By William Bourne, Linchpin IFM
Local pension boards (LPBs) have been up and running for almost two years now and it’s no secret that different authorities have taken quite different approaches to operating them. At one end some have done no more than the bare minimum required by the legislation, while others have invested considerable time and effort in ensuring they function effectively and add value.
LPBs are the only bodies in the LGPS governance structure with representation from both employers and members of the scheme. These are the two stakeholders with an ultimate interest in the running of the scheme, since both pay in contributions and the latter are reliant on it to pay their pensions. Pooling will add to an already complex picture within the LGPS and so the need for transparency, scrutiny and accountability will be even greater.
The question then is how can LPBs operate effectively without duplicating what the section 101 committees are doing? Different authorities have different priorities and while the ideas below will not be for everyone, I hope they provide some suggestions on how boards can be effective.
The first priority for all LPBs is a clear remit. Responsibility for administering all aspects of a fund legally remains with the section 101 committee. However, a core principle of good governance is the separation of ownership and scrutiny, and the LPB’s role should primarily be to scrutinise. My view is that the section 101 committee should not delegate ‘ownership‘ away to the LPB. However, I recognise some authorities may choose to do that, and in that case the section 101 committee should take up the scrutiny role.
Clarity in this respect will become even more important after pooling, as the level of outsourcing to third parties will increase. The role of LPBs here is essential – both from a governance and a transparency perspective. Its functions should, together with those of other bodies and service providers, be explicitly set out through a governance statement.
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A related challenge for LPBs is how to scrutinise in practice, bearing in mind the mountains of information, the limitations of training and knowledge, and time constraints. One way to solve this is for LPBs to use risk assurance statements in areas such as investments or compliance to evidence that all is in order. Depending on who has provided them (whether internal or external) and who else has seen them (e.g. sub committees, internal auditors) greater or less reliance can be placed on them.
Of course this does not prevent an LPB asking to see detailed papers if it has concerns about the assurance statement provided. There will also be some items (e.g. administration key performance indicators and the breaches register) which should be seen every quarter and others, such as the risk register, which should be reviewed annually or less often. However, I believe using risk assurance statements can help LPBs operate more efficiently.
A further challenge is what to do if an LPB has concerns about how the section 101 committee is managing its fund, particularly if it is reviewing a decision already made. The original guidance on running LPBs suggests formal recommendations to the relevant section 101 committee or administering authority, which should in turn consider and respond to them. As a last resort, an unsatisfactory response can be brought to the public’s attention by means of the LPB chair’s annual report.
The second part of the LPB’s remit is to assist the administering authority. Here LPB representatives have useful perspectives, which can be used to improve communication and engagement. These can be harnessed by means of working parties or subgroups to look at particular topics, such as annual benefit statements or raising data quality. LPBs may also ask for a slot on regular newsletters to stakeholders in order to raise awareness of what they do.
However, none of this will work unless there is a properly functioning LPB with a constructive relationship with the section 101 committee. A regular 360° appraisal can help the LPB work more efficiently, and I would argue that a paid independent chair has the motivation to provide structure, direction and continuity. It helps if the section 101 committee invites the LPB chair to attend and participate in its meetings but, if not, an s101 committee member can be invited to attend the LPB meeting.
Finally a comment on the Local Government Pension Scheme Advisory Board which is currently conducting a survey. I see the survey as a largely box ticking exercise. With only four questions, allowing for long answers, there must be a concern that without more detailed investigation the wrong conclusions will be drawn. In my view LPBs already have all the tools they need to play a vital part in the scheme’s governance.
William Bourne is Director of Linchpin IFM and the Independent Chair of the Local Pension Boards of the Lancashire County Pension Fund and the LPFA. This article is written in his personal capacity and does not necessarily reflect the views of either the Boards he chairs or the administering authorities.
