As the Covid-19 crisis unfolds, there could be a worrying governance and democratic deficit in some local authority pension schemes, with only 27 per cent of councils having virtual pension committee meetings.
A survey of 83 local authorities conducted on behalf of the Local Government Pension Scheme Advisory Board and the Local Government Pensions Committee of the Local Government Association showed that some councils are sluggish to adapt to the new normal, with 61 per cent of respondents not going beyond mere planning of virtual meetings.
The research, conducted in the first two weeks of May, also showed that other local authorities were delegating decisions to senior officers such as the section 151 officer, the chair and the vice-chair of the pension committee. One council delegated decision-making to the chief executive with appropriate advice from officers, while another had a Covid-19 special committee.
For those yet to set up meetings, Jeff Houston, board secretary to the LGPS Advisory Board, advised: “Share the experience of those who have already held virtual meetings to improve yours – it’s a new way of working and appears to benefit from specific protocols.”
Local authorities need to ensure that the transparency and rigour that usually accompanies decision-making is maintained
Stephen Scholefield, Pinsent Masons
Stephen Scholefield, partner at Pinsent Masons, said it was vital that local authorities “ensure that the transparency and rigour that usually accompanies decision-making is maintained”.
“That may entail ensuring that their actions are properly recorded and published on an appropriate public forum in a timely manner.”
However, most experts are not unduly alarmed at the local authorities who are slow off the mark.
Clare Scott, an independent adviser and former chief executive of the £8bn Lothian Pension Fund, noted: “Meetings tend to be planned on a quarterly cycle, and this was less than two months into the lockdown.”
Penny Cogher, partner at Irwin Mitchell, pointed out that the main local government regulations about how to manage matters with Covid-19 in terms of virtual meetings, and enabling access to the public, were only issued by the government on April 4.
Risks off the radar
Pension specialists have pointed out that more striking was the finding that to date just 51 percent of local authorities have reviewed their risk register in the light of the pandemic, with 6 councils not having any plans to do so.
“Those committees/boards/executives that have not reviewed theirs yet may well have missed the boat,” argued Andrew McKinnell, professional trustee at AML Trusteeship and Investment.
He explained this was a key task for all pension funds at the outset of the coronavirus outbreak, so that schemes could identify what specific actions were required to deal with the possible impact of the virus, such as remote working, shortage of administration resource and member communication needs, among others.
The 42 councils that indeed made changes to their risk register stated that they were paying particular attention to issues such as loss/deferred contribution income, employers exiting the scheme, reduction in investment income and staff absences.
These local authorities were also concerned about maintaining liquidity to meet projected cash flows, data flow from employers and third-party pension administrator delivery and business continuity.
Investment strategy can wait
When it comes to the investment strategy, only 16 local authorities made changes to their portfolio.
However, this did not come as a surprise to specialists, since “governance structures are generally not set up to react quickly to market movements,” said Ms Scott.
She added: “The funds who were planning to make changes to their investment strategy may well have put the changes on hold given the market uncertainty and reduced liquidity.”
Sorca Kelly-Scholte, head of Emea pensions solutions and advisory at JPMorgan Asset Management, warned schemes about mistaking “a short-term severe disruption for long-term structural change”.
“No doubt there will be some permanent change that will come from the current experience. Some companies will not survive while others will thrive, as we emerge into a post-Covid-19 world. But, overall, we do not believe long-term growth prospects have been fundamentally changed.”
Regarding administration, the vast majority of councils were not concerned about the pandemic impact on any third parties they were reliant on.
LGPS cash flow problems mount as Covid-19 crisis continues
A number of local government pension schemes face cash flow problems as a result of the coronavirus crisis, according to a recent survey.
Indeed, the comments from local authorities confirmed that the experience has been largely positive, the research stated, with many councils engaging with third-party providers and receiving assurance about service provision.
Similarly, very few authorities appeared to be revising administration budgets to deal with the current situation, with 87 per cent not making any changes.
Annemarie van Bochove Allen, principal and head of benefits and governance at Barnett Waddingham, said she was surprised by this figure, “given the data challenges that already existed within the scheme and the huge administration challenges provided by the pandemic and lockdown situation”.
