Archived decisions

Hampshire County Council

Pension Fund Panel

Item 8

16 November 2007

Regulations to improve the administration and governance of the Local Government Pension Scheme

Report of the County Treasurer

Contact: Ian Howell, (01962) 847540; email: [email protected]

1 Summary

1.1 Following consultation earlier in the year, the Government issued the Local Government Pension Scheme (Amendment) (No 3) Regulations 2007 in June 2007 concerning improvements to the administration and governance of the Scheme. These regulations are separate from the introduction of the `new look' Scheme which is dealt with in item 9 on this Agenda.

1.2 This report outlines the changes introduced by the regulations and the action required by the Fund. The regulations cover the Fund's governance policy statement and its compliance with best practice principles devised by the Government, the publication of an annual report and a pension administration strategy.

1 Recommendations

    a) That, the light of the Government's best practice principles for governance of the Pension Fund, no action be taken to invite admitted bodies or the education sector to nominate a representative on the Pension Fund Panel.

    b) That the role of the employees' representative be widened to include deferred members.

    c) That an independent professional observer should not be invited to join the Pension Fund Panel.

    d) That the existing pattern of twice-yearly meetings of the Pension Fund Panel be retained in preference to quarterly meetings.

    e) That the County Treasurer's response to the Government's consultation on governance compliance statements be endorsed.

    f) That, subject to any comments the Panel may have, the County Treasurer be authorised to amend the Fund's governance policy statement and draw up a governance compliance statement, as set out in this report, and submit it to the Secretary of State by 1 March 2008.

    g) That the County Treasurer be authorised to prepare a pension administration strategy following consultation with the employing authorities.

    h) That the remainder of the report be noted.

2 The regulations

2.1 The regulations cover four issues:

    · the governance compliance statement

    · the pension fund annual report

    · a pension administration strategy

    · the recovery by administration authorities of costs from employing authorities.

3 Governance compliance statement

3.1 The requirement for Local Government Pension Schemes (LGPS) to publish a governance policy statement was introduced by regulations with effect from 1 April 2006. Hampshire's statement is currently included as part of the Statement of Investment Principles (SIP). It is also published with the SIP in the Fund's annual report. The current statement is attached as Appendix 1.

3.2 The 2007 regulations repeat the 2006 requirements but with the addition that administering authorities, such as the County Council, must measure their governance arrangements against statutory guidance to be published by Communities and Local Government (CLG). Administering authorities must publish a governance compliance statement by 1 March 2008, including the reasons for any non-compliance with the guidance. The statement must be sent to the Secretary of State, as well as any subsequent amendments.

3.3 A consultation draft of the statutory guidance was issued by the CLG on 8 October 2007, for responses by 9 November 2007. The County Treasurer has written to the CLG expressing concern about this further example of prescription by the Government about the way that administrative bodies operate LGPS funds. This is inconsistent with the Government's commitment to reduce the regulatory burden on local authorities. Some specific issues have also been raised, as discussed in the following paragraphs. The letter is attached as Appendix 2.

3.4 The governance compliance statement takes the form of the following nine principles. Comments on the extent of Hampshire's compliance are included below.

Principle A - Structure

a)

The management of the administration of benefits and strategic management of fund assets clearly rests with the main committee established by the appointing council.

 

    Compliant - the Pension Fund Panel.

   

b)

That representatives of participating LGPS employers, admitted bodies and scheme members (including pensioner and deferred members) are members of either the main or secondary committee established to underpin the work of the main committee.

 

    Not fully compliant. The Pension Fund Panel includes representatives of the unitary and district councils in Hampshire, pensioners and existing contributors. There is no direct representation on the Pension Fund Panel of admitted bodies or deferred members.

    Admitted bodies are a relatively small proportion of the Fund. They account for 2.4% of contributions and 3.0% of benefits.

    The CLG suggest that a single seat on the Panel could be offered to a representative of the education sector as a whole which would cover many of the admitted bodies as well as the FE Colleges and Universities amongst the scheduled bodies.

