The Local Government Pension Scheme (Amendment)(Governance) Regulations 2015were laid before Parliament on 28 January 2015. Issued under the Public Service Pensions Act 2013, these regulations provide the framework for the implementation in the Local Government Pension Scheme (“LGPS”) of Lord Hutton’s recommendations regarding the governance and administration of public service pension schemes. The governance regulations have been through two rounds of public consultation (for details of the initial draft, see our earlier Speedbrief, here). The final version of the Regulations is materially different in some respects from the initial proposals issued by DCLG in June 2014, and provides clarification on a number of points.
Key provisions of the governance regulations, relating to the establishment of the new local and national pension boards, will come into force from 20 February. This aims to enable LGPS funds to determine and implement their local arrangements ahead of 1 April 2015 (when the remaining provisions of the regulations will take effect).
Local and national boards
The governance regulations provide for the creation of two new types of entity:
- local pensions boards, whose role is to “assist” administering authorities to secure compliance with the LGPS regulations and other legal and regulatory requirements, and generally to ensure the efficient and effective governance and administration of the LGPS;
- a national Scheme Advisory Board responsible for providing advice to the Secretary of State on the desirability of making changes to the LGPS, and to administering authorities and local pension boards in relation to administration and management of the LGPS and its funds.
Responsibility for establishing a local pension board rests with the administering authority of each LGPS fund, as the ‘scheme manager’ under the LGPS Regulations 2013, and is mandatory, not optional.
In relation to the Scheme Advisory Board (which already exists in shadow form), this is directly established by the governance regulations themselves.
The boards are required to be established no later than 1 April 2015. The expenses of a local pension board will be an administration cost for its LGPS fund. Scheme Advisory Board costs are to be shared between administering authorities, broadly by reference to member numbers.
Membership of the new local pension boards
The governance regulations confirm details regarding the required make-up of the new local pension boards:
- As well as having equal numbers of member and employer representatives, the board must have at least two representatives in each category (four in aggregate).
- In a change from DCLG’s original proposals, elected members of local authorities may be appointed to pension boards. However, in the case of an elected member of the administering authority, such appointment may only be as an employer or member representative, and is not allowed at all if they are involved in the discharge of the administering authority’s functions under the LGPS Regulations 2013 (for example, if they are a member of a delegated pensions committee). The same restriction applies to officers of the administering authority with responsibility for pension functions. However, neither restriction applies where the board is also a section 101 pensions committee.
- In an unexpected change from the previous consultation drafts, only member and employer representatives on local pension boards have voting rights (except where the board is also a section 101 pensions committee). This means that any ‘other’ board members who are not member or employer representatives, including any independent chairperson, do not get a vote.
- Member and employer representatives must have the “capacity” to represent members / employers (as appropriate). The guidance issued by the Shadow Scheme Advisory Board (see below) indicates that the concern here is around time constraints rather than personal qualities: “It will be important to appoint members who have the time to commit to attend meetings, undertake training and effectively represent employers and members (as appropriate)”.
- The proposed requirement (in the previous consultation drafts) that member and employer representatives must have appropriate “experience” has been dropped from the final form of the governance regulations, with DCLG acknowledging concerns that this could represent a barrier to funds finding suitable candidates. The requirement for local pension board members to acquire appropriate “knowledge and understanding” of pensions matters, under the Pensions Act 2004, will remain (but can be satisfied by board members undertaking suitable training following appointment).
- There is no prescribed maximum number of members, and the original proposal that member and employer representatives (in aggregate) must constitute the majority of the local pension board has been dropped from the final regulations.
The local pension board as a section 101 committee
As anticipated, the governance regulations confirm that an existing section 101 pensions committee of an administering authority which is a local authority may also be the local pension board for its fund, but only if the administering authority obtains written approval from the Secretary of State. Such approval may be made subject to conditions, and can be revoked if those conditions are breached or if the arrangement ceases to be appropriate. It is not anticipated that this option will be widely used.
Joint local pension boards
Welcome clarification has also been provided on the question of whether administering authorities can ‘share’ a local pensions board. The governance regulations now expressly provide for a joint local pension board, but only in cases where scheme administration and management is wholly or mainly shared by two or more administering authorities. However, this requires specific Secretary of State approval (in the same way that approval is required for a local authority section 101 pensions committee to act as its local pension board). In practice, use of this new option is likely to be quite limited, and the administering authorities involved will need to give careful consideration to how a joint board will operate.
Guidance from the Shadow Scheme Advisory Board
The Shadow Scheme Advisory Board has issued detailed guidance on the creation and operation of local pension boards in England and Wales, timed to coincide with the making of the governance regulations. The guidance aims to assist administering authorities on the creation and operation of local pension boards, and is accompanied template terms of reference for a local pension board.
Although the governance provisions are those which have been most eagerly awaited, it is worth noting that the regulations also contain provisions relating to the cost control mechanisms which are to apply to the LGPS 2014. These consist of the employer cost cap (as recommended by Lord Hutton for all public sector schemes, and which applies to specific future service costs only), and the specific LGPS overall cost target. The employer cost cap is set at 14.6% of pensionable pay, but is likely to be of less interest (because of its limited scope). The overall cost target has been set at 19.5% of pensionable pay, to be met by employers and members in a 2:1 ratio.