Much work has gone into creating the LGPS pools. Attention now shifts to how the member funds will manage their new role as clients.
The 89 administering authorities preparing to transfer investment selection to the eight new consolidated pools are faced with a series of challenges in time for the new structural arrangements next year.
Fund administrators have been working to resolve issues such as losing key personnel to the pools, defining new roles and reconfiguring their governance arrangements.
Addressing the issues represents a new phase in the march to the April 2018 deadline.
So important are the questions that the Border to Coast pool brought together 86 councillors and officers from its member funds for a special two-day training event in York on the 11th and 12th September.
Fiona Miller, senior manager of pensions and financial services at Cumbria Pension Fund—one of the constituents in the Border to Coast pool—said the event had been conceived to shift attention to the responsibilities of running a member fund after the pooling process is over.
“As we move into the next stage, funds really need to start thinking not just about the legal structures—we’ve all set up good legal structures to make sure we can manage the pools going forward—but how you do it practically,” she said.
She added funds would still need to provide current services going forward such as accounting and audit, running an actuarial contract, and reporting to committee members.
There were also new issues for funds, some of them strategically significant, such as how they would address non-performance by their pools.
For some member funds, she added, the issues have been complicated by the loss of key personnel to the pools themselves.
“Funds need to move into the next stage,” said Miller. “We need to take a step back because the structures are there but have we got the staff and the training—are the members ready—to move to managing performance of the pool and be a shareholder?”
Scenario planning
Member funds signed up to the Brunel Pensions Partnership have lost 11 members of staff to the pool.
Dawn Turner, chief executive of Brunel—and previously chief executive of the Environment Agency’s pension fund, a pool member—said that there had been considerable scenario planning to prepare members funds for the potential movement of staff to the pool.
The preparation has given member funds the chance to test which jobs will remain, and then define what new roles would be needed.
“It’s important to say: let’s make the best of this opportunity and be clear about defining what the jobs are going to be,” said Turner.
Scenario planning at pool level estimated 12 of the 27 investment staff at member fund level could move to the pool. In the end it was 11.
Turner stresses that it was important that specific individuals were never identified during the planning process, only numbers.
Brunel has attempted to ameliorate resource issues at the local funds in the way it has structured services.
On the one hand there are the core investment services that all member funds have to take as part of the pooling process.
But Brunel also offers a set of elective services (mainly around strategic asset allocation or risk analysis) that member funds can opt for, depending on the status of their in-house resource and expertise.
Some of the elective services can be offered now because they do not require FCA authorisation, others will have to wait until Brunel has regulatory approval.
“That’s going to be one of the ways they [the members funds] are going to be able to manage with their new structures and new resources,” said Turner.
The London CIV, a pool set up before the government’s demand for mandatory pooling, has few personnel issues because the staff have been in place for some time, according to chief executive Hugh Grover.
However, it is now undertaking a governance review to examine the relationship between members, the London boroughs, and the pool. A final report is due in the New Year.
“The review has been catalysed by the fact that the environment for us in London has shifted,” said Grover. “In the beginning everything we were doing was on a voluntary basis. Now, of course, the government has made it mandatory. The expectation is that all assets will transfer.
“That’s a different relationship. It begs the question whether governance structures in a voluntary environment are still fit for purpose.”
Lancashire County Pension Fund, part of the Local Pensions Partnership, has also gone through a planning process using consultants from PwC to identify key tasks and roles in governance and personnel.
Abigail Leach, head of the Lancashire fund, said one of the main tasks for PwC was to define her role. A second piece of work by the firm looked at the governance implications of pooling and the Lancashire’s risk register.
Officers in the county fund who might move to the pool were identified and then removed from advising councillors on key issues where a conflict of interest might arise.
Governance issues stemmed from Lancashire being both client and shareholder in the pool. That means the separation of key pool-related issues: investment performance is considered by the pensions committee while other pool issues must be considered by full council; it is the council, and not the pension fund, that is the shareholder.
The planning has also resulted in the creation of new roles including a governance and risk officer to maintain the risk register and manage Lancashire’s ESG (environment, social and governance) policy. Pooling preparations also saw the county create a new technical position to manage the fund’s appeals process.
Leach said: “Things will continue to evolve, but we are in a better place now than when the pool launched in April 2016.”
