Local Government Pension Scheme
(Scotland) New Governance
Arrangements
Discussion paper
FINAL Version 1.0 – 23 December 2013
1
Contents
How to Respond
3
Introduction
4
Part 1 - Scheme Manager
5
Part 2 - Pension Board
5
Implementation
6
Membership of Pension Boards
9
Accountability of the Board
11
Training and Qualifications
11
Part 3 - Scheme Advisory Board
12
Membership
12
Implementation
13
Shadow Advisory Board
16
Resourcing of the Advisory Board
17
Constitution
18
Part 4 – Review of the Structure of the Scottish LGPS
18
General
19
Conclusion
19
List of Questions
20-21
Consultation response form
22
Heads of Agreement
24
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How to respond
You should respond to this discussion paper by Monday 3 February 2014
You can respond by email to; locgovpensionsreform@scotland.gsi.gov.uk
When responding please ensure you have the words “Scheme governance
discussion paper” in the email subject line.
Alternately you can write to:
Kimberly Linge, Policy Manager, Local Government Pension Scheme, Scottish
Pensions Agency, 7 Tweedside Park, Tweedbank, Galashiels, TD1 3TE.
When responding, please state whether you are responding as an individual or
representing the views of an organisation. If responding on behalf of an organisation,
please give a summary of the people and organisations it represents and, where
relevant, who else you have consulted in reaching your conclusions.
Introduction
The Public Service Pensions Act 2013 includes several key provisions relating to
the administration and governance of the new public service pension schemes
established under Section 1 of the Act. In the case of the Local Government Pension
Scheme in Scotland, these arrangements will apply to the new Scheme which comes
into effect on 1 April 2015.
This paper explores four specific sections of the Act which impact on the governance
arrangements in the new Scheme:



Scheme manager
Pension board
Pension board information, and
Scheme advisory board
Each section includes background and a more detailed summary of what we are
required to include in the new Scheme to comply with the Act. Where appropriate,
the paper also invites comment on consequential issues. Responses to the
questions posed throughout the paper will enable us to start work on preparing draft
regulations on governance for consultation early in 2014.
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Part 1 -“Scheme manager”
1.1 Section 4 of the Act requires the new Scheme regulations to provide for a person
(“the scheme manager”) to be responsible for managing or administering the
Scheme. The term “person” is not to be taken literally. In the Local Government
Pension Scheme (Scotland), the “scheme manager” for the purposes of Section 4
will be each of the individual Scheme administering authorities in Scotland.
Part 2 - “Pension board”
1.2 Section 5 of the Act requires the new Scheme regulations to provide for the
establishment of a board with responsibility for assisting the scheme manager, or
each scheme manager, in:a) securing compliance with the scheme regulations and other legislation
relating to the governance and administration of the scheme and any
statutory pension scheme connected with it;
b) securing compliance with requirements imposed in relation to the scheme
and any connected scheme by the Pensions Regulator, and
c) such other matters as the scheme regulations may specify.
1.3 In making these regulations, Scottish Ministers as the “responsible authority”,
must have regard to the desirability of securing the effective and efficient governance
and administration of the Scheme and any connected schemes.
1.4 Regulations will also need to include provision requiring each scheme manager
to be satisfied that a person to be appointed as a member of a pension board does
not have a conflict of interest, either at the outset, or from time to time. Section 5(5)
of the Act defines “conflict of interest” as any financial or other interest which is likely
to prejudice the person’s exercise of functions as a member of the board, but does
not include a financial or other interest arising merely by virtue of being a member of
the Scheme.
1.5 Scheme regulations will also need to require any person appointed to the
pension board or proposed to be appointed, to provide information that can
reasonably be requested by the scheme manager to determine whether or not a
conflict of interest exists.
1.6 By virtue of Section 5(4)(c), the regulations will also need to ensure that each
pension board includes employer representatives and member representatives in
equal numbers. Under the Act “employer representatives” means persons appointed
to the board for the purpose of representing employers for the Scheme and “member
representatives” means persons appointed to the board for the purpose of
representing members of the Scheme. In this respect, it is noted that the Act permits
nominations for scheme member representatives to come from trades unions or from
members who are not members of trades unions.
