Our round-up of the latest public sector news and insights
Current Issues in the LGPS - June 2019
04 Jun 2019
Good Governance project
The Good Governance online survey has now closed and we are delighted to say we have exceeded our target figure for responses, and so thank you to everyone who completed the survey. We are continuing to engage with key stakeholder groups in the LGPS and the wider local authority world to ensure that we get the full range of views on this important topic. Our final report is due to be presented to the SAB in early July.
If you missed our learning zone session at the PLSA conference last month (click here for highlights), please tune in to our webinar about climate change and its implications for LGPS funds. It’s being held on 1 July between 1pm and 2pm, and you can register for the event here. Pressure from activists and oversight bodies is growing on funds to demonstrate how they will manage climate risk across both funding and investment strategies. Our 60 Second Summary explains how the risk can be modelled and measured. Please speak to your actuary or investment consultant to request bespoke analysis for your fund, and put a plan in place to manage the risk.
CIPFA calls for fund reinforcements
CIPFA recently issued an open letter to all LGPS Administering Authority CFOs and all those involved in the governance and administration of the Scheme in England, Wales, Scotland and Northern Ireland. In quite a wide ranging letter, the Chair of the CIPFA Pension Panel stressed the importance that funds have the necessary resources to meet the various challenges including creating asset pools, the increasing administrative requirements, and he warned about the increasing level of scrutiny from the likes of the Regulator and the national press. He also noted that as part of the new guidance for annual reports, funds would have to provide a statement on the value for money achieved by the administration function.
Are you really “overweight”
The Scheme Advisory Board (“SAB”) has published its Annual Report. The Report includes the statement, “equity exposure was reduced at the fastest rate yet seen in the latest year. However, the LGPS is still substantially overweight in equities when compared with the corporate sector”. This (significant) divergence in Public and Private sector funds’ strategies is predominantly due to their differing objectives, with the former open and focussed on long-term affordability (and therefore in need of sustained real returns) and the latter typically closed/in run off and focussed on managing short-term volatility and liquidity. Objectives matter. We encourage funds to revisit their (and underlying employers’) objectives alongside the valuation process to ensure their investment strategies remain appropriate.
Pooling: reporting in the new world
“(Trustees) can use your powers to delegate some functions, but you still retain accountability”. This is a statement from the Pension Regulator’s website. Although written for Private sector schemes, its broad thrust applies equally in the LGPS, particularly at a time when assets (and many responsibilities) are being transitioned to the Pools. LGPS pensions committees must understand the decisions being delegated to their Pools’ operator and ensure the appropriate reporting is provided on these delegations as well as agreed service levels. We discuss this in more detail in the following 60 second summary.
Will we see transparency?
The Cost Transparency Initiative (CTI), which seeks to achieve comprehensive, transparent and consistent information on costs and charges, has launched its framework of templates and guidance. These templates cover a range of asset classes, including a specific one for private equity and debt. We support the CTI’s progress (in an area that the LGPS has been leading). We recommend Committees ask their managers to sign up to the CTI’s Code and consider making formal statements in support of the Code in their ISS.
More changes ahead for the LGPS
MHCLG has released a significant consultation on the way the scheme is run in England and Wales. It is seeking views on moving the current 3 yearly valuations to every 4 years, giving funds the power to conduct interim valuations between formal valuation dates, allowing more flexibility for funds managing employer exits, seeking changes to the Regulations on the issue of exit credits and removing the requirement for further education, higher education and sixth form college corporations in England to offer new employees access to the LGPS. The consultation ends on 31 July and we will share with you our views on the questions posed in the consultation.
Are the McClouds clearing?
It’s unlikely that the uncertainty around the LGPS benefit structure due to the McCloud ruling will end any time soon but, to help funds manage this risk at the 2019 valuation, the SAB recently published a guidance note to Administering Authorities. Whilst this note provides some helpful clarity around what benefit structure to value, it does raise some other issues which funds will need to carefully consider, especially around managing cessation payments. Speak to your usual Hymans Robertson contact for further information.
Housing Association Webinar
We, together with Trowers & Hamlins LLP, are running a webinar on 6 June for Housing Associations in the LGPS. We will be discussing current hot topics to help Housing Associations better manage their pension costs and risks. Find out more here.