Agenda item

For the members of the Board to consider the final report of the Governance Review.

The Head of Pensions and Treasury introduced the item by explaining the procurement process for the Governance Review; Croydon belonged to the National Local Government Pension Scheme framework (the Framework) which was used to procure the scheme actuaries, investment advisers and lawyers. The same approach had been used to tender for the Governance Review with Aon being awarded the contract for Governance Consultancy through the Framework.

The Aon Consultant provided a presentation highlighting the key points from the Governance Review. It was explained that the review consisted of desk-based research and consultation with Pension Board and Committee members as well as officers using an effectiveness questionnaire. The work also comprised a check of progress against the recommendations made when the governance of the scheme was last reviewed in 2016 and it also incorporated a review of the governance of asset pooling. It was noted that in addition to the Governance Review there was also an independent assessment of the Fund against the Pensions Regulator Code of Practice (Code 14).

Overall governance was established to be at a good level with a number of improvements found based on the review conducted in 2016. Areas that could be improved were highlighted:

?       Undertaking business planning on a three yearly basis across both the Pension Board and Committee enabling activity outside of the usual business cycle to be scheduled and undertaken. Examples included the consultation response which is expected on pooling guidance and how any changes would be implemented and work relating to outcomes from the McCloud judgement. A longer term approach to business planning would enable sufficient budget and other resources to be allocated as well as training to be planned;

?       Introduce a Pension Fund Conflicts of Interest Policy, with regular training;

?       Establishing a fund wide training policy covering Pension Board and Committee members in addition to relevant officers.  This should be published on the scheme’s website;

?       Ensuring that within each policy there was clarity on the objectives of the fund, the risks, who was consulted and how it was approved. Policies should also reflect the relationship with the CIV. All policies should be published on the scheme website in order that they be made more accessible to scheme members and employers;

?       Ensuring that policies achieved the stated best practice;

?       Ensuring there was a system in place to monitor and record breaches of the law. There needed to be a process for reporting any breaches to both the Pension Board and Committee and to define the point at which a report needed to be made to the Regulator. Monitoring was also needed to ensure an issue wasn’t developing over the longer term that would lead to a material breach. It was observed that these processes might already be in place but that evidence wasn't seen as part of the Governance Review;

?       Ensuring adherence to the new guidance on the publication of the scheme Annual Report and Accounts from the Chartered Institute of Public Finance and Accountancy;

?       Oversight of the risk register which was only accessible in part to the Governance Review; and

?       Updating the Constitution to be consistent around the respective responsibilities of the Pension Board and Committee. This needed to ensure the scheme of delegations clearly documented and reflected arrangements with the London CIV.

In response, the Board discussed the key findings of the Governance Review:

?       Conflicts of interests: it was highlighted that Croydon Council dominated as the main employer as well as being the administrator of the fund. It was noted that technically the two are the same legal entity. This made Board members nervous as there was instinctively a desire for a clear separation between the two. The Aon representative highlighted that there was no single model of best practice and that there were other authorities facing similar issues with discussions ongoing on good governance at the Scheme Advisory Board. It was recommended that conflicts should be listed to demonstrate there was understanding of the risks, providing clarity to lessen concern;

?       Resourcing: sufficient resources needed to be allocated to enable the recommendations to be implemented. The Governance Review report would be presented at the Pension Committee’s meeting in January 2020 with an action plan to be presented thereafter. The Board stressed the importance of addressing resourcing in the action plan; and

?       Risk register: it was suggested that monitoring needed to happen to ensure employers are fulfilling their payments on a quarterly basis. The Head of Pensions and Treasury noted that reporting can be a challenge given some missed payments are genuine mistakes or disagreements as opposed to there being problems with cash flow etc.

RESOLVED: The Board AGREED to fully endorse the findings of the Governance Review and to invite the Pension Committee to develop and, importantly, fully resource an action plan to comply with the Regulator’s Code of Practice.

The Board thanked Aon for all its work on the review.