William Bourne: Getting to grips with Local Pension Boards

Local Government Pension Scheme (LGPS) administering authorities will need to have established and populated Local Pension Boards (LPBs) by 1st April 2015 in accordance with the Public Service Pensions Act of 2013. The DCLG expects to publish the final regulations in early January and nobody expects major variations from the draft ones published in October. Consequently, scheme officers are turning to the task of how to establish and populate them in the short time available.

LPBs’ purpose, according to the draft regulations, is to oversee schemes’ compliance with the various regulations and to ensure that they are run in an efficient and cost-effective manner.
The first challenge is the involvement of two new bodies, The Pensions Regulator (TPR) and the LGPS Advisory Board. TPR has, of course, for some time had responsibility for the governance and administration of private pensions, but it will now take on the public service pension sector as well. A draft code of practice for public service pensions was published last May, and the final version is expected in January when the regulations have been finalised. Although TPR codes of practice are not statements of law, they but must be taken into account if a court or tribunal is trying to establish whether legal requirements are met or not.

Here are just some of TPR’s expectations(parentheses refer to the draft code):
• Members must be conversant with the rules of the scheme and the quite extensive suite of governance and administration documents which the tPR prescribes for Scheme administrators (32) and also have knowledge of pension law (33).
• Members will have legal responsibility from the day they are appointed and Schemes should consider organising pre-appointment training or arrange for mentors (50).
• Schemes will need to put in place a documented conflicts of interest policy, including monitoring and managing (71).
• Schemes will need to publish the process by which LPB members are appointed (89).
• Schemes will need to assess and document the strength of each Employer covenant (106).
• Schemes should carry out a full data review exercise at least annually (131), and where there are shortcomings put in place an Improvement Plan.
• Schemes should be able to demonstrate they are keeping records in accordance with the relevant regulations (139).
• Schemes should report material contribution payment failures to the Regulator as soon as is reasonably practicable (164 and 168).

Each of these requirements will be new to certain schemes, while some, such as the requirements in respect of the new LPB members and documentation, will be new to all. The LPBs will have the challenge of being responsible for ensuring compliance with each of the code’s requirements.

The LGPS Advisory Board was set up in shadow form last August. It will acquire its formal status in April 2015, with a remit to provide advice to the Treasury on regulations affecting the LGPS, and to provide advice to administering authorities and LPBs in relation to the effective administration and management of their schemes. While the regulations are not explicit that LPBs have a duty to scrutinise compliance with the advisory board’s advice, they will have a duty to take it into account.

The early signs are that most LGPS funds appear to be structuring these new boards in a minimalist way, with either two or three of each of the mandatory members’ and employers’ representatives, and a smaller number of independents. Even though unions and employers may embrace the opportunity of greater insight into how their members’ pensions are run, I wonder how easy it will be to fill these positions and what schemes will do if they cannot identify suitable candidates for these mandatory roles. The qualification requirements and responsibilities are onerous, even disregarding the need to find members with the time and the interest to serve. DCLG has clarified that elected council members may serve on the LPBs, as long as they have no connection with or role on the pension committee. Even so, I suspect that many boards will find that to make the LPBs function effectively they will need to use and pay independents, whether as chairman or simply as an advisor, in order to provide the relevant expertise.

Either two or four meetings a year seems to be the standard and some schemes are considering running the LPBs in conjunction with the pension committees, with LPB members having access to all the papers and discussions but not having a vote. While this is clearly more efficient in terms of time and officers’ support, holding joint meetings makes it almost impossible for the LPB to conduct its scrutiny role properly.

After 1st April 2015, the new LPBs will have a great deal to do in a short time. They will need to:
• Establish their own documents and procedures.
• Find training for their new members in short order.
• Establish a work plan to examine methodically compliance with the new regulations and codes.
• Identify plans of action and processes where they do find shortcomings.

A further challenge is that the new LPBs do not have obvious third party resources to support them, nor obvious sanctions to apply if they do identify a serious breach by a scheme. The burden of the first will almost certainly fall on scheme officers for cost reasons. The implication of the second is that, to be effective, LPBs will as a prerequisite need to establish good working relationships with officers.
There is clearly a lot of work to do over the next few years but, given that LPBs will inevitably create more cost for schemes, and I sense a desire on the part of all parties to work constructively so that they really do result in better and more transparent governance.

William Bourne acts as independent advisor to the Royal County of Berkshire and East Sussex Pension Funds, and is a founding partner of City Noble Limited

 

Photo (cropped) by Fritz Ahlefeldt Laurvig