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1.7 Under Section 5(7) of the Act, where the scheme manager is a committee of a
local authority, Scheme regulations may provide for that committee also to be the
board for the purposes of Section 5.
1.8 Scheme regulations will also need to include provision for each scheme
manager to publish information about the pension board and to keep that information
up to date. This information includes who the members of the board are;
representation on the board of members of the scheme and the matters falling within
the board’s responsibility.
Implementation
1.9 It is clear that the new Scheme regulations will need to require each scheme
manager/administering authority to establish their own pension board.
1.10 To comply with Section 5 of the Act, the new Scheme regulations will need to
include the role of each pension board to assist the scheme manager/administering
authority in securing compliance with scheme regulations
and other legislation;
with the Pension Regulator’s codes of practice and with any other matters specified
in Scheme regulations.
Q1. What “other matters”, if any, should we include in Scheme regulations to
add to the role of local pension boards?
Comments:
We are of the view that the Public Service Pensions Act 2013 (the “Act”) creates a degree of
confusion in seeking to address the issues of employer/member representation and
independent governance/compliance of the Scheme Manager in a single Pensions Board. We
view these as quite distinct areas, with scheme governance essentially being separated into
(1) strategic decision making/operation (administrative authority/scheme manager, including
an appropriate active role from stakeholders), (2) stakeholder representation and visibility,
and (3) external and detailed scrutiny/regulation of the Scheme Manager’s compliance. Each
of these areas necessarily requires a degree of separation and, in particular, different levels
of knowledge, skill and expertise for those responsible for the different roles. Therefore it is
not necessarily competent to combine these roles into a single body where regulation will
impose a meaningful obligation on the members of, say, the Pension Board to perform a
distinct function and so be an effective form of scrutiny. The regulations therefore need to
ensure clarity in relation the roles and duties of the various bodies that the Act is seeking to
introduce and ensure that the structures are simple and effective. The regulations also
therefore need to recognise the importance of accountability, transparency and appropriate
levels of active representation of employers and members.
The function of the Pensions Board should be restricted to reviewing the activities of the
Scheme Manager (the decision making body) to assist it in complying with the applicable law,
regulation and codes of practice. It is important that this function remains separate from the
decision making function and so we do not anticipate the role of the Pensions Boards
extending to any other matters, except that would be consistent with the Pension Boards’ role
in assisting the Scheme Manager in complying with the regulations and the requirements of
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the Pensions Regulator.
The Pensions Board could have a role/responsibility to raise any material and persistent noncompliance directly with the Pensions Regulator, an obligation which might make it a more
effective body, should regulation seek to impose a meaningful obligation on its compliance
role. This would be less appropriate where the regulations do not seek to impose obligations
on the members of the Pensions Board in relation to its compliance role beyond that of simply
assisting the Scheme Manager.
1.11 There is a requirement for scheme managers/administering authorities to check
that no person appointed to the board has any conflict of interest as defined in the
Act and also to undertake regular checks;
Q2. Should Scheme regulations make it clear that nobody with a conflict of
interest, as defined, may be appointed to or sit on a pension board?
Comments:
In principle, the Scheme regulations should mirror the Act, although we note that there is an
inherent conflict of interest in having the Pensions Board comprised of member, employer and
Scheme Manager representatives that already sit on the decision making boards, pensions
committees, consultative panels and other bodies of the Scheme Manager (as the decision
making entity). Given this, we would recommend that regulations should require members of
the Pensions Board to declare any interests at each meeting and that, where an interest is
declared, then that member would be excluded from voting on any related matter.
Where the role of the Pension Board is limited to providing more technical/neutral advice on
compliance with law and regulations (as distinct from strategic and operational decision
making) there is less scope for conflicts to arise, albeit the need for a mechanism for
declaring conflicts remains important in ensuring that the Pension Board operates in a neutral
manner.
The Scottish Ministers could produce guidance around the determination of a conflict of
interest, to assist with the consistency of application across the Scottish Scheme Managers.
