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Law & Regulation

Just over half of LGPS have procedures for legal breaches

By Tom Dines | December 11, 2015

A little over half of public sector pension schemes have procedures set up to handle breaches of law, but experts have said scheme governance is improving markedly among local government pension schemes.

Earlier this year the Pensions Regulator released its code of practice for the governance and administration of public sector schemes.

We’ve seen gradual improvement. I think we’ll see radical improvement

Karen McWilliam, Aon Hewitt

But with swaths of reform to public sector schemes in recent years – from the switch to career-average benefit calculation to the proposed Local Government Pension Scheme pooling – it is not clear whether all aspects of the code have bedded in with schemes.

This week the regulator released the results of its ‘Public service governance and administration survey’, assessing how well local government schemes are meeting governance and administration standards.

The voluntary survey went out to all public sector schemes between July and September 2015 and 48 per cent responded, representing 85 per cent of public service scheme members.

Source: The Pensions Regulator

The regulator said: “The results of the survey show that, on the whole, public service schemes are progressing well in terms of understanding the new requirements and setting up processes.

“Respondents to the survey reported high levels of awareness and understanding of both the governance and administration requirements introduced by the acts and our code of practice.”

Identifying breaches

However, the survey showed only 55 per cent of schemes have procedures in place for identifying and assessing breaches of law. This compares with 76 per cent that have documented procedures for assessing risk and 97 per cent which have a process for monitoring contribution payments.

Ian Colvin, head of public sector benefit consultancy at Hymans Robertson, said: “Breaches are new for public sector schemes. I think it’s something they’re coming to terms with.”

He added that the biggest challenge for LGPS funds was the data standards.

S.Yorks misses admin deadline as pressure rises on LGPS 

South Yorkshire Pensions Authority members received their annual statements late this year as the fund is struggling with the increased workload and an administration overhaul. A challenging backdrop of wider fundamental reform across the LGPS adds pressure on schemes, which have limited or decreasing resources to deal with the new requirements.

A spokesperson for the regulator said: “Given the importance of these reforms, schemes must be governed and administered in accordance with the requirements of the law... We expect all schemes to assess themselves against the new legal requirements and the standards we set out in the code.”

The spokesperson added the regulator would work with schemes and pension board members who failed to comply in the early stages, but said where schemes did not fulfil their responsibilities “we will consider our enforcement options.”

“The data requirements have a pretty high bar,” Colvin said, adding that the requirements had come at a time when the LGPS was increasing in complexity with the move to career-average and increasing numbers of employers are joining the schemes.

Colvin said schemes should follow the code of practice, but while doing so should keep the spirit of the code in mind.

“You shouldn’t lose sight of why you’re doing these things,” he said. “It’s not box-ticking.”

However Karen McWilliam, head of public sector benefits at consultancy Aon Hewitt, said it was likely much of the public sector has improved significantly since the survey was completed.

“If they re-did it now I think it would show considerable improvement,” she said. “I’ve seen a lot of work in areas from the code of practice. We’ve seen gradual improvement. I think we’ll see radical improvement.”

One explanation she gave as to why schemes were not fully up to date yet was that they were “still recovering” from the implementation of the switch to career average, at the same time as facing up to the need for guaranteed minimum pension reconciliation exercises.

The most helpful thing public sector schemes can do, McWilliam said, is to conduct self-assessment against the code of practice.

“We’ve gone through a self-assessment against the code with the schemes we work with. It’s given them assurance on the areas they’ve got right and lets them know where they need to improve.”

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