Terry Crossley: Pooling is like a rugby ball, the bounce is unpredictable
0Pooling of LGPS is well under way but Terry Crossley argues the reform is “venturing into the unknown” based on “flimsy policy analysis”.
Those engaged with the LGPS understand its capricious and dynamic qualities. Rather like a rugby ball, knowing what happens next when it bounces is part of the attraction, challenge and complexity. Perhaps this explains why the scheme is where it is as 2017 leaves 2016 in its wake. Whitehall of late seems to lack a depth of knowledge and understanding of the LGPS and its dynamics, functional complexities and that bounce.
Geopolitical upheavals and cyclical, global effects of economic turbulence, quite apart from the Brexit challenges, have been particularly significant in 2016 with the prospect of continuing into 2017, and beyond. The scale of these patterns create significant implications for administering authorities, and the management and investment of their assets. Additionally, the timetable for the government’s aspirations to see substantive progress towards the pooling of scheme assets in England and Wales only adds a high-risk dimension to the external challenges already confronting fund authorities in their emerging and untested multi structures.
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Hutton
Since 2010, the LGPS has seen a series of benefit reforms stemming from the Hutton report recommendations for public service pension schemes. Brought together by the 2013 Public Service Pensions Act, it ensured Treasury’s centralisation of policy and future design for all schemes. However, the LGPS remains administered, funded, invested and managed by locally elected councillors.
Hutton was not given the task of reforming the scheme regulations which governed the management and investment of the scheme’s fund assets. However, after a number of embarrassing ministerial false starts, Budget 2015 announced first steps to establish an ambitious, radical pooling framework for the scheme.
Uniquely, no legislative timetable, nor guidance on structures was provided initially but authorities responded constructively and with initiative. In their enthusiasm, it appeared they chose to ignore the fact that the budget request lacked legality and could ultimately lead to a weakening of the scheme’s local, democratic status.
Intervention
DCLG issued draft regulations in November 2015 governing the management and investment of funds. Deregulation became the prime purpose of the proposals, so doing away with a long-held tenet of previous policy and regulation that public assets needed a nationally prescribed prudential standard.
The risks were now firmly with administering authorities who in turn assumed greater local responsibilities. More radically, the proposals introduced a highly controversial step which allowed ministers to intervene and assume responsibility for some or all of a pension fund authority’s assets where they judged there had been a failure to comply with national, statutory guidance.
There was a surprising lack of substantive, legal challenge to these proposals from authorities and the LGA. This persisted even until the regulations came into force on 1 November 2016. In September 2016, DCLG issued highly germane statutory guidance intended to be the authoritative basis of the compliance test against which ministers will assess the need to intervene.
Given the importance of this material in the new order, there is scant objectivity and measurable criteria against which rational assessments and ministerial decisions may be taken. The high level and metric-free nature of the principles provided actually load the potential intervention action in favour of ministers.
Even in a recent e-petition debate, the chance to challenge the government was missed, and likewise when a more specialist Parliamentary procedure was used to challenge the government’s regulations, the opposition rather repeated the arguments and the motion to annul was, unsurprisingly, lost in favour of the government. Two rare parliamentary scrutiny opportunities were underused and failed to challenge the central policy issues created by the 2016 regulations surrounding intervention and the ownership and management of LGPS assets.
Into the unknown
The LGPS is venturing into the unknown on the basis of flimsy policy analysis, false comparisons with foreign investment frameworks with little relevance to the character of the LGPS and, for the most part, statutory guidance and criteria which is far from equitable in its formulation.
Confusion persists on MiFID II, and the continuing bespoke approvals process from DCLG remains unsatisfactory. The lack of regulation for many elements in the pooling challenge suggests a lack of confidence at the centre as to what is optimum. The absence of cost/benefit evidence to justify the rationale to cajole administering authorities into ad hoc groupings lacking, in some cases, geographic and functional coherence, is highly unusual. And yet, the closing months of 2016 saw initial approvals from Whitehall.
Seeking to be modern and reformist is one thing but, of late, ministers have believed that they alone know what is best for the LGPS and their disjointed policy approach has forced the imposition of a radical pooling concept on a multi-structured pension system funded locally. The intention to achieve efficiencies and savings are laudable, even if that is to secure additional infrastructure funds, which is at best sensitive. If this is the appropriate direction for the LGPS in 2017, it remains a speculative unknown bounce.
Terry Crossley is an LGPS consultant.
