The regulator has just begun a review of pension boards but the move to pooling will present a challenge.
A major change in the governance of local government pension committees was when the Public Service Pensions Act 2013 created pension boards. The act demanded these new creatures of governance would have their first meeting by 1st August, 2015.
The boards are the latest addition to the structures running LGPS funds. For those of us who have been around for a little while, looking back to see how pension committees, and the governance around them, has changed over the years is an interesting exercise.
One thing to note is that being on a pension committee has always been a much sought-after appointment by members. It was, somehow, very different from the other business of an authority. The investment of a large pension fund was interesting and out of the normal run of local authority business. I can remember that in more than one authority meetings of the committee were held in the offices of the investment managers and concluded with a pleasant lunch.
Local authorities have always taken their responsibility for maximising their pension fund very seriously and funds all took part in benchmarking, the results of which were awaited with interest by funds each year.
There was always a debate about the governance of funds. Certainly since 2004 the unions have campaigned to have a member on committees.
This was considered controversial in many authorities. The argument ran that it was a statutory scheme and the opportunities for local variation in benefits fairly limited. The beneficiaries therefore had little interest in the governance of the fund because whether it worked or not appeared to have no bearing on the benefits they would receive.
Although there were a number of enlightened authorities that involved a union representative, it was patchy and not seen as particularly successful. Accountability fell to the authority who would have to finance any shortfall in investment income at the actuarial valuation. Again, because overall there was no great pressure on local government funding, and many funds were fully funded, there seemed to be little pressure to involve any other interests such as employers in the fund.
The provisions of the 2013 Act could be seen as either a major step forward for governance, or as unwarranted duplication and unnecessary bureaucracy.
Only now after two years of operation is the pension fund regulator seeking information on boards and ensuring compliance with the regulations. What is also needed is for boards and committees to carry out some kind of self assessment to ensure that they are providing a useful role in governance rather than just being there because of regulation.
I declare an interest in this as I currently chair two pension boards. Interestingly, they are in two very different authorities. It is clear though that administering authorities generally have assumed differing levels of enthusiasm for the new structure. I would be interested in some sort of external validation of the benefits of having boards, but it has to be said that the commitment and enthusiasm of the individual administering authority is the key to how successful they are.
The regulation is that boards must have equal numbers of employer representatives and member representatives. They may also have independent members, but these are non-voting posts.
Within that structure there are variations both in terms of numbers generally, within the range of 2-4 of each, and in the composition, such as having pensioner representatives or how the employee representatives are chosen.
The terms of reference of the boards require their members to have a detailed understanding of the Local Government Pension Scheme and I have been very impressed at the commitment to training by board members and, in particular, the in-depth instruction given by some unions to ensure their representatives can take part fully.
The board has a scrutiny role. That is to say, it has no decision making role, whatsoever, and that is why ensuring that the relationship between the committee and the board is very important.
Normally, all matters that go to the committee also go to the board. Often the timing is such that the board can consider items first and via their minutes comment to the committee.
In the boards I chair, board members are invited to observe at the committee meetings and, as chair, I am normally able to give the board’s views, where appropriate.
The relationship between chairs of the two groups is vital, and the ability of the board to comment on matters of principle, rather than trivia, is also important. It is possible for the board to look in greater detail at issues such as the administration of the fund, which committees may not have had sufficient time to deal with.
Where arrangements work well, the board can add to the governance of the fund and it needs to keep in mind the reasons why it exists. We have had interesting discussions including on management costs, administrative costs, key performance indicators, and investment strategy.
It is right to have this scrutiny and hopefully carried out positively this can add to the governance overall. The involvement of employer representatives in all this is of key importance and the mix on the board is key also to its success.
After two years it is a good time for boards and committees to meet together and see how the system is working and to evaluate how they can move forward.
For boards and, I suspect, committees, the new pooling arrangements will provide a challenge. There is a need to be clear on the role and remit as far as they are concerned. The next few months will be interesting in that regard.
Richard Harbord is the chair of two pension boards and the former chief executive of Boston Borough Council.