Complexity undermining good governance, says LGPS adviser

Underlying governance for the Local Government Pension Scheme is so complex it could provide an “excuse” for non compliance with guidance and advice given to administering authorities, according to an expert.

The comments follow a recently published review which looked closely at governance models used across local authority pension funds. The review, commissioned by the Scheme Advisory Board, was followed last week by the publication of a Local Government Association (LGA) document outlining the multifaceted nature of LGPS governance.

William Bourne, director of the investment advisory firm Linchpin, writes in a blog post that the involvement of so many bodies is “the underlying issue” for LGPS governance.

“The outcome is grey areas in the guidance and advice which provide anyone who doesn’t wish to comply with an excuse not to,” Bourne writes.
He adds: “There are too many fingers in the pie.”

Bourne also contradicts the idea that local pension boards (LPBs) are the “ultimate” decision makers for pension schemes.
“Anyone involved will know that that is a misrepresentation of reality, where LPBs have zero executive powers and almost no sanctions they can impose.” He adds that the governance structure nonetheless makes it “too easy for other parts of the LGPS to pass responsibility on to LPBs”.

The governance review, undertaken by Hymans Robertson, lists four key recommendations, but Bourne writes: “I wish the Hymans proposals well but to make a real difference somebody (the SAB?) needs to reduce the number of bodies involved in the LGPS.”

Bodies integrated into the LGPS decision making process include The Pensions Regulator, local pension boards, pension officer groups, technical groups, the Communications Working Group, the Local Government Pensions Committee, the Scheme Advisory Board and the Ministry of Housing, Communities and Local Government. The Scottish Pensions Liaison Group is also involved as are Scottish ministers and the Scottish Public Pensions Agency.

The Hymans review was tasked with assessing the effectiveness of current governance arrangements and to consider alternatives or improvements that could be made.
After conducting a poll, Hymans found broad preference for a governance model dubbed the “greater ring fencing” model.

Hymans made four recommendations. These included the use of a “outcomes-based approach” with “minimum standards” rather than a “prescribed governance model”. Hymans also listed critical features of this approach including “clarity on roles and responsibilities for decision making”.
Other recommendations included “enhanced training” for s101 committees and section 151 officers. The review also called for an update of relevant guidance.

Hymans heard from those surveyed for the review that no new bodies were required in the governance process and also concluded that governance structures were “not the only determinant of good governance”. Those surveyed also favoured a “set of standards that all funds are required to achieve” that do not impose “disproportionate burden” on administering authorities.

Bourne received some sympathy for his views as did the review’s recommendation for “minimum standards”. John Jones, senior adviser with MJ Hudson Investment Advisers, said he favoured a governance framework based on principles and “outputs” rather than one that was “too rule bound” or based on check lists.

The Pensions Regulator (TPR), Jones added, focused “too much on the latter and the danger is that the bigger picture is missed.”
Jones said he agreed “there are too many bodies providing oversight”.

“The TPR is not yet fully familiar with the LGPS and local authority decision making. They should take a step a backwards and focus on other corporate funds when there are other bodies with more experience and knowledge.”

Jones added “there is a need for the SAB to take a stronger lead where LGPS governance is concerned.”
He said: “CIPFA too should take a bigger role where s151 officer responsibilities are concerned and this is now in hand.”

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