1.12 There is a provision requiring a member of the board or person proposed to be
a board member to provide whatever information about conflict of interest that the
scheme manager/administering authority reasonably require.
Q3. Should Scheme regulations prescribe the type of information that may be
“reasonably required”?
Comments:
We do not believe there is any need to address this in more detail in the regulations.
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Q4. Should Scheme regulations prescribe the requirement for
managers/administering authorities to undertake regular checks to ensure
board members do not have any conflicts of interest?
Comments:
We believe that the Act itself would sufficiently cover this in conjunction with a provision in the
regulations requiring Pension Board members to declare any interests at meetings of the
Pension Board and fully report the matters under consideration/outcomes from such meetings
(including any declared conflicts) to the Scheme Manager.
Please also see our response to questions 1 and 6.
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1.13 There is a requirement that each pension board must include employer
representatives and member representatives in equal numbers.
Q5. Although not required by the Act, should Scheme regulations prescribe a
minimum number of employer and employee representatives?
Comments:
See our response to question 1. We believe that member and employer representation is
more appropriately dealt with by having active participation in the decision making body of the
Scheme Manager and (separately) a consultative/observer role for the wider member and
employer groups, rather than being associated with a Pensions Board who’s primary role is
that of compliance for the benefit of stakeholders (as distinct from compliance by
stakeholders). Also, the role of a Pension Board member may be technically onerous and
require an increased level of knowledge, skill and expertise in advising on the Scheme
Manager’s compliance with the pension regulations and other applicable law and codes of
practice. Where there is a meaningful regulatory obligation on members of the Pensions
Board to provide this function, member and employer representatives may not be comfortable
carrying out this role without support from other members with the necessary expertise. With
that in mind, we do not believe there should be a minimum number of employer and
employee representative and that this should be left to local discretion. The different profiles
of the Scottish LGPS Funds, in terms of their respective employer bodies, would also support
the need for flexibility in this area.
We also believe that the Act is quite clear on requiring equal representation of employer and
member representatives, as between themselves, but otherwise flexibility on the constitution
of the numbers of the board. There does however appear to be a degree of confusion on this
point in terms of some reading the Act as requiring equal membership for employer and
member representatives on the entire Pensions Board (e.g. 50:50 as between employer and
member reps and the rest of the board members). We would view that as an incorrect
interpretation of the Act and were the legislation to have had this effect it would be in direct
conflict with local government legislation (as regards a combined Pensions Committee/Board)
which requires at least two thirds of the membership of local authority committees to be
comprised of Councillors.
1.14 Section 5(7) of the Act would allow the new Scheme regulations to permit a
committee of a local authority to also be the local pension board. This option was
deliberately left open in the Act to ensure that a proper discussion of the issues with
all interested parties could be undertaken.
1.15 The argument for and against separate bodies is finely balanced. Those who
support the committee and pension board being one and the same body argue that
local government cannot afford to spend more time and money setting up new
bodies, particularly when the function could easily be undertaken by existing pension
or investment committees. Others argue that a statutory decision making committee
is in no position to fulfil the clear scrutiny role set out in the Act. It cannot, in effect,
scrutinise itself and be in a position to assure the scheme manager that it is
complying with all relevant legislation and Pension Regulator’s codes of practice.
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1.16 Whilst we are seeking your views on the status of local pension boards and
statutory committees, it is likely that Scheme Regulations will require that the final
outcome must be applied consistently across the Scheme as a whole, i.e. all pension
boards will either be combined or separated from statutory committees.
Q6. How should the governance of the local government pension scheme in
Scotland change to incorporate the changes required by the Act?
Comments:
We attach a diagram setting out the current LPF governance structure and stance on the
separation of roles. Subject to our responses to Question 30 of this consultation, we are of the
view that we adequately address active stakeholder participation and transparency and so do
not anticipate any pending change to our structure in that regard generally or to
accommodate the requirements of the Act.
In particular, where the intention is for the Pensions Board to only have a very general role in
assisting in compliance, we would look to make minimal changes (perhaps even weighing up
the merits of a combined Pensions Committee/Board as against the potential for conflicts and
a the possibility of an increased knowledge and skills obligation on all the members of the
Committee as a result) to ensure that we were not compromising the effectiveness of our
existing structure with unnecessary duplication.
