The annual reports of LGPS funds are too long, complex and old-fashioned. George Graham suggests ways in which funds can better tell their performance story to scheme members and others who may not be financial experts.
There has rightly been much focus on the timeliness of reporting affecting accountability in the debate over local audit. Much less attention, however, has been paid to the other issue raised by Tony Redmond in his review of local government audit: the complexity of reporting diluting accountability. This is particularly apparent with LGPS funds and the way in which we demonstrate accountability to scheme members and other stakeholders through our reporting.
The little-noticed changes by CIPFA to its committee structure, resulting in the abolition of the Pensions Panel and the creation of a new Compliance and Reporting Committee straddling CIPFA and the LGPS Scheme Advisory Board (SAB), perhaps holds out hope of attention being paid to this important area. There is now a route, through the SAB’s ability to advise ministers, that allows some of the barriers to progress to be addressed.
Unlike councils, LGPS funds are legally required to publish an annual report. Content expectations are set out in LGPS regulations and in CIPFA guidance (last updated in 2019). However, the combination of the regulations and guidance, together with other influences on reporting such as the UK Stewardship Code and the development of climate reporting, mean that my fund’s annual report and accounts runs to 519 pages. Almost half of these are appendices made up of policy documents that have to be included in the annual report according to the regulations.
22 March 2022
The Marriott Hotel, Leeds
LATIF North
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What other public sector organisation has to publish virtually its entire policy framework in its annual report when it is already available through its website? The CIPFA guidance to which auditors refer when reviewing the annual report is clear that publishing does not encompass providing a web link, while lexicographically correct it does seem more than a bit analogue in a digital world.
My fund’s annual report and accounts runs to 519 pages. Almost half of these are appendices made up of policy documents that have to be included in the annual report.
More information, less data
The point of the annual report is surely to tell our story, and telling a story relies on information. Too often we are required to provide data, instead of information. What use to the average scheme member are 32 pages listing the amounts of employer and employee contributions paid by our 600+ employers? Surely summary information focusing on how much (if anything) was paid late, by whom and how many scheme members were affected is the information that members need to know.
The Stewardship Code rightly encourages us to provide more information for scheme members on the way in which we invest their savings, not just in terms of the performance of investments but also the way in which we use voting rights and engagement to encourage good corporate behaviour. Too often this is lost in the mass of other things that we have to provide detail on.
Any annual report that also contains our accounts (as it should) is going to have a degree of complexity to it. But we must be able to do better than this.
The new Compliance and Reporting Committee, together with the anticipated introduction of additional reporting requirements on climate impacts and the need to review the regulations as a result of the Good Governance project, provide the ideal opportunity to look holistically at the framework that governs reporting by LGPS funds. It is also an opportunity to learn from the different practices that have emerged in Scotland and, to some degree, in Wales since devolution.
What other public sector organisation has to publish virtually its entire policy framework in its annual report when it is already available through its website?
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Engaging the reader
We need to go back to first principles and identify what our reporting is for. For me, it is the opportunity for us to tell our story to the 170,000 members of the South Yorkshire Pension Fund. This should be done in a way that engages them, and is comprehensible to any reader, not just investment professionals and actuaries.
To do this, we could be more granular in what we talk about, perhaps focusing more on the regeneration and new housing we are financing in the area than the fact that our “equity portfolios outperformed the benchmark by x% due to the bias towards quality in our holdings” (important though that outperformance is).
The current reporting framework constrains funds in making these changes, although there are individual examples of good use of granular stories across LGPS. It is a crying shame, however, that the LGPS as a whole does not receive the credit it deserves for the substantial role an institution with around 5m members and £300bn plays because it cannot tell its story properly.
I hope the new committee, given it is partly within the SAB framework, will feel less constrained about recommending changes to regulations and challenging some professional orthodoxies. It should give funds a real opportunity to tell their story in one place rather than having to create alternative means of doing so.
George Graham is director of the South Yorkshire Pensions Authority, which runs the South Yorkshire Pension Fund on behalf of the county’s four district councils.
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