Monday, August 25, 2014

Local Government Pension Scheme (LGPS) Governance Regulations 2014

(These are my personal comments I sent on 15th August to the Department Communities and Local Government consultation on their proposed LGPS draft regulations on governance. These regulations are due to be in force by October 2014. For what it is worth - I think they are a complete dogs dinner. Read why.)

"I have been an observer then member nominated representative on a London Local Government Pension fund since 1996 (and contributor since 1993). Lately I have also been an admitted body representative on that fund. I have also been an elected Councillor member of another London pension committee since 2010 and an employer nominated trustee on a private sector open defined benefit scheme.

I am responding as an individual and these comments are in my personal capacity only.

I must admit to being surprised at the statement next to the "impact assessment" that these regulations have no impact on business nor the voluntary sector.  As someone who also works in the voluntary sector I think that for organisations who are admitted bodies of the LGPS (including private employers) that the possible impact of these regulations is significant.  Especially on deficits and employer contributions. I understand that up to 25% of LGPS members do not work directly for local authorities.

I must confess to being very disappointed with the draft regulations. Instead of adopting the proven private sector pension trustee model of employers and employee representatives being jointly responsible and working in partnership to run their schemes, we are going to have overlapping and confusing 2-tier governance arrangements.

The proposed draft regulations themselves are contradictory and conflicting.  The overriding purpose of pension boards was supposed to be about making sure that the local government pension scheme as a whole is transparent, run efficiently and gives value for money. Unless the scheme nationally contains costs and maximises a responsible return then good funds will be brought down by the badly managed funds.

Employers will only pay a maximum of 13% contributions for future service and if nationally this cost ceiling is breached then this means that employee contributions will have to rise or benefits reduced. Which will then result in employees leaving the scheme and put its long term future at risk.

The huge cost of meeting existing liabilities must be kept to a minimum as local authorities face further cuts to budgets.

While not being too restrictive the regulations must ensure that the pension boards meet at regular times, are accountable, have sufficient resources to do their job and most importantly must have the legal powers to make sure that the funds are run properly.

I understand that there are potential legal challenges to the whole governance structure due to a failure of the government to implement European directives on pension funds?  If this happens this whole process could prove to be a waste of time and money.

I do not understand why there can't be one governance board with 50/50 employer and employee representation as was originally intended? There are far too many barriers to the Secretary of State approving joint committees.  Even if s/he does then the inherent contradictions of holding a "decision making" and "assist" (or even scrutiny) meeting at the same time are likely to prove insurmountable.

Nor can I understand why councillors cannot be members of the board as employer representatives? What is the conflict?

Who indeed can be "employer representatives" on a pension board? Since if council officers are to be the employer representatives there is a possible further conflict since I understand that officers cannot be members of council committees? Has there been legal advice on this point?

The requirement that members of the board have relevant experience and capacity is unnecessary and counter productive.  Why should public sector pension schemes be treated differently that private sector? In the private sector all trustees have up to 6 months to gain relevant skills and knowledge. You do not need to be a financial expert or professional to be effective on a pension board. There is too much "herding" in the LGPS. In fact it is an advantage to have non professionals who will challenge the status quo and ask difficult questions.

I think that as a matter of principle we should be supporting equality duties being part of our remit and I do not think that this will be a too onerous a commitment.

While it is an improvement on the existing ad hoc system I think that the proposed structure and regulations is frankly a mess. While there is a time tabling issue due to enacted legislation the national pension board ought to be reviewing the whole issue of governance as a matter of urgency.

The recent legal advice that found there is no statutory under pinning of the LGPS if a fund was to fail is yet another powerful reason to make sure that all funds are run efficiently and  are well managed.

John Gray

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