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LGPS governance during the pandemic: Keep calm and carry on governing

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  • by Guest
  • in Blogs · LGPSi
  • — 12 Jun, 2020

Without doubt the two aspects of managing the Local Government Pension Scheme which get the most attention are administration and investment.

Scheme members see the impact of good, or otherwise, administration every day. In the timeliness of processes, the response to their queries, the clarity of communication and most importantly the accuracy of their benefit payments, the effectiveness of administration is all too evident.

However, it’s investment that gets the real headlines. In a scheme with assets measured in the hundreds of billions that’s only to be expected. Whether it’s catching a cold due to market shifts, changing the behaviour of FTSE 100 companies or debating the value of infrastructure, investment gets the kind of attention and profile that administration can only dream of.

Shadows

In the debate around investment and administration the third aspect of LGPS management, governance, can be left somewhat left in the shadows.

Governance is sometimes perceived as the third wheel, or middle child, of the LGPS when perhaps a much better analogy would be the third leg of the (three legged) stool.

Good governance; transparent decision making based on diversity of thought, sound information and informed advice, is vital to the effective running of any pension scheme. It is especially so to the LGPS which, by its very nature as a statutory scheme, requires an additional aspect to its governance: democratic accountability.

So, how is LGPS governance standing up at a time when we can’t meet face to face in committee, when home working is the norm and when many of our usual protocols just don’t fit anymore?

To see what the answer might be the England and Wales Scheme Advisory Board (SAB) conducted a survey, in the first half of May, on governance in the LGPS across all three UK local government schemes. The survey included a variety of questions including governance meetings, decision making processes, liaison across asset pools, risk, investment strategies and budgets.

Information vacuums are inevitably filled, usually with misinformation, rumour and speculation. A response rate of over 80% avoids that vacuum, promotes a sensible informed conversation in the media and enables the SAB to effectively advise government and regulators. So firstly, a massive thank you to all who took the time to fill in the survey.

Cornerstones

Committee meetings are the cornerstone of local authority governance structures and the management of the LGPS function is no different. However, before we could even consider how to cope without being able to meet in the same room there was a regulatory hurdle to jump.

The snappily titled Local Authorities and Police and Crime Panels (Coronavirus) (Flexibility of Local Authority and Police and Crime Panel Meetings) (England and Wales) Regulations 2020 removed the legal requirement to hold meetings in person and thrust us into the virtual meeting space.

Over a quarter of respondents had already held a virtual meeting with another 61% planning to do so. The delay is to be expected given the need to plan and organise virtual meetings, but also normal committee cycles mean that some were not due until June or later.

The virtual experience varied both in terms of technology and format, but the vast majority deemed it a success. Lessons learned include practice beforehand, keep agendas focused, review protocols for the chair and make sure everyone has the papers in good time.

The LGPS asks a lot of its elected members in normal circumstances, doubly so in times such as this. However, their role is vital in ensuring the democratic accountability of the scheme. It is therefore encouraging to see that the vast majority of authorities have committed to virtual meetings.

Where alternative arrangements, such as delegations to chair or officers are in place, they are making use of existing urgent business protocols or are designed as temporary measures.

Since the survey was conducted there is mounting feedback indicating a growing frustration at both the variety of different video platforms and the ongoing debate around the security of some platforms. These issues are especially relevant in cross authority and multi organisation meetings, such as those within the asset pools and also when seeking to ensure public access to meetings.

However, the survey responses in these areas were positive and it is to be hoped that platform issues will be eased with experience of use and on-going systems development.

Revisions and risk

I have been asked on a few occasions if I am surprised that only 19% of responses indicated a revision to investment strategies. The short answer is no. In fact, those who have revised or are planning to (another 27%) would probably have done so anyway following the results of the 2019 valuation.

The LGPS is a long-term, strategic investor, I would therefore not expect to see immediate and significant revisions, to what are high-level, long-term strategies, as a result of sudden shifts in the market.

Greater focus is, in my view, correctly being brought to bear on risk. Over 90% of respondents said they have, or will, review their risk registers in light of the pandemic.

Interestingly, the survey indicated a split approach with some authorities creating a separate Covid-19 register, while others have incorporated it into existing registers.

Also encouraging is the indication that 90% see no issues with contractual service relationships with third parties together with a reasonable use of extensions to manage procurement arrangements.

A slight note of caution in the midst of positivity. Responses indicate that 87% are not planning to revise their administration or governance budgets.

I have no doubt that LGPS administering authorities are up to the task at hand, the survey has confirmed as much, but what waits for us on the other side of the pandemic is uncertain. There will be new ways of working and new challenges to face, all within a fragile financial environment (that could well see some authorities issuing 114 notices) not to mention the mounting backlog of regulatory change.

Leaving that concern aside the survey reflects a very encouraging picture of LGPS authorities adapting to and coping with the governance challenges of Covid-19—nobody appears to be panicking and governance is indeed carrying on.

Jeff Houston is board secretary at the Local Government Pension Scheme Advisory Board.

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