Governance

Scheme governance, management, administration, transparency, and accountability

At the national level the LGPS is governed by the Department of Communities and Local Government (DCLG) and the LGPS Advisory Board. The LGPS has to take account of guidance issued by the Pensions Regulator and Pensions Ombudsman determinations.

The investment and management of LGPS assets, the collection of employer and employee contributions, and payment of pension benefits is the responsibility of LGPS administering authorities.

The DCLG issues statutory guidance and each administering authority is required to publish a governance compliance statement and explain any non-compliance. Each administering authority is subject to an annual external audit and has to publish an audited financial statements and annual report.

The role of the Scheme Advisory Board is to help and support DCLG and administering authorities fulfil their statutory duties and obligations. Training has been delivered to the Board on an ongoing basis at its meetings and through its professional advisers and attendance at LGPS conferences and other events.

Board membership and meeting attendance

Administering authorities

At the local level, each LGPS fund is administered by its administering authority. From 1st April 2015, under the provisions of section 5 of the Public Service Pensions Act 2013 and regulation 106 of the LGPS Regulations 2013 (as amended) each administering authority must establish a Local Pension Board.

To assist in the establishment of these Boards, the Shadow Scheme Advisory Board (SSAB) has developed guidance on the creation and operation of Local Pension Boards for Administering Authorities. Information on Local Pension Boards will be added to this website when available.

DCLG draft regulatory consultations, final regulations and other issued documents

Between 31st March 2014 and 31st March 2015, the DCLG has issued the following:

Board actions and achievements

Details of the agenda and papers of the Board and sub-groups can be found under About the Board and Sub Committee menus.

During 2014/2015 the main work of the Board and its Sub-Groups has been:

• Analysing and reporting on the structural reform consultation. More information can be found here.
• The Deficits working group met in July 2014 and agreed a specialist piece of work be commissioned to review deficits in the LGPS and recommendations to the Secretary of State were made later in the year.
• Developing LGPS Scheme Data. All 2013 Fund Valuations reports were collated and published on the Board website, including an overall summary report and detailed report on their aggregation.
• A pilot key performance indicator (KPI) exercise completed in early 2015, it is planned that the KPI document will accompany the valuation process in 2016.

During 2014/2015 the main work of the Board's Sub-Committees has been:

• Governance and Standards Sub Committee -  Producing comprehensive guidance and template terms of reference for Local Pension Board which included input from and consultation with a wide cross section of LGPS stakeholders.
• Investment and Engagement Sub Committee - Developing recommendations on revised investment regulations. The questions on ultimate guarantor and fiduciary duty were submitted to counsel for advice on the basis and purpose of investment and this advice from Mr Nigel Giffin QC was published on the on Board website.
• Administration and Communications Sub Committee - Developing recommendations on a revised ill health retirement process to include a more effective appeals procedure outcome. Making recommendations on the format and content of post 2014 Annual Benefit Statements to include standard forecasting methods.
• Cost Management and Contributions Sub Committee - Formalising the LGPS cost management methodology and performed a ‘dry run’ using 2013 valuation data which included 2014 employers cap. Determining the contribution bands and rates required to ensure a 6.5% yield in April 2014.
• Value for Money and Collaboration Sub Committee - Collating and publication of existing and planned frameworks and other collaborative purchasing initiatives.

Board Advice, guidance and news releases

During 2015 the Board has provided the following advice, guidance, and news releases:

a) to DCLG

20 June 2014 - Shadow Scheme Advisory Board responds to LGPS governance regulations consultation

The shadow Scheme Advisory Board (SSAB) responded to the Government's consultation, The Local Government Pension Scheme (Amendment) Regulations 2014 - Draft Regulations on Scheme Governance.

The response set out the Board's views on the draft regulations which will bring about the new governance arrangements for the LGPS in England & Wales, as mandated for under the Public Service Pensions Act 2013.

24 November 2014 - Shadow Scheme Advisory Board responds to consultation on governance and cost control

The Shadow Scheme Advisory Board submitted its response to the DCLG consultation Better Governance & Improved Accountability in the Local Government Pension Scheme on Friday 21st November 2014.

The Board's response was based on the discussions held at its meeting of 29th October and in its response, the Board outlined:

• it's belief that governance regulations should mandate that the total number of employer and member representatives on a local pension board should outnumber the members of a local pension board sitting on there as 'otherwise appointed' representatives to ensure proportionate representation, and
• it's wish to see that further details regarding the establishment of the statutory scheme advisory board are clarified as soon as possible.

b) to admin authorities

17 October 2014 - Shadow Scheme Advisory Board issues consultation on draft Local Pension Board guidance

Comments were invited from interested parties on draft guidance on the creation and operation of Local Pension Boards. Guidance was developed by the Shadow Scheme Advisory Board through the Governance and Standards sub-committee and is designed to assist Administering Authorities with the legal requirement to establish a Local Pension Board from 1 April 2015.  The draft guidance as well as a covering note setting out further detail on this 5 week consultation can be found here.

