Scheme Advisory Board: Good Governance Project
04 Feb 2020
The story so far...
It wasn’t until 2005 that the LGPS Regulations gained their very first mention of the word “governance”. Since then we’ve seen an explosion in the use of the term, as expectations have developed and grown around what good governance means for the LGPS. The last few years alone have seen an oversight role for The Pensions Regulator, expanded oversight by MHCLG, the introduction of local pension boards, increasing administrative complexity and the introduction of investment pooling.
It was against this backdrop that the LGPS Scheme Advisory Board (“SAB”) appointed Hymans Robertson to assist with its Good Governance project in early 2019. The brief was to examine the effectiveness of the various current LGPS models; we were then to consider alternatives or enhancements which would help to take the good practice of the best funds and make it universal. It was made clear from the start that any proposals put forward must maintain the strong democratic local accountability that exists currently within the LGPS; in short, separation of LGPS funds from local authority structures was not on the cards.
Throughout spring 2019, we carried out a comprehensive consultation exercise designed to gather the views and opinions of as many LGPS stakeholders as possible. To supplement an online survey, we hit the road to hear views on Good Governance across the country including roundtable events, appearances at conferences, webinars and many one-to-one conversations. Interactions included dedicated pensions officers, chief finance officers, elected members, local pension board members, monitoring officers, independent advisers and trade unions. By the end we had engaged with over 200 stakeholders, and 76 funds across England and Wales.
These conversations from across the LGPS world helped to inform the final report accepted by the SAB in July 2019. Central to the report was the recognition that no single governance model is appropriate for all funds; rather than focus on how funds are set up to deliver the LGPS function, it is more sensible to focus on the outcomes they deliver. The report went on to propose that funds should report their level of compliance against a governance framework: this would include areas such as conflict management, sufficiency of resource and budget, and representation on governance committees and boards.
Keen to take these proposals forward, the SAB initiated Good Governance Phase II which involved bringing together two working groups to further develop the ideas within Phase I. The groups were established by the SAB to ensure a wide range of representation from all areas of the LGPS. Also in attendance were The Pensions Regulator and MHCLG. The Phase II report was accepted by the SAB in November last year and brings more detail to areas such as publishing a governance compliance statement, budget setting, and the independent review process.
Already in train is Phase III, which will see the SAB consider how statutory guidance can be used to put the LGPS governance framework in place, and what KPIs can be used to measure governance effectiveness.
For those funds wanting to get ahead of the game and be ready for this Good Governance guidance and KPIs, there is plenty they can be doing. For example, funds might want to consider their conflicts of interest policy and ensure it really does address all of the actual, potential and perceived conflicts that exist in the LGPS world. Or maybe try reviewing the fund’s decision-making processes; where are key decisions made, who is responsible for delivery of those decisions, who needs to provide oversight and is what you’ve documented actually reflected in the constitution? A full review of all mandatory and best practice policies, as identified by the Pensions Regulator is also recommended.
If you have any questions about Good Governance or wish to put forward your views on what makes a good fund, please get in touch.
This article also featured in the February edition of LGC investment supplement.