Current Issues in the LGPS
05 Feb 2019
E&W benefit structure: McClouds on the horizon
Following the Government’s statement on Thursday 30 January, in the aftermath of the recent McCloud judgement, there is now great uncertainty on the horizon about if, when and how benefits and member contributions will be changed in the LGPS. Changes which were to have taken effect from 1 April this year in England and Wales have now been put on hold, which in turn impacts the 2019 valuations; we are working with the LGA, SAB and other actuarial firms to manage this whole situation, and do get in touch regarding your own fund. However, it seems that the planned employer contribution rate increases in the unfunded public service pension schemes (e.g. Teachers, NHS) will still go ahead.
The MHCLG has published its draft statutory guidance on asset pooling. The consultation is open for twelve weeks (closing on 28 March). It is an informal consultation, addressed to ‘interested parties only’. Noteworthy features include the guidance having statutory force and the need for the pool company to be regulated by the FCA. There are also a number of points relating to the relative roles of funds and pools. We anticipate this consultation, including how funds will be responding to it, forming an important part of funds’ first quarter meeting agendas.
The Supreme Court has ruled that the Palestine Solidarity Campaign has the right to challenge the Court of Appeal’s May 2018 ruling. The ruling upheld the Government’s right to restrict LGPS funds from divesting contrary to UK foreign and defence policy. This is the latest twist in this ‘battle’, which is due to wording included in the September 2016 Guidance on preparing and maintaining an investment strategy statement (with the wording in question subsequently amended in July 2017 due to the ongoing legal challenge). We will keep you updated on this, as the outcome has some potentially interesting implications.
What type of investor are you?
Responsible investment (RI) continues to be a key theme for investors. Since the turn of the year, we have seen funds develop strategies with a strong RI emphasis, a number of studies published (including LAPFF’s “Are fund managers missing the target on stewardship”) and funds/pools set out their RI policies. We strongly support this focus on RI and encourage funds to consider what sort of responsible investor they want to be, and then implement the policies that reflect the behaviours they wish to demonstrate.
Seminar – getting you valuation ready
We invite you to join us in London on 21 February for a morning seminar that will help to make your 2019 valuation a smooth, and dare we say it, enjoyable experience. We’ll have experts on hand to explain why the 2019 valuations differ from previous valuations, discuss ESG and its impact on funding, and talk about risk and how it can be managed. We’ll also explore the many ways in which you can get your growing numbers of employers and other stakeholders engaged in the process. Please click on the following link to register for the event. If you’d like further details please contact Rob Bilton on 0141 566 7936 or via email at email@example.com.
A Fair Deal for the LGPS
The Government recently published its much anticipated further consultation on the assimilation of its new Fair Deal policy into the LGPS. Significant changes are proposed: removing the broadly comparable scheme option, introducing the concept of ‘Fair Deal employers’ and ‘protected transferees’ and enabling ‘deemed employer’ status as an alternative to an admission body. The consultation also incorporates changes aimed at simplifying the transfer of assets and liabilities where scheme employers are involved in mergers or takeovers. The deadline for responses is 4 April 2019. We are currently preparing our own response and will share it with you this month.
Happy New Factors
MHCLG heralded the New Year by issuing updated actuarial factors to funds in England and Wales (along with transitional guidance) in response to the reduction in the Government’s SCAPE discount rate. GAD clearly had a busy Christmas, updating a suite of factors covering early retirement, non-Club transfers in, pension debits and credits and trivial commutation. Revised Club (CETV) factors are not yet available. From a member perspective, the revisions will be generally welcome – slightly better early retirement benefits and more money on trivial commutation. However, stronger non-Club transfer in factors mean that, for each pound of an incoming transfer value, less benefit will be awarded in the LGPS. Those familiar with the way in which our factors calculate strains for members retiring on unreduced benefits will know that the methodology contains an offset that relies on GAD’s early retirement factors. Please use these latest factors from GAD in the offset for future strain calculations (the bulk of the strain cost calculation remains unaffected).
We are pleased to announce that Hymans Robertson has been appointed by the SAB in England and Wales to carry out a key project on good governance of the LGPS. The project was originally called ‘Operations for separation of host authority and pension fund’, and will involve looking carefully at the appropriate degree of autonomy for administering authorities. This will be a highly consultative project and we will be seeking as many views as possible from all parts of the LGPS. Any recommendations will be based on an objective and evidenced assessment of the options and will be designed to be workable for the LGPS.