Continuing to act responsible

Climate change continues to be a key theme for investors. Some recent updates in this area include, Simon Jones’ Blog in Room 151 “Climate Change – not someone else’s problem” and LGIM’s decision to exclude ExxonMobil from their Future World Fund, given the stock has “has not met their key minimum requirements, including on emissions reporting and targets”. We have also seen notable demand from Funds to explore climate risks as part of their valuation process.

Time for reflection

The transition of assets has long been recognised as a pivotal point in the pooling process. We strongly encourage Funds and Pools to reflect on the transitions that have taken place to date, particularly in light of the draft information request from MHCLG. Factors to reflect on include:

• How could the process be improved?
• What additional data analysis could be carried out to save costs?
• What was the process for signing off the investment suitability of the Pool’s sub-funds?

These should improve future outcomes and ensure a suitable audit trial is in place for the process.

Good Governance in the LGPS

Earlier this year, we were appointed by the Scheme Advisory Board (SAB) to facilitate a review of governance structure for the LGPS. The SAB commissioned this report to examine the effectiveness of current LGPS governance models and to consider alternatives or enhancements to existing models which can strengthen LGPS governance. 

Our report, which is available here, sets out the results of our review, recognising the strengths and weaknesses in all governance models. It proposes an outcomes-based approach would be the most effective method of improving governance, rather than mandating a single governance structure for all. This allows funds to continue doing what currently works well, while still ensuring the highest governance standards across the scheme. We have further recommended the introduction of key benchmarks which may be used to assess each fund, including: evidencing robust conflict management, evidencing sufficient administration capabilities and budget, having a clear and inclusive policy on employer and scheme member engagement and holding regular, independent governance reviews. We will continue to work with the SAB to bring detailed plans for implementing these recommendations to the November SAB meeting.

Rain drops keep falling on our heads

A lot of time and energy has been spent over the last couple of months resolving the impact of the McCloud case on March year end accounting. Whilst hopefully that particular storm has blown over, LGPS funds in England & Wales will need to consider how to manage the risk as part of the 2019 valuation. Our recent note discusses this topic, and considerations for Administering Authorities, in more detail.

Are we still keeping Order?

Last month, we highlighted that an Order by the Competition and Markets Authority had established new requirements affecting LGPS Funds. The Scheme Advisory Board (“SAB”) has since published two briefing notes, the latest here, which discuss the subject in more detail (the SAB’s most recent note includes reference to the DWP’s Consultation on the Order). 

Although recent press coverage of the DWP’s Consultation suggests an easing of demand on LGPS Funds, we believe considerable uncertainty surrounding several aspects remains. However, we continue to believe objectives for investment consultants will need to be in place by 10 December. We will keep you updated on developments.

Not all LGPS employers are all-LGPS

We recently held a webinar aimed at LGPS employers, on the topical issue of what they need to consider if they are moving some or all staff to Defined Contribution rather than LGPS. This was not about whether or not employers should take such a step (since our conflict management plans mean we would not engage with an employer in this way without seeking clearance from the Fund first); instead it concerned what options employers will have if they do make the step.

Keep your hard hat on! TPR survey indicates foundation work done but further improvement still required

The 4th annual governance and administration 2018 survey report for public service pension schemes has recently been released by The Pensions Regulator (TPR). This wide ranging survey indicated that in the 4 years since TPR’s increased involvement with the LGPS, the governance and administration foundation work has been laid by the vast majority of funds. As a key insight into the standards of LGPS funds Governance and Administration, the survey highlighted the role expected of local pension boards and scheme managers to continue the push towards improving standards year on year at funds. Next level improvement work starts here!

TPR push for better governed schemes with new governance consultation

TPR announced a new consultation on the future of trusteeship and governance stating the vision that all savers are “in schemes that have excellent standards of governance that deliver good value”. In an accompanying blog post, TPR signposts clearly that it intends to “make life more uncomfortable” for those DB and DC schemes where governance is not up to standard, including levying fines for breaches of regulation. As an indication on TPR’s direction of travel, this consultation is another reminder to LGPS funds that the Regulator has ever increasing expectations on those managing schemes/funds. Using the words of TPR, trundling along and being blissfully ignorant as there have been no current problems has never been allowed and will not be accepted. Our advice is to make sure you have the evidence at hand to confirm that is not the case for your fund.

Potential LGPS impact of recent Armed Forces appeal case

The Court of Appeal Armed Force case – Langford vs Secretary of State – found that the refusal to pay a survivor's pension on the basis that the appellant had remained married to another person was an unlawful discrimination. On the face of it, this decision could have a similar impact to recent cases such as Brewster on the Death benefit rules of the LGPS. However, the concluding remarks of Lord Justice McCombe leave open the possibility that this ‘exclusionary rule’ may be justified and proportionate in other cases – such as other public service schemes.

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