A Local Government Pension Scheme governance review has recommended greater ring-fencing of pension fund management from host authorities – but stopped short of calling for separate section 151 officers.
Pension adviser Hymans Robertson delivered the review this week on behalf of the LGPS Advisory Board, to identify improvements to current processes.
The report’s recommendations have been accepted by the board, which will prepare a detailed implementation plan by November.
It calls for the adoption of two of the four options presented during a consultation exercise launched in April – improved practice plus greater ring fencing.
However, it has recommended an “outcomes-based” approach rather than a prescribed governance model across the scheme.
Catherine McFadyen, head of LGPS actuarial, benefits and governance at Hymans, said: “We know that the LGPS is full of strong governance examples and this survey has successfully highlighted many of them.
“By moving to an outcomes-based approach rather than imposing a prescribed ‘model’ we will ensure that funds can maintain their individuality while delivering the highest standards of governance.”
The consultation had suggested that appointing separate section 151 officers for LGPS functions could “reduce conflicts currently faced by section 151s”.
The final report concluded splitting the roles could lead to a specific focus on LGPS matters “and therefore greater depth of understanding”.
But it said the move could be “unlikely to help reduce conflicts (the pension fund s151 still has fiduciary responsibility to local taxpayers and may report to council s151) and may not be practical for smaller funds with greater resource constraints”.
One anonymous officer at a county council told Hymans: “Separation would actually push s151s away from the fund, leading to less responsibility and engagement with the fund, leading in turn to less expertise and worse decisions.
“Better to get s151s more closely involved so they understand the requirements of the LGPS and make better decisions.”
Instead, the “outcomes-based” model should include minimum standards rather than a prescribed governance model, the report said.
Hymans concluded that: “Respondents favour developing a set of standards that all funds are required to achieve, drawing on current best practice and not imposing a disproportionate burden on administering authorities or disrupting current practices that deliver good outcomes already.”
The report also called for greater clarity on roles and responsibilities for decision-making, and assurance on administration resources.
The approach would also require regular independent review of governance, based around an enhanced governance compliance statement, along with enhanced training requirements for officers and members.
The review also called for the updating of guidance on governance by the government and Chartered Institute for Public Finance and Accounting.
The two options rejected by the review included the creation of new joint committees to oversee governance, as well the creation of an independent scheme manager function, with all decision making passed to a combined authority.
MacFadyen said: “It’s crucial that funds take this opportunity to review what they currently do and assess how they would stand up against this approach if it was introduced today.
“This will allow them to address any areas where improvement or change may be required and ensure they are in the best position moving forward.”
A statement from the LGPS Advisory Board said: “Scheme stakeholders will be given the opportunity to comment on the Board’s recommended implementation plan before any formal approach is made to Ministry of Housing, Communities and Local Government ministers for changes to the scheme’s regulations or guidance.”
Writing for Room151 in February, SAB secretary Jeff Houston said the fact that the current system “does not lead to problematic examples of conflicts of interest is testament to the professionalism and expertise of officers and the non-partisan, scheme focused approach of elected members.
“However, as in all things, there is room for improvement.”
