• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

Pensions committees – are they really working?

0
  • by David Crum
  • in David Crum · LGPSi
  • — 27 Sep, 2012

A busy few weeks has seen me struggle to find some time for blogging but I’ve now managed to set aside an hour or so to put fingers to keyboard to write another entry. I thought I’d return to a topic close to my heart that I mentioned (albeit briefly) in a previous blog – that of pensions committee meetings. Some of you who know me well know that I harp on about this, but I do so for some very good reason.

Firstly, I should state that I’m a big believer and supporter of the ‘lay person’ model of fund governance that is the standard for the LGPS. Committees comprised of non-experts are an effective brake on what the experts might otherwise get up to, and should (in theory) result in the jargon laden world of investments being, well, less jargony – as investment professionals who work with non-experts have to focus on explaining strategies, products, performance and approaches to an audience of lay people. If they’re any good, they should be able to do this, or at least know someone who can!

I also believe that elected members’ work on other committees – planning, licencing, financial, for example – is also relevant for the governance of pension funds. If nothing else, it seems to give members the ability to sense when not everything being presented is quite as it seems. All good so far.

What’s my point of this blog on pensions committees? Well, for the most part, I don’t think they work very well.

Setting this slightly inflammatory statement aside for the moment, I’d ask you to think: what’s the purpose of a pensions committee and what are its main functions?

Might I suggest the following as the main investment functions or responsibilities (non-investment matters are not my area of specialty, so I’ll leave them alone for the moment):

  • Setting and reviewing investment strategy relative to the fund’s liabilities, considering a wide range of asset classes and investment management styles
  • Monitoring investment strategy on an on-going basis, making adjustments where necessary
  • Overseeing the appointment/monitoring/review of investment managers, custodians and consultants
  • Ensuring all members on the committee are suitably trained and supported
  • Ensuring there are sufficient internal resources to manage the fund

Clearly, there’s more to the job than this, but for a short blog I thought a short list would be ok.

If the above is a reasonable starting point of the key responsibilities, how many pensions committees can currently say these responsibilities are being successfully completed?

In my time in the LGPS, I’ve attended quite a few pensions committee meetings, and most do not tick off the items on the above list. Why not?

Is it because of one (or more) of the following:

1)      A ‘this is how we do it’ influence – how many committees have gone back to basics and considered afresh what exactly their remit should look like? Or is it simply a case of ‘we’ve always done it this way’? In some places, formats of meetings have not changed for many years – which is fine if they are delivering the key objectives. But how many committees have clearly set out their key objectives, and how they can be effectively measured?

2)      Turnover of members – an unfortunate consequence of democracy! Many good intentions are thwarted with the regular turnover of pension committee members, following local elections. This has an obvious impact on collective knowledge and decision making, and places a heavy training requirement on those responsible for the administration of the fund.

3)      It’s all about the managers – by far the biggest problem I have with the current ‘typical’ approach is that too much of the precious governance budget is spent on investment managers. And not even on carrying out on-going monitoring of all of the most important aspects of the investment management firms that administering authorities employ – but time spent on simple quarterly updates of performance. Hours are spent every year discussing the merits, or otherwise, of individual stocks – not good at all.

For years now I’ve tried (pretty unsuccessfully I must say) to ask various committees to consider doing things differently, to spend some time reflecting on what they are trying to achieve via the pensions committee structure, and considering whether things could be done better. Here’s what I’ve suggested, and continue to suggest when asked:

1)      Back to basics – spend an hour just asking some questions about the purpose of the committee, what its key objectives are, and how success or failure will be judged. Essentially, the blank piece of paper test – so simple, and so effective.

2)      Elected member training – to carry out effective training, you need to know where you’re starting from, so an assessment of current knowledge seems a good place to being. This should be followed up with a tailored training plan, which helps Elected Members – newly appointed or otherwise – get to grips with the nature of pension fund investments, regardless of the level of their existing investment knowledge.

3)      Monitor managers properly – preferably via a sub-committee/panel, but if the main committee insists on doing this, then more thought needs to go in to what the managers are asked to cover in their presentations to committee, how long they are given to present, and what the committee want to ask the managers on a regular basis.

4)      More time on strategy – this is the one thing that has the most impact on whether the fund will be successful or not (i.e. closing deficits/improved funding level, and ultimately paying pensions). Surely strategy deserves a whole day to itself on an annual basis? Many elected members do not like, for example, hedge funds. But how many of these same elected members have spent a reasonable amount of time considering them as a possible addition to their fund’s investment strategy? And what about medium term changes to investment strategy? How are they dealt with?

Valuation results in England and Wales will be due next year – probably towards the end of 2013. Focus will then switch to formal reviews of investment strategy. There’s a golden opportunity between now and then for funds to undertake a root and branch review of their governance arrangements, so that they’re in great shape to deal with what may well be one of the most challenging strategy reviews they have faced.

Let’s not miss this opportunity to show the LGPS as a beacon of great governance in challenging financial times.

David Crum spent 11 years working in the LGPS for the Lothian and Strathclyde Pension Funds, and 5 years as an investment consultant with Aon Hewitt. He is now the founding Director of 330 Consulting Limited

Share

You may also like...