    All employers are able to attend the Fund's Annual General Meeting at which full reports on the Fund's activities are made and questions from employers answered.

    The role of the existing employee representative could be extended explicitly to cover deferred members (ie, contributors who have left the employment of a scheme employer prior to retirement).

   

c)

That where a secondary committee or panel has been established, the structure ensures effective communication across both levels.

 

    Not relevant. Hampshire has not established any `secondary' committees. The Alternative Investment Sub-Group is an informal group of members.

   

d)

That where a secondary committee or panel has been established, at least one seat on the main committee is allocated for a member from the secondary committee or panel.

 

    Not relevant.

   

Principle B - Representation

a)

That all key stakeholders are afforded the opportunity to be represented. within the main or secondary committee structure. These include :

i) employing authorities (including non-scheme employers, eg, admitted bodies);

ii) scheme members (including deferred and pensioner scheme members),

iii) independent professional observers, and

iv) expert advisors (on an ad-hoc basis).

 

    Not fully compliant, as explained under Principle A b). No direct representation on the Pension Fund Panel of admitted bodies or deferred members. No independent professional observer, on the basis that Mr Harvey Cole would be categorised as the expert adviser. Otherwise compliant.

    The CLG's guidance draws a distinction between `independent professional observers' and `expert advisors'. The CLG say that an independent professional observer could be invited to participate in the governance arrangement to enhance the experience, continuity, knowledge, impartiality and performance of committees or panels. According to the CLG, such an appointment could improve the public perception that high standards of governance are a reality and not just an aspiration. Moreover, the independent observer would be ideally placed to carry out independent assessments of compliance against the Myners' principles, both in terms of the 2004 follow up report and the latest NAPF consultation on next steps, together with other benchmarks that the fund authority's performance is measured against. The management of risk is a cornerstone of good governance and a further role for the independent observer would be to offer a practical approach to address and control risk, their potential effects and what should be done to mitigate them and whether the costs of doing so are proportionate.

   

b)

That where lay members sit on a main or secondary committee, they are treated equally in terms of access to papers and meetings, training and are given full opportunity to contribute to the decision making process, with or without voting rights.

 

    Compliant.

   

Principle C - Selection and role of lay members

a)

That committee or panel members are made fully aware of the status, role and function they are required to perform on either a main or secondary committee.

 

    Compliant. The selection process for lay members is the remit of the bodies represented. Representatives on the Panel, once elected, are required to put the interests of the Fund and its beneficiaries before those of the individual groups or sectors they represent.

   

Principle D - Voting

a)

The policy of individual administering authorities on voting rights is clear and transparent, including the justification for not extending voting rights to each body or group represented on main LGPS committees.

 

    Compliant. All Panel members have full voting rights. The independent adviser to the Panel does not have voting rights.

   

Principle E - Training, Facility Time, Expenses

a)

That in relation to the way in which statutory and related decisions are taken by the administering authority, there is a clear policy on training, facility time and reimbursement of expenses in respect of members involved in the decision-making process.

 

    Compliant. Full training has been provided for all Panel members with ongoing opportunities to keep up-to-date. Expenses of the representatives are reimbursed where claimed.

   

b)

That where such a policy exists, it applies equally to all members of committees, sub-committees, advisory panels or any other form of secondary forum.

 

    Compliant.

   

Principle F - Meetings (frequency, quorum)

a)

That an administering authority's main committee or committees meet at least quarterly.

 

    Not compliant. Although the Pension Fund Panel meets at least four times a year, the meetings are grouped in pairs so that the Panel meets twice in May and November. This arrangement allows the consideration of business issues to be separated from meetings with the Fund's managers. Quarterly meetings between the Panel and the fund managers have not been considered necessary.

   

b)

That an administering authority's secondary committee or panel meet at least twice a year and is synchronised with the dates when the main committee sits.

