OUR ROUND-UP OF THE LATEST PUBLIC SECTOR NEWS AND INSIGHTS
Current Issues in the LGPS - November 2019
04 Nov 2019
Golden Thread – aligning your investment arrangements to your long-term vision
Many of you will be revisiting your long-term objectives as part of your valuation process. Following on from this, it’s important to consider how each part of the investment decision process (e.g. beliefs, strategic decisions and implementation approach) is aligned to these objectives, i.e. have a “Golden Thread” in place. The advantages of greater alignment include clarity around how each decision contributes to improved Fund outcomes and improved risk and performance monitoring.
2019 valuations – update on McCloud and valuation cycles
We attended a meeting last month with representatives from the MHCLG and the LGA. Two valuation-related topics raised in MHCLG’s recent consultation were discussed. Firstly, MHCLG confirmed that the next round of local valuations for English and Welsh LGPS funds will be 31 March 2022. We will therefore certify 3 years’ worth of contributions at the 2019 valuations. What happens to the valuation cycle after 2022 remains subject to consultation. Secondly, the MHCLG confirmed that it expects each LGPS fund to explicitly state in its valuation report and/or Funding Strategy Statement how it has allowed for the McCloud ruling. In particular, where contribution rates are being reduced, funds should be clear about how they have taken the McCloud ruling into account before making the decision to reduce rates.
Establishing investment consultant objectives – an update on the CMA Order
The requirement for LGPS funds to establish objectives for their investment consultant comes into effect from 10 December 2019. As a reminder, funds must establish ‘measurable’ objectives for their investment consultant which are aligned with their own. Please see our guide for establishing objectives for more information. The Scheme Advisory Board has provided guidance setting out how the Order applies to the LGPS. Whilst the guidance implies a softening of the 10 December hard deadline for the LGPS, this target is still viewed as good practice.
Not so unlucky 13 for Scotland
We have recently seen sight of GAD’s draft report on their valuation completed under Section 13 of the Public Services Pension Act 2013 for Scottish LGPS funds. The good news for Scottish funds is that the report doesn’t raise any concerns over funding plans put in place at the 2017 valuation. At present, there is no confirmed publication date but we would hope it is before Christmas to allow Scottish funds to have sight of it before the 2020 valuations.
Good Governance Update
On 6 November the Scheme Advisory Board (“SAB”) will receive the report from the Good Governance Phase 2 working groups, which Hymans Robertson are facilitating. The two working groups, drawn from a range of LGPS stakeholders and SAB members, will make a number of proposals designed to provide a framework for good governance outcomes in the LGPS, and to look at ways in which that framework could be independently assessed and verified. Any proposals agreed by the SAB will be subject to a full stakeholder consultation before being put to MHCLG.
1 in 10 …
… that’s the proportion of the English & Welsh population who have an LGPS entitlement, according to the 2018-19 statistical release from MHCLG. For the first time, the LGPS in England & Wales is now cashflow negative, with benefit payments rising to £10.4bn while contributions fell to £9.3bn. There are now over 18,000 employers, and although local authorities represent less than 1 in 5 of these, they account for 3 out of 4 members.
PLSA Retirement Living Standards
The PLSA has published its new UK Retirement Living Standards aimed at helping people visualise their life in retirement to encourage a more effective long-term view in planning. It sets out targets required for individuals and couples to achieve minimum, moderate, and comfortable standards of living, with these retirement lifestyles described by the expenditures on goods and services relevant and realistic to each. The PLSA’s ambition is for schemes to incorporate the Standards in their services to members and for the pensions sector and the Government to proactively advocate the Standards.
FRC UK Stewardship Code
The FRC has published the updated UK Stewardship Code, taking effect from 1 January 2020, which represents a new best practice standard for both asset owners and asset managers. The requirements extend to stewardship objectives and integration, and to adopting clear and elaborate reporting. We have published a 60-second Summary on the key changes to the Code and what the next steps are for signatories. LGPS funds should use the Code in conjunction with forthcoming SAB guidance as a basis for evaluating their responsible investment policies.
TPR - getting tough on poor member data and on those who fail to improve their member data
The Pensions Regulator continues to apply pressure on pension schemes to improve the quality of scheme member data. It recently announced that 400 schemes suspected of not reviewing their data in the last three years, including some in the public sector, will be ordered to conduct a data review. Failure to comply could see the schemes issued with an improvement notice or even financial penalties. Whether or not you are one of the 400, the valuation process will likely have thrown up some data issues (large or small) that need addressing. Our benefits consultants and project managers would be happy to discuss any support we can give you to resolve what can be an overwhelming piece of work.
LGPS Employers Survey
Last week, we launched a survey specifically for employers in the LGPS with the aim of gathering as many views as possible on their LGPS participation. By gathering their views, we’ll be better placed to offer support and meet the needs of both employers and their funds. We would be grateful for your support in receiving as many responses as possible by sharing our survey with LGPS employers.