24 December 2014 - Shadow Scheme Advisory Board publishes cost control briefing notes

The Shadow Scheme Advisory Board (SSAB) published two briefing notes in respect of the cost control processes which will be used to assess the costs of the reformed LGPS in England & Wales.  A briefing note for members and employers was published in order to:

• give a broad overview of the background to the cost control processes,
• outline the differences between the cost control processes and local funding valuations, and
• detail the possible impacts on the benefits structure and/ or employee contribution rates which could arise from the results of the cost control processes.

The SSAB asked that administering authorities made this briefing note accessible to fund employers and members so that they can familiarise themselves with the processes and the possible impacts that the cost control mechanisms could have on the Scheme benefits structure and/or employee contribution rates.

A second briefing note was prepared for administering authorities in order to outline the role that LGPS pension funds will play in the cost control process and in particular focusses on the practicalities of delivering accurate and timely cost control figures.

In addition, the SSAB published a process map (located here) and a timetable (located here) setting out its plans for the interactions between the HM Treasury Employer Cost Cap (ECC) process and the Scheme Advisory Board Future Service Cost (FSC) process.

Any questions or queries arising from the publication of these documents should be referred to the Board secretariat in the first instance.

22 January 2015 - Shadow Scheme Advisory Board publishes further Counsel's opinion on the LGPS

Background

The Shadow Scheme Advisory Board for the Local Government Pension Scheme (LGPS) in England and Wales was established in July 2013. It is the forerunner to the Local Government Pension Scheme Advisory Board, which is established under Section 7 of the Public Service Pensions Act 2013. The Board has been set up prior to the formalisation of the regulations setting out the formal remit of the Scheme Advisory Board, which are expected to come into force in early 2015.

Last year, the Board sought and published advice from Counsel on fiduciary duty in the LGPS, a copy of which is located here.

Following this, further advice has been commissioned to cover:

• confirmation of the requirement to meet benefit payments separate from the status of funds; and
• the interaction between the LGPS and the EU Institutions for Occupational Retirement Provision (IORP) Directive 2003.

This advice is available as a PDF document here .

The benefit 'guarantee'

The generally accepted position in the LGPS was that the Administering Authority was required to meet benefit payments on a statutory basis regardless of the circumstances of the fund it operates. In the event, Nigel Giffin QC finds that the assumed position above is not reflected in the regulations resulting in a potential (if extremely unlikely given the strength of local government finance requirements) circumstance of there being an uncertainty around benefit payments should the funds be unable to meet them.

Such a situation, however unlikely, is in the Board's view untenable and therefore the Board will be asking DCLG to amend regulations in order to clarify the requirement for administering authorities to pay benefits on a statutory basis.

The IORP

In Counsel's view the requirements of article 8 (which sets out that there should be legal separations between sponsoring employers and pension schemes) are met by the regulations but he accepts that regulations could be more explicit on the use of fund monies and that model structures such as South Yorkshire present no possible issues for compliance. The Board will continue to look at the issue of separation between fund and authority and will consider the content of this opinion as part of that work.

In terms of article 18 (which details how investments should be made in institutions for occupational retirement provision), Counsel makes some suggestions to strengthen regulations to ensure full compliance but reminds Administering Authorities that they should act in accordance with the Directive regardless of the current state of the regulations. The Board will be making recommendations to DCLG for changes to investment regulations which take on board this opinion to ensure that the relevant parts of Article 18 are adopted, reflecting the legal views provided by the Law Commission and Michael Furness QC.

This commentary is available as a PDF document here .

28 January 2015 - Shadow Scheme Advisory Board publishes Local Pension Board Guidance, template terms of reference and response to the governance guidance consultation

The Shadow Scheme Advisory Board (SSAB) of the Local Government Pension Scheme (LGPS) in England and Wales issued guidance for Administering Authorities on the creation and operation of local pension boards.

One of the final pieces of the public service pensions reform jigsaw for the Local Government Pension Scheme (LGPS) in England and Wales which started with Lord Hutton's recommendations back in March 2011 fell into place on 1 April 2015. This meant that each Administering Authority in the LGPS must have established a local pension board by 1 April 2015.

The introduction of Local Pension Boards via the Public Service Pensions Act 2013 and through LGPS scheme regulations from 1 April 2015 marked a sea change in the governance of LGPS funds. In recognising this huge change in the governance of the LGPS, the SSAB provided practical assistance to Administering Authorities in the form of this comprehensive guidance which has benefited from the input of and consultation with a wide cross section of LGPS stakeholders.

A template terms of reference and response to the consultation on the Guidance were also released.

All the above documents are available on the Board Guidance page of the website.

Board advisors

The Board has been supported and advised by the Board secretariat, a small team comprising Jeff Houston – Head of Pensions, and the pensions team at the Local Government Association.

The Board is also supported by a number of professional advisors and other service providers.