 

    Not relevant.

   

c)

That administering authorities who do not include lay members in their formal governance arrangements, provide a forum outside of those arrangements by which the interests of key stakeholders can be represented.

 

    Not relevant as the Pension Fund Panel includes lay representation. Even so, an Annual General Meeting is held, open to all scheme employers.

   

Principle G - Access

a)

That subject to any rules in the council's constitution, all members of main and secondary committees or panels have equal access to committee papers, documents and advice that falls to be considered at meetings of the main committee.

 

    Compliant.

   

Principle H - Scope

a)

That administering authorities have taken steps to bring wider scheme issues within the scope of their governance arrangements.

 

    Compliant. The Hampshire Pension Fund Panel is responsible for the proper administration and management of the Fund. This includes pensions administration as well as investment matters. It is not, however, responsible for pension matters that relate solely to Hampshire County Council as an employer and these are dealt with appropriately at other meetings (eg, the Employment in Hampshire County Council Committee).

   

Principle I - Publicity

a)

That administering authorities have published details of their governance arrangements in such a way that stakeholders with an interest in the way in which the scheme is governed, can express an interest in wanting to be part of those arrangements.

 

    Compliant. The Governance Compliance Statement is published in the Pension Fund Annual Report. The process by which the Fund invites nominations for representatives on the Panel is open and transparent.

   

3.5 The main issues for consideration arising from these Principles are:

      · Should admitted bodies and/or the education sector be represented on the Hampshire Pension Fund Panel?

        Comment: There has been no demand from admitted bodies or the education sector for separate representation. The present arrangements, combined with the AGM and the Annual Report have proven satisfactory. In addition, keeping the size of the Pension Fund Panel to a practical size has also been a consideration in deciding the number of representatives.

      · Should the role of the employees' representative be extended to include deferred members?

        Comment: this would seem to be a sensible change.

      · Should an independent professional observer be appointed to the Pension Fund Panel, as described under Principle B above?

        Comment: the need for an independent professional observer is questionable. The suggestion ignores the role of the County Treasurer and his statutory responsibility to provide advice to the County Council as section 151 officer. It would not be appropriate to combine the independent professional observer role with that of the independent adviser.

      · Should the Pension Fund Panel move to a pattern of quarterly meetings, instead of `twinned' meetings twice a year?

        Comment: the Panel may not want to increase the number of meetings just to comply with the suggestion that they be held quarterly. There are rarely any `business' matters that need decision between the present half-yearly meetings. There are also advantages in seeing all the managers within one fortnight period in each of May and November. The County Treasurer meets the managers in the other quarters of February and August, and can report to the Panel if there are matters of importance that arise from those meetings.

3.6 Subject to the views of the Panel, the County Treasurer will draw up the Fund's governance compliance statement, taking account of any changes in the final version of the CLG's guidance, and forward it to the Secretary of State by the deadline of 1 March 2008.

3.7 The governance policy statement will be retained in the SIP, with the governance compliance statement added as an annex.

4 Pension fund annual report

4.1 The 2007 regulations require administering authorities to publish a pension fund annual report by 1 December of the following year, starting from 2007/08. It must contain information on:

    · the management and financial performance of the Fund

    · the Fund's investment policy and the performance of the investments

    · the arrangements for the Fund's administration

    · the actuarial position of the Fund, provided by the actuary

    · the Fund's accounts for the year

    · the extent to which the administrative authority and employing authorities have achieved performance targets set out in the Fund's pension administration strategy (see section 6 below)

    · the governance compliance statement

    · the funding strategy statement

    · the statement of investment principles

    · the communication policy statement

    · any other relevant material.

4.2 The Fund's existing annual report already covers these issues, with the exception of the pension administration strategy. This will be incorporated when the strategy has been finalised, as outlined in section 6 below.

4.3 The CLG's justification for introducing this level of prescription is that it will provide external auditors with the means to undertake separate audits of LGPS pension funds. It will also force some funds to publish an annual report that currently do not.

