LGPS Current Issues | November 2024
Regulatory round up
LGPS Consultation – Governance proposals
On 14 November the Chancellor presented her Mansion House speech which set out plans to boost growth of the UK economy. Alongside these announcements, the Government published a consultation titled “Fit for the Future” on LGPS Reform in England and Wales.
Alongside proposals around pooling and UK investment (see earlier section), a number of proposals were included in the consultation that aligned with the recommendations from the SAB’s Good Governance Project.
In summary, the proposals include the requirement for administering authorities to:
- appoint a Senior Officer who will have overall delegated responsibility for the management and administration of the Fund,
- publish a governance and training strategy (which will include details of how knowledge requirements of officers/members will be met and also include a conflicts of interest policy),
- publish an administration strategy,
- generally, improve transparency by improving access to documents such as annual reports,
- appoint an independent pensions professional to the committee, either as an advisor or a member to support on investment strategy, governance and administration matters,
- participate in an independent governance review every two years.
Additional governance requirements are also proposed for the pools to implement around board representation and transparency and reporting.
We, like many others have been waiting for the SAB Good Governance project to be progressed towards completion and therefore welcome these developments. The timescales for ensuring compliance with the new requirements aren’t necessarily clear from the consultation (e.g. will this be aligned with the deadline for pooling?). Many of our LGPS clients have already adopted a number of the Good Governance requirements or are on the path to doing so.
At a time when the administrative/governance burden on partner funds is already high (McCloud /Dashboard/ General Code etc.) and with 2025 valuations just around the corner, it will be crucial for funds to (a) understand their current position and (b) establish action plans to ensure compliance once the new requirements are confirmed. We look forward to working with clients to support them on this journey.
One area not aligned with the Good Governance recommendations is the requirement to appoint an independent advisor to / member of the Committee. Such roles aren’t necessarily a new concept but with the greater focus on knowledge and understanding of committee members/officers, and with the role not just covering investment matters, for such roles to add value to governance arrangements it will be vital that those appointed also have the right level of LGPS knowledge to carry out the role (the consultation currently doesn’t refer to LGPS knowledge in this section).
The deadline to respond to the consultation is 16 January 2025.
McCloud remedy - various
Work continues both centrally and locally to move the McCloud remedy forwards.
Annual Benefit Statement
Following updates to Regulations in England and Wales in relation to the 2024 Annual Benefit Statements, in Scotland a consultation took place between 2 September 2024 and 28 October 2024 on the draft Local Government Pension Scheme (Remediable Service) (Amendment) (Scotland) Regulations 2024 to implement similar changes, alongside further minor technical amendments. A response to the consultation is now awaited. Further details can be found here.
Guidance, communications and calculations
On 11 October 2024, the LGA published the second version of its McCloud administration guide. This includes updates to other calculations covered by the underpin e.g. transfers in and revisiting past calculations, and updates in a number of places to ensure consistency the previously released McCloud Implementation Statutory Guidance. The guide can be found here.
In addition, a number of updated guidance materials have been produced in both England, Wales, and Scotland to help administering authorities implement the remedy, namely updated transfer guidance and Annual Benefit Statement guidance in Scotland.
Template forms have also been published to help administering authorities collect data regarding pension history for those members who are not eligible for the remedy based on their LGPS membership but may qualify from prior service in other public service pension schemes. The forms can be found here.
With regard to Club transfer quotations, the Cabinet Office confirmed in October that administering authorities can opt to extend the 12-month limit given the exceptional circumstances associated with the remedy. Administering authorities should also be aware of issues that have arisen linked to Club transfer quotations produced for eligible members of the Teachers’ Pension Scheme (TPS). TPS have now confirmed that replacement transfer out statements have been issued.
Teachers Excess Pensions
Discussions continue between LGA and representatives from MHCLG, DFE and Capita to discuss the operation of the McCloud remedy for teachers with excess services. At present, employers should be looking to validate the excess service data that TPS has supplied if they have not done so already and provide validated data to administering authorities. The next stages in the process will be for administering authorities to setup LGPS records for the members in scope and request employer/employee contributions from the Teachers’ Pension Scheme. Template forms are in the process of being agreed so these stages can be progressed.
Cyber Security – the risks remain real
There have been a number of publicised cyber attacks on local authorities in recent months, including several already in November. The risks to local authorities, and therefore to LGPS Funds, remain real and are increasing.
To ensure they are able to operate adequate internal controls to measure and manage the risks associated with cyber security, we would recommend that Funds should be looking at their own cyber security policies and procedures (and those of their host authority and 3rd parties).
One approach to managing these risks will be to test polices/response plans in a “peacetime” environment using crisis simulations and we are working closely with specialist Cyber Security colleagues from our sister company Marsh to help Funds in this area.
If you’d like further details of how we can support Funds then please refer to our recent briefing note.
Other regulatory news in brief
Change in CPI to September 2024
On 16 October 2024, the Office for National Statistics announced that the change in the rate of Consumer Price Inflation in the year to September 2024 was 1.7%. Confirmation is now awaited from Government that the increase to LGPS pensions to be applied in April 2025 (CARE pension accounts for actives, deferred pensions and pensions in payment) will be based on this figure.
Consultations and regulatory change
As we understand, following the ministerial changes, we are likely to see movement in a number of areas that have been considered previously in recent years but not moved forwards. This includes changes to historical survivor benefits, forfeiture regulations, and also New Fair Deal, the last consultation on which was back in 2019. It’s also hoped that further details around the implementation of the National Minimum Pension Age (rising to 57 from 2028 onwards) and how this impacts the LGPS (and other public service pension schemes) will also emerge, which would help with retirement and workforce planning etc. Updates on the SAB Good Governance project and also the Oasis academy consolidation consultation are also awaited.
Separation of accounts
On 12 November 2024, the Scheme Advisory Board sent a letter to the Local Government Minister to reconfirm the Board’s previous recommendation that the production of pension fund accounts for English LGPS Funds should be separate to the production of the administering authority’s main accounts and that the Kings Speech in July 2024 contained a commitment to bring forward of possible vehicles that could facilitate separation. Separation would then align with the current position in Wales and Scotland.