Agenda item

For the members of the Board to receive a presentation from the Secretary to the LGP Scheme Advisory Board, on the work of the Board.

The Members of the Pension Board welcomed Bob Holloway, Secretary to the LGP Scheme Advisory Board. Mr Holloway began his presentation by providing some context and background highlighting that he had worked within the Local Government Pension Scheme (LGPS) for some 35 years and that this was a very technical and complex area.

Following the 2010 General Election and the formation of the Coalition Government there had been a complete review of public sector pension schemes. This had been undertaken by Lord John Hutton of Furness resulting in 26 recommendations that had in the main been accepted. Mr Holloway highlighted that Lord Hutton’s key recommendations were:

·       to establish a Scheme Advisory Board with responsibility to recommend changes to the responsible authority; and

·       for every scheme to set up a Pension Board. These were recommended to assist the Scheme Manager/Administrating Authority. The role of Pension Boards was set out in regulations in 2013 mirroring the recommendations of the review and established their role in scrutiny (compliance checking) and assisting the Administering Authority to improve the effectiveness of the administration and governance of the scheme.

Mr Holloway provided the Board with an overview of compliance within statutory regulation. It was highlighted that there is a legal duty to abide by the code of practice published by the Pensions Regulator. It was noted that the code of practice was being rewritten with a modular approach being produced. The importance of the code was stressed; Board Members needed knowledge and understanding of the scheme in addition to public sector pensions and how they operate.

It was noted that the Pensions Regulator could fine individuals and Boards for non-compliance against the code. This was reflected in the increased desire by Boards and their Members to have indemnity insurance. Mr Holloway acknowledged that it would be unusual for individuals to be subject to a fine by the Regulator. Additionally, The Head of Pensions and Treasury confirmed that indemnity insurance was in place for the Croydon Pension Board and its Members.

It was acknowledged that it was likely Boards would not always be happy with actions taken by the Administering Authority. However, whilst they had the opportunity to whilstleblow this was described as a last resort. Other options for resolution included informal discussions and engaging with the Monitoring Officer and/or Section 151 officer.

If a Board was not satisfied then there would be a need to look at the formal powers to report. Mr Holloway acknowledged that there was a lack of clarity on what constitutes a formal or material breach with no definition being available. He advised that Boards should record every breach in order to establish an audit trail and to document why a breach had not been reported should this become necessary. It was noted that the Pensions Regulator was as interested in processes and record keeping as the outcome arrived at in any given scenario.

The Independent Chair of the Board noted the difficulty of determining what constituted a material breach; the Board was in large part dependent on the advice of officers who had loyalty to their employer making it difficult for Boards to obtain independent advice. It was confirmed that a register of breaches was in place.

Mr Holloway emphasised the fiduciary duty of Councillors on the Pension Committee. It was stressed that the focus should be on the duty of care but to whom this should be applied was more difficult to determine with the Council, its employees, council tax payers and electors all vying for pre-eminence. There was also a lack of clarity on who could be the ultimate guarantor of the Fund.

In response to a question from a Member of the Pension Board regarding what would happen should the Pension Fund no longer have access to sufficient funds, Mr Holloway stressed that as a statutory scheme there would have to be a final guarantor. Legal opinion was yet to determine the final guarantor as there was nothing in law to state that this would be guaranteed by the Government. It was noted that should an authority run out of funds, its functions would have to continue for example through the formation of another local entity or the Government exercising its rights to send in Commissioners.

Board Members asked about the treatment of orphaned liabilities with Mr Holloway agreeing that these would fall on the Fund with the Government’s response to the consultation on these issues awaited.

Replicating the levy to the Pension Protection Fund in the private sector was suggested by a Board Member as a possibility for third tier employers. Mr Holloway agreed that there was the possibility of establishing a lifeboat fund rather than orphaned liabilities being picked up by the Fund. However, it was noted that LGPS was not a member of the Pension Protection Fund because it was a statutory scheme and guaranteed.

A Pension Committee Member asked for an update on the McCloud Case and its likely ramifications for the LGPS.  Mr Holloway explained that whilst there was protection in law against discrimination it was permitted for pensions to discriminate on grounds of age as long as this was done objectively. In principle discrimination in pensions was undertaken in order not to give any detriment to those close to retirement age as it was difficult to change financial planning at the last minute. However, transitional protection offered to some employees when changes were made to public sector pension schemes was subject to legal challenge by the Fire Brigade Union and the Police with the case being won on the grounds of equality of benefits. As a result it was likely that the same approach would have to be applied to all who were active members of the scheme in April 2012. It was highlighted that the ramifications of the court’s decision would take time to unfold. The Independent Chair of the Pension Board noted that it would have to be accepted that it was going to cost more to deliver the scheme.

The Chair of the Pension Committee asked for clarification regarding any legislative initiatives coming forward that might affect the scheme. Mr Holloway thought it likely that the new Government would undertake to continue with the Pension Bill to increase the powers of the Pensions Regulator. Judgement was also awaited on whether a pension fund could boycott nations in their entirety and/ or the UK defence industry. It was thought that the outcome of this judgment might need to be reflected in legislation and guidance.

Lastly, Mr Holloway noted that as part of his remit he would continue to collect data from triennial valuations and to annually publish a national list of the results. This had shown in 2016 that funding was improving with some having 110% funding.

In closing, Mr Holloway gave an open offer to return to the Pension Board to provide more formal training on specific issues and noted that he was trying to establish a network of local pension boards.

RESOLVED: The Independent Chair offered his thanks to Mr Holloway and thanked the Members of the Pension Committee for their attendance.