  • LGPS: It isn’t running out of money LGPS: It isn’t running out of money 24 Feb, 2016
  • Leeds recovers £450,000 from Carillion bond Leeds recovers £450,000 from Carillion bond 1 Feb, 2018
  • Wandsworth and Richmond propose pension fund merger Wandsworth and Richmond propose pension fund merger 4 Aug, 2016
  • LGPS 2014 “destined to fail” LGPS 2014 “destined to fail” 7 Aug, 2012

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 2 days ago

    Will new public procurement rules offer the best commercial results?: The government has issued a green paper on reforming procurement rules. Helen Randall and Rebecca Rees examine the proposals and argue they may not go far enough. The Cabinet… dlvr.it/Rqtw6T pic.twitter.com/9GiVTkL08U

    Room151 7 days ago

    The vaccine may help settle cash flows but inflation remains a risk: Sponsored article: Lauren Sewell examines the prospects for long-term borrowing as Brexit settles and vaccines are deployed against Covid-19. On the 9th October 2019 Whitehall sent… dlvr.it/RqZXCr pic.twitter.com/PzgOZOGQ0k

    Room151 7 days ago

    ESG in liquidity: Sponsored article: Gavin Haywood looks at the integration of ESG in Federated Hermes’ money market funds. Federated Hermes has over 300 public sector clients invested in our AAA rated money[...] dlvr.it/RqZX5f pic.twitter.com/E87sBXsay8

    Room151 1 week ago

    New realities of investing cash and liquidity: “What to do now?”: Sponsored article: Brian Buck looks at the “unique challenge” for cash management strategies. As investors assess the ongoing impact of the pandemic on their business, levels of cash and… dlvr.it/RqVbk9 pic.twitter.com/ZElVASmEUV

    Room151 1 week ago

    Extra finance promised by the government receives a broad welcome: Sponsored article: The financial pressures facing local authorities this year continue to pose challenges for council treasurers. While the launch of the UK’s Covid-19 vaccination… dlvr.it/RqTzTF pic.twitter.com/HCjH0pyHR5

    Room151 1 week ago

    A savvy approach to managing your cash: Sponsored article: Caroline Hedges examines the need for active cash management to achieve a higher than average return. Last year saw the already mountainous pile of negative-yielding debt around the[...] dlvr.it/RqTzMK pic.twitter.com/uP0RQYTJLt

    Room151 1 week ago

    Putting alternatives at the heart of multi-asset portfolios: Sponsored article: Nick Edwardson looks at the assets that provide the “most attractive opportunities”. We believe that asset allocation is the primary driver of investment returns and that the… dlvr.it/RqQ2Qt pic.twitter.com/WLBzvRRRUQ

    Room151 1 week ago

    Thriving in the pandemic: Avoiding the stragglers: Sponsored article: George Crowdy looks at the sectors providing opportunities for sustainable investment. Throughout much of 2020, we talked about why sustainable investing has thrived in the pandemic,… dlvr.it/RqQ2NQ pic.twitter.com/dxiPWKFsPl

    Room151 1 week ago

    The development of CCLA’s mental health benchmark: Sponsored article: Amy Browne examines the importance of investing in mental health in the workplace. We are living through a public health emergency in more ways than one. Physical health[...] dlvr.it/RqQ2Jx pic.twitter.com/o6yRSCX3oF

    Room151 1 week ago

    Brexit: What the EU trade deal means for the UK economy: Sponsored article: Hetal Mehta looks at the impact of Brexit on economic prospects. Four and a half years after voting to leave the EU, on Christmas Eve the UK finally[...] dlvr.it/RqLBDt pic.twitter.com/No62srfE8h

    Room151 1 week ago

    Cash dethroned: The quest for liquid yield: Sponsored article: Peter Hunt and George Carne ask how treasury departments can balance the need for yield and liquidity. The massive stimulus and waves of liquidity provided by central banks[...] dlvr.it/RqLBDj pic.twitter.com/05g6Zhu1kU

    Room151 1 week ago

    Richard Harbord: Delayed “capital determinations” make section 25 opinions a new crunch point: The severe pressure on local government budgets now means section 151 officers confront a tricky call on  whether they can make a judgement on the robustness… dlvr.it/RqLBDV pic.twitter.com/vTAbDKFzkI

    Room151 1 month ago

    PWLB Consultation: Analysis straight from Dickens: Helen Radall and Paul McDermott present a legal examination of the new PWLB borrowing rules as Charles Dickens might have imagined it. Free and easy PWLB (“Marley” to his friends)[...] dlvr.it/RnmwLq pic.twitter.com/yFxcPrQqEG

    Room151 1 month ago

    Room151’s top stories from a momentous year: 2020 was the year in which local government grappled with Covid-19, funding strains, controversy over borrowing rules and the threat of financial collapse. It has been an exhausting and historic[...] dlvr.it/RnlpZg pic.twitter.com/g3myNyox6J

    Room151 1 month ago

    Tracy Bingham: 2020, a year best forgotten but also one of learning: Many will rush to erase 2020 from their memories but, writes Tracy Bingham, there were also many lessons about finance teams, strategic planning and leadership. 2020: A year we’d… dlvr.it/RnlpY2 pic.twitter.com/m7G1krrtCu

    Room151 1 month ago

    Settlement must address ‘precarious’ local government finances: Dan Bates crosses his fingers for “no nasty surprises” in this week’s funding settlement but argues the “bigger prize” is post-Covid financial certainty. Thursday (17 December) should be the… dlvr.it/Rnj9dG pic.twitter.com/KLKjjuBqJE

    Room151 1 month ago

    PWLB consultation: Big change on the way but there are ‘grey areas’ and opportunities: The consultation on PWLB borrowing has concluded creating a new landscape for funding property acquisition. Our experts look at the implications. Tracie Langley The… dlvr.it/RndRvJ pic.twitter.com/KEqXEBmEfq

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Economic and market briefing: the UK in focus
  • Next story New Homes Bonus generates £63m for councils

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies from this website.OK