, which came into force in March 2024, consolidates and updates the previous suite of codes into a single integrated framework covering all aspects of scheme governance.
The General Code's requirements on effective systems of governance cover: having an own-risk assessment (ORA) process for DC and DB schemes above defined size thresholds; maintaining adequate internal controls; having documented risk management processes; and ensuring that trustee boards have the skills and knowledge required to discharge their duties. The ORA, which replaces the previous DC scheme governance statement requirement, must be completed at least every three years and following any significant change in the scheme's circumstances. For many smaller schemes, the ORA requirement represents a significant step up in governance formality, and trustees should ensure they have adequate professional support to complete it credibly.
Value for money (VFM) assessment for DC schemes has been reinforced by the FCA's and TPR's joint work on workplace pension value for money. The framework — currently in development through joint consultation — will require schemes to assess and report on their VFM across three dimensions: investment performance, costs and charges, and quality of service. Schemes that fall below a defined threshold on this assessment will be required to take action, which in practice may mean consolidating into a larger scheme. Trustees of smaller DC schemes should monitor the development of the VFM framework and begin preparing data to support the assessment, as the reporting requirements, when implemented, will require data that many schemes do not currently collect systematically.
Climate governance obligations for larger schemes require trustees to assess, manage, and report on climate-related financial risks in line with the TCFD framework. The requirements apply to schemes with assets above £1 billion (or all authorised schemes), with a three-year phase-in for smaller schemes. TCFD-aligned reports must be published annually and must cover governance, strategy, risk management, and metrics and targets. The TPR's guidance on climate change has been regularly updated and trustees should ensure their TCFD reports are reviewed against current guidance before publication.
Trustee knowledge and understanding
The Pensions Act 2004 requires trustees to have knowledge and understanding of pensions and trust law, investments, and relevant scheme documents. The General Code now specifies that trustees must have a trustee knowledge and understanding (TKU) plan covering individual and collective competency, and must record and review their TKU arrangements. Professional trustees are expected to hold the PMI Trustee Certificate or equivalent. Employer trustees — who are not required to hold professional qualifications — must nonetheless be able to demonstrate adequate knowledge, and employers should consider what support they provide to lay trustees to enable them to meet this standard.