Isle of Wight Pension Fund has identified areas ripe for improvement in its governance, including more frequent funding monitoring, as local government schemes brace for next year's reforms to the sector.
The £391m scheme has undergone a governance health-check ahead of the requirements that are due to take effect from April 1 next year.
The exercise, carried out by its consultancy Hymans Robertson, benchmarked the scheme’s governance arrangements against those of other local government schemes.
It was found that the scheme monitored its funding level and checked its progress against its objectives less often than other schemes (see graphic).
Jo Thistlewood, technical finance officer, said the scheme monitors its funding in great detail every three years, while more informally reviewing it in the interim.
“We do look at that but it’s probably less formalised than it should be,” said Thistlewood. The scheme reviews its investment strategy each year – however, it would like to more closely align this with its funding level, she added.
This would help inform whether the scheme should restructure its investment portfolio rather than, for example, switching managers.
Other expected changes
In a report issued ahead of the pensions committee meeting last week, the scheme identified areas – including reviewing progress against objectives and reviewing investment and funding in isolation – that could be improved upon to become compliant with incoming LGPS rules.
“These are the areas that I have picked up on that we need to think about changing,” said Thistlewood.
The scheme’s committee will discuss how the areas can be improved upon to prepare for the new standards, she added.
While taking too much of a short-term view can be a bad thing, schemes can capture investment gains by effectively monitoring their funding levels, said Bob Scott, partner at LCP.
“It could be very powerful, as investment markets can move quite strongly over a relatively short period of time, and if you’re in a position to actually [act] when opportunities come up then pension scheme can put volatility to good use,” said Scott.
The combination of formal consolidated boards and the implementation of the defined benefit code of practice will require schemes to focus more on their governance, said Steve Simkins, head of public sector pensions at KPMG.
“The pensions code of practice... means that from 2015 there’s going to be more guidance, and you could say pressure, on LGPS to be [running] good administration and operations and making good decisions,” said Simkins.
The Public Services Pensions Act 2013 requires local government schemes to put in place a pensions board, comprised evenly between employer and member representatives.
However there is a question over whether section 101 pensions committees created by many schemes under the Local Government Act 1972 will fill the role required by the new legislation, or if schemes will need to form separate bodies with an oversight role.