The attached slides also show how we might adapt our current structure to the Act if the
Pensions Board is, however, given a regulatory mandate to scrutinise compliance by the
Scheme Manager. This proposal would involve a small number of representatives of each of
the employer and member groups to be joined on the Pension Board by certain number of
independent members with the appropriate expertise. Necessary pensions expertise/resource
could be procured/trained by Funds on a collective/national basis and so available to multiple
funds’ Pension Boards, which would also assist in adopting a consistent approach across all
Scottish funds and likely generate cost efficiencies. The resource may also be able to have a
role in supporting the National Scheme Advisory Board.
Q7. Should the new Scheme regulations require local pension boards to be a
body separate from the statutory committee or for it to be combined as a
single body?
It would be helpful if you could provide the reasons which support your
answer.
Comments:
As above, if the Pensions Board was conceived as a body with meaningful regulatory
obligations to scrutinise compliance by the Scheme Adviser, this would necessarily require
the Pensions Board to be a separate body with members with sufficient knowledge, expertise
and skill to carry out this role. In such circumstances, it would not be appropriate to combine a
statutory committee of the Scheme Manager with the Pensions Board. These functions need
to have separation in order to be effective and the Pensions Board must be sufficiently
independent and will likely require to include members with increased levels of technical
knowledge and expertise (e.g. applicable law, regulation and codes of practice) in order to
properly fulfil its function.
However, where the remit of the Pensions Board was limited to assisting the Scheme
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Manager with compliance without any material regulatory obligations of scrutiny/reporting, we
would not view this as a body sufficiently incentivised by regulation to provide an enhanced
compliance function (not already dealt with in our current structure) and so would look to
make minimal adjustments to our existing structure to accommodate the Pensions Board,
rather than committing further resource to operating an otiose body which might not make any
meaningful improvements to our existing structure and which may create more confusion and
be a drain on valuable resource.
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Membership of Pensions Boards
1.17 Apart from requiring equal numbers of employer and scheme member
representatives and the restriction on conflicts of interest, the Act is silent on key
issues of the pension board including, for example, membership, constitution,
frequency of meetings, the nomination process and training.
Q8. To what extent should the new Scheme regulations specify the types of
members of the pension boards?
Comments:
The Pensions Board should comprise of members with sufficient levels of knowledge and
expertise in order to properly fulfil its function as set out in the Act and any further regulation.
This could itself be included as a requirement in such regulation. We do however note that
this provision could refer to a requirement for the Pensions Board collectively to have the
necessary expertise, so that there is scope to cover off the various technical knowledge and
skills between the members, rather than imposing an unrealistic standard on each individual
member. This general obligation in the Act and regulations would be sufficient and we do not
think there should be any further regulation specifying the types of members on the board.
This could however be dealt with in a single guidance document provided by Scottish
Ministers.
Q9. How should the Pension Boards be chaired?
Comments:
The Scheme Managers should have the flexibility to adopt their own constitution for the
Pensions Board rather than incorporate this into the regulations, particularly as we anticipate
that this will be a body with a neutral/technical advisory function and not a decision making
function. The Chairman would also have the usual role in leading the meetings, considering
conflicts of interest that are declared etc. and we note that Funds could opt to include an
independent chairperson to reinforce the effectiveness/neutrality of the Pension Boards
function.
The overriding obligation on the members in the Act and any regulations to perform their
function should be sufficient to ensure that the Scheme Manager establishes a Pensions
Board with a constitution that is fit for purpose.
Q10. What should happen in the event of a tied vote at a Pensions Board?
Comments:
See response to Question 9 – this should be left for the constitution of each Pensions Board
but would commonly be addressed by the Chairman having a casing vote. We do not think
this needs to be included in the regulations.
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1.18 The appointment process should be clear and transparent to ensure
accountability of the board.
Q11. To what extent should the new Scheme regulations specify the manner in
which members of the pensions boards are selected?
Comments:
See response to Question 9 – this should be left for each Scheme Manager to determine. We
do not think this needs to be included in the regulations.
