The Pensions Regulator

Code of practice 07
Trustee knowledge and understanding (TKU)

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Conversance

The scope of the requirement to be conversant with scheme documents

66. As already noted, for the purposes of this code, being conversant with documents is taken to mean having a working knowledge of those documents such that trustees are able to use them effectively when required to do so in the course of carrying out their duties as trustees.
67. Trustees need to be able to cope both with the routine and with the unexpected although 'working knowledge' may differ between these two circumstances (e.g. trustees may frequently refer to eligibility for membership, but will not need detailed information about trustee powers in the event of wind-up unless they suspect that a wind-up may be a possibility in the foreseeable future).
68. There is a statutory requirement that trustees must be conversant with some particular scheme documents and with those unspecified documents 'recording policy for the time being adopted by the trustees relating to the administration of the scheme generally'. This means that trustees must also be familiar with certain scheme documents despite the fact that they are not specified in the Act. They will need to be able to make use of those documents as well as the specified documents in carrying out their functions as trustees.
69. It is difficult to set out what exactly this means for each board of trustees and impossible to prescribe because of the variety of schemes and circumstances. However, to help in this respect, in the Scope Guidance the regulator has specified those documents which are unspecified in the legislation but which, in the regulator's view, are of significance for the majority of schemes and fall into the category mentioned there. In any one scheme, there may be other documents which also fall into this category.
70. The syllabus for the qualification which will be available on the regulator's website and on the website of the current qualification provider(s) will indicate in more detail what is required, and will be helpful even to trustees who do not wish to take the qualification. Broadly speaking, it will suggest that trustees should know the essential and frequently used elements of the trust deed and rules and the essential elements of the other key documents which are specified in the Scope Guidance but not named in the Act. It does not go further. The elements in question are also set out in the Scope Guidance as they apply to the majority of schemes in the view of the regulator. There may be other elements which are important for individual schemes.
71. Knowing the essential elements of the trust deed and rules does not necessarily mean that every trustee should read them through thoroughly. Trustees can find their own ways to establish the essential elements of the deed and rules which are specified in the Scope Guidance (e.g. by reference to their provider, administrator, adviser or even asking one trustee to do so using a highlighter pen on behalf of the board as a whole).
72. On the other hand, it is important that trustees understand the essential elements of their own statement of investment principles (as specified in the Scope Guidance) and, in the case of DB schemes, their own statement of funding principles (again, as specified in the Scope Guidance).
73. Experienced trustees will find that they already know many of these essential elements through frequent use.
74. With regard to other documents, we can take one example, that of insurance policies. Trustees should know broadly which risks which are covered but will only need to look at the detail if and when they might require to make a claim (i.e. they can behave in this respect as a responsible private individual would in respect of household or motor cover). However, like that individual, they will need to revisit this exercise from time to time, to ensure that the cover is still required, is consistent with the trust deed and rules (especially if those have changed) and is also consistent with current legislation.
75. A similar approach can be taken to other similar documents setting out agreements and contracts, and a similar 'essential elements' approach could be adapted for the other documents listed in Unit 13 of the Scope. The syllabus for the non-mandatory qualification expands this notion in respect of those documents and may be helpful to trustees.
76. Trustees need also to consider how they will assure themselves that they have adequately covered this requirement covering scheme documents. They may also wish to be able to demonstrate this to fellow trustees, to employers or to members as previously suggested for knowledge and understanding.
77. Despite the fact that the documents in question are, of course, scheme specific, any learning programme published by the regulator will cover them and refer trustees repeatedly to their own documents as part of the programme. For the vast majority of trustees, this part of the regulator's programme will be sufficient to cover the necessary ground. If trustees choose other learning programmes they should assure themselves that the same will apply. Any certificate of successful completion should include this area of work also as will the accredited qualification referred to above.
78. Again, as with knowledge and understanding, trustees will need to consider what steps they need to take to update themselves on this requirement to be conversant with scheme documents. They could well adopt a regime for this which is modelled on the regime for updating and record keeping in relation to the requirements for knowledge and understanding.
79. For newly-appointed lay trustees (whether part of a corporate body or not) the legislative requirement to be conversant with scheme documents will not apply for a period of six months from the date of appointment as a trustee to a scheme. However, the same considerations relating to decision making and the dates for board meetings apply here as they do for knowledge and understanding (see paragraphs 42-45 above).
80. Professional trustees and those appointed for special expertise will be expected to be fully conversant with scheme documents from the date when the appointment becomes effective, as is the case with knowledge and understanding (see paragraph 65 above).

Review of the code

81. The Pensions Regulator wishes to consider the effectiveness of the code to trustees and other users and will therefore start the review process of this code within a two year period from the date after which it comes into force, unless a particularly urgent reason emerges which would require an earlier review. If the review reveals that the code is generally serving the purpose which was intended, then it could result in little, if any, change.

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