As the government is currently considering whether to take forward the Good Governance recommendations, Ian Colvin from Hymans Robertson explores the idea of whether having a senior LGPS officer would be beneficial for funds leadership.
Leadership and clarity of function are essential in any well-run organisation. Local authorities are used to the idea of having key positions defined as statutory roles. Every council has a section 151 officer to ensure the proper management of the authority’s financial affairs, a head of paid service to co-ordinate staffing and a monitoring office to keep everything on the right side of the law.
Is it time then to require those authorities who administer Local Government Pension Scheme (LGPS) funds to appoint a specific post with statutory responsibility for the pension function?
The idea that each LGPS fund should appoint a senior LGPS officer was first put forward as one of the recommendations by the England and Wales LGPS Scheme Advisory Board (the SAB) in its Good Governance Review (Review).
The impetus for the Review was the desire of the SAB to explore the effectiveness of current LGPS governance arrangements, in recognition of the fact that the LGPS is set up differently from any other pension scheme.
Unlike the private sector where a strict legal separation exists between employer and scheme and where trustees operate under a clearly defined fiduciary duty, LGPS funds are, in almost all cases, departments of local authorities who are themselves employers in their own funds.
Importantly, they deliver a service to multiple employers not just the host local authority. This locally administered, funded model also places the LGPS apart from all other main public service pension schemes, which are centrally administered and rely on current government expenditure to pay pensions as they fall due.
It was with these factors in mind that the SAB appointed Hymans Robertson to work alongside LGPS stakeholders to identify best practice and propose beneficial changes to regulations or guidance. At the heart of the Review was a recognition that many LGPS funds operate effectively and have strong governance arrangements in place, but how well is that knowledge shared amongst funds or evidenced to regulatory bodies or sceptical outsiders?
Senior LGPS officer?
Following a lengthy engagement process with a range of interested parties the SAB made 17 recommendations to the Department for Levelling Up, Housing and Communities (DLUHC) in February 2021. Covering topics including conflicts of interest, representation on LGPS committees, knowledge and skills, and improved service delivery, the recommendations formed part of a practical set of measures designed to raise governance standards across the sector. And of those proposals, perhaps the most talked about was the idea of a Senior LGPS officer.
So, what was the SAB envisaging when it put forward the idea? There was a recognition that in well-run LGPS funds there is a strong leadership structure, with one individual having clear responsibility for all aspects of delivering the LGPS function. This makes sense given the size of the task and its complexity. In SAB’s view, every LGPS fund should have a named officer who fulfils this role, overseeing all aspects of funding, investment and administration and making sure they are joined up.
The senior LGPS officer should be of sufficient seniority to ensure that pension issues can be brought to the attention of the senior leadership team as necessary. This should also mean that they are close enough to the strategic direction of the council and understand how that may impact the management of the fund.
The SAB recognised that running an LGPS fund is demanding and those in the senior LGPS officer post should be able to give it the necessary attention. The details of how this is achieved will vary between organisations and would need funds to consider the capacity and seniority of those reporting directly to the senior LGPS officer.
Ensuring funds run ‘as effectively as possible’
The senior LGPS officer is responsible for the delivery of the LGPS function and as such must be able to ensure that they run an operation that is sufficiently resourced. The intention is that the postholder will be responsible for drawing up the fund’s budget and agreeing on it with the pension committee.
At the moment, DLUHC is considering how to take forward the Good Governance recommendations. Although they have expressed general support for the SAB’s proposals, we won’t know exactly how they might be implemented until they are consulted on, and that specific date is as yet unknown.
In putting together the recommendation for a senior LGPS officer, the SAB were clear that they were not trying to mandate a single model for LGPS funds, nor were they trying to tell local authorities how to organise their staffing. Instead, the idea is to recognise the significant scale and complexity of LGPS funds and to make sure that they are run as effectively as possible on behalf of their multiple employers and the scheme members who rely on them for a secure retirement.
Ian Colvin is a senior gap consultant at Hymans Robertson.
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