1.19 Guidance currently sets best practice for funds to include representatives of
participating employers, admitted bodies and scheme members (including pensioner
and deferred members) in their governance. However the pension board will
compel member and employer representation.
Q12. Should the introduction of the pension board affect employer and
member representation in other parts of funds’ governance? If yes, how?
Comments:
No. The Pensions Board is a body with a primary function to assist the Scheme Manager on
compliance, it is not a decision making body. Member and employer comfort should come
from the Pensions Board carrying out its role to the best possible standard. As above, the
question of employer and member representation in the decision making function of LGPS
funds is an entirely separate question and should focus on the Scheme Managers and
employer/member representation on its bodies. See also our responses to question 30, in
terms of the wider structural change of the LGPS.
As set out in our response to questions 1 and 5 above, Lothian Pension Fund already has
employer and member representatives with voting rights on our Pensions Committee and
operates a consultative panel comprising 12 employer/member representatives which attends
all meetings of the Pensions Committee. This ensures that our employers and members not
only have an active say in the strategic operation of the fund, but also have full visibility of the
detailed decisions taken at the main decision making arm of the Administering
Authority/Scheme Manager. Subject to our responses to question 30, we therefore do not
anticipate the need for any changes to our governance on this front and, in any event, view
this as quite a separate matter to the compliance function of the Pensions Board.
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Accountability of the Board
1.20 Under Section 6(1) of the Act, Scheme regulations will require scheme
managers / administering authorities to publish certain membership details of their
local pension board. Given that the main function of the board will be to assure the
scheme manager/administering authority that those to whom they have delegated
the pensions function are complying with legislation and codes of practice, there is a
case for the new Scheme regulations to also require each board to publish an annual
report summarising its work.
Q13. Should the new Scheme regulations include a requirement for each local
pension board to publish an annual statement of its work and for this to be
sent to the relevant scheme manager, all scheme employers, the scheme
advisory board and Pensions Regulator?
Comments:
We agree that a summary statement should be prepared.
It is suggested that such a summary statement could be included in the Pension Fund Annual
Report and so publically accessible to all the interested parties.
It is proposed that further guidance could be issued, as part of a single guidance document on
the Pensions Board, to promote consistency.
Training and qualifications
1.21 Paragraph 14 of Schedule 4 of the Act amends Section 90 of The Pensions Act
2004 and requires the Pensions Regulator to issue various codes of practice,
including one on the requirements for knowledge and understanding of members
appointed to pension boards of public service pension schemes.
1.22 Scottish Ministers, together with other interested parties, are being consulted on
the content of this and other codes of practice and this ought to be sufficient to
ensure that the specific circumstances of the Local Government Pension Scheme in
Scotland and the role of new local pension boards can be taken into account.
Q14. Apart from the training and qualification criteria that may be covered by
the Pensions Regulator in a code of practice, are there any specific issues that
we should aim to cover in the new Scheme regulations as well?
Comments:
No, the general obligation in the regulations that the members of the Pensions Board should
have sufficient knowledge, skill and expertise to fulfil the function of the board as set out in the
Act would be sufficient. More detail would be helpful, but should be restricted to codes of
practice and/or guidance.
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Part 3 – “Scheme advisory board”
1.23 Section 7(1) of the Act will require Scheme regulations to provide for the
establishment of a board with responsibility for providing advice to Scottish Ministers,
at their request, on the desirability of changes to the Scheme.
1.24 For locally administered schemes, like the Local Government Pension Scheme
in Scotland, where there is more than one scheme manager, Scheme regulations
may also provide for the board to provide advice (on request or otherwise) to the
Scheme managers or the Scheme’s pension boards, in relation to the effective and
efficient administration and management of the Scheme or any pension fund of the
Scheme.
1.25 Under Section 7(4), Scheme regulations will need to apply the same provisions
relating to conflicts of interest to the scheme advisory board as described at
paragraph 1.18 above, except that it will be for Scottish Ministers to consider and act
on actual cases.