5 Pension administration strategy

5.1 The 2007 regulations give administering authorities the discretion to prepare and publish a local strategy plan to formalise the administrative arrangements between themselves and participating authorities. There is no target date for the publication of the strategy but, when produced, it should be forwarded to the Secretary of State and copied to each of the relevant employing authorities. In preparing or revising the strategy, the administrative authority must consult with the employing authorities and anyone else considered appropriate. The CLG plan to issue guidance on the content of the strategy but the regulations suggest the following should be considered for inclusion:

    · procedures for liaising and communicating with employing authorities

    · pensions administration performance targets for the administering and employing authorities

    · procedures for securing compliance with pensions administration requirements by all authorities

    · procedures for improving communication

    · the circumstances in which the administrative authority might give written notice to an employing authority about unsatisfactory pensions administration performance against the targets.

5.2 The employing authorities will be consulted by the County Treasurer on a draft pension administrative strategy once the CLG has published its guidance. An agreed draft will be reported to a future meeting of the Panel for approval.

6 Recovery by administration authorities of costs from employing authorities.

6.1 Administrative authorities are already able to recover contributions towards the cost of the administration of the Fund from employing authorities. The 2007 regulations extend this to include any additional costs that the administrative authority incurs because of an employing authority's level of performance in carrying out its functions under the LGPS.

Section 100D - Local Government Act 1972 - background documents

The following documents discuss facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report.

NB: The list excludes:

1

Published works

2

Documents which disclose exempt or confidential information as defined in the Act.

None.

i:\. . . .\ian\docs\penpanel 161107 governance regs.doc

      Appendix 1

Governance policy statement

As published in the Annual Report for 2006/07

1 Hampshire County Council, as the administering authority to the Fund, has delegated its functions with regard to the Fund to its Governance Committee, which in turn has delegated those functions to the Pension Fund Panel.

2 The Pension Fund Panel oversees the proper administration and management of the Pension Fund. It is responsible for:

    - appointing external fund managers and advisers

    - making suitable custody arrangements for the Fund's investments

    - considering and approving actuarial valuations every three years and determining the level of employers' contributions

    - considering changes in pension fund regulations and determining actions required

    - considering and approving strategic advice on investment policy

    - considering and approving the external managers' investment strategies

    - monitoring the investment performance of each manager against their target and benchmark, based on statistics prepared by Northern Trust

    - the periodic review of the Statement of Investment Principles, the Fund's Business Plan, its Funding Strategy Statement, this Governance Policy Statement and the Fund's Communication Policy Statement.

3 The Pension Fund Panel normally meets four times each year. There are usually two meetings in the spring and two meetings in the autumn of each year. Two of these meetings, one in the spring and one in the autumn, are used mainly for discussions with the Fund's investment managers, using a report on their strategies and performance prepared by the County Treasurer, any views of the independent adviser, and presentations prepared by the managers themselves. The other meetings are `business' meetings, where the Panel considers reports from the County Treasurer, the independent adviser and other consultants as necessary on a range of issues, for example reviews of the Statement of Investment Principles, the Fund's business plan, training matters, and proposals for scheme change.

4 The Pension Fund Panel is constituted to reflect the views of the County Council as administering authority and the largest employer with 45% of the contributing membership, the two city unitary authorities with 25% of the contributing membership, the district councils and other employers with 30% of the membership, and the Fund's pensioners and contributors themselves.

5 The Pension Fund Panel consists of:

    - nine county councillors with voting rights

    - one representative of the unitary city councils of Portsmouth and Southampton with voting rights

    - one representative of the 11 district councils in the Hampshire county area with voting rights

    - one representative of the Fund's contributors with voting rights

    - one representative of the Fund's pensioners with voting rights

    - one independent adviser/sounding board without voting rights.

Appendix 2

Letter to CLG in response to consultation on Governance Compliance Statements