Membership
1.26 As Section 7 of the Act makes no provision for membership of the scheme
advisory board, it will be for Scheme regulations to make such provision. This could
be achieved in a number of different ways, for example:



The Scottish Local Government Pensions Advisory Group (SLOGPAG),
could consider and make recommendations to Scottish Ministers relating
to the number of members, where those members should be drawn from
and the balance of membership across the representative areas e.g.
employer and employee representatives;
Scottish Ministers could appoint a small membership panel whose remit
would be to nominate and appoint initial members of the board, including
the Chairperson;
The membership profile of SLOGPAG could be carried forward.
Implementation
Scope/role
1.27 Section 7(1) of the Act defines the scope and role of the scheme advisory
board in the widest possible terms (see paragraph 1.23 above). Replicating the
wording of the Act in Scheme regulations would be advantageous in terms of
allowing the work of the scheme advisory board to evolve without the need for
regulatory amendments, but equally, there may be merit in clearly defining certain
areas of work, for example, making recommendations to Scottish Ministers on cost
management proposals.
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Q15. Should Scheme regulations simply replicate the wording of the Act? If
not, what specific areas of work should the new Scheme regulations
prescribe?
Comments:
We believe the Scheme Advisory Board should continue to have a broad remit in overseeing
the Funds collectively and reporting to the Scottish Ministers, provided that they are duty
bound to take into account the advice of the Pensions Boards of the Scheme Managers and
have appropriate membership to carry out this role (see below). Members of the Scheme
Advisory Board should also be required to have the requisite knowledge, skills and expertise
to undertake their role.
We also believe that, in addition to advising the Scottish Ministers, the Scheme Advisory
Board could have a role in liaising with the Pensions Regulator. This could be built into the
regulations, thereby placing a formal onus on this body to act in an effective and pro-active
manner and be a meaningful conduit between the Scheme Managers and the Pensions
Regulator (given the likely resource issues that the Pensions Regulator will face in actively
regulating the LGPS in Scotland) and SPPA’s view that it does not wish to take on any
regulatory function.
We are also of the view that the remit of the Scheme Advisory Board should be clearly
delineated and should not extend to any involvement in the decision making role of the
Scheme Manager.
1.28 Section 7(1) of the Act provides that the scheme advisory board is responsible
for providing advice to Scottish Ministers, as the responsible authority, at their
request. It has been suggested that Scheme regulations include a requirement the
advisory board to advise Scottish Ministers on the desirability of changes to the
Scheme.
Q16. Should Scheme regulations include a general provision enabling the
scheme advisory board to advise Scottish Ministers on the desirability of
changes to the Scheme as and when deemed necessary?
Comments:
Yes, provided that (i) the Scheme Advisory Board’s membership is such that it properly takes
into account the views of the Scheme Managers and their Pensions Boards and the Pensions
Regulator, and (ii) that such advice is given having consulted with the Scheme Managers.
Q17. Are there any specific areas of advice that Scheme regulations should
prohibit the scheme advisory board from giving?
Comments:
Nothing specific, but (as above) there requires clarity around lines of communication,
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accountability and responsibility in relation to the Scheme Advisory Board, its membership
and constitution and how it interacts with the other parties involved with the LGPS in Scotland
(e.g. Pensions Regulator, Scheme Manager etc.). This could most simply be dealt with by
ensuring the membership of the Scheme Advisory Board is appropriate (see below).
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Q18. What would be your preference be for establishing membership of the
scheme advisory board?
Comments:
We do not believe that it is appropriate to carry forward the current SLOGPAG membership
into the new Scheme Advisory Board.
It is suggested that SLOGPAG could be given the responsibility for considering and making
recommendations in relation to establishing membership of the Scheme Advisory Board,
however this proposal must involve wide ranging engagement and consultation with all
stakeholder groups
We believe that the membership could comprise representatives from:
-
The Pensions Regulator (1)
The Scottish Ministers (1) (in a capacity as an Observer)
The Pensions Boards (4) (by rotation)
Employers (2) (by nomination/election)
Members (2) (by nomination/election)
Independent Experts (2)
Whichever manner the membership is established, the members appointed must be subject
to the sufficient knowledge, skills and expertise standards to enable them to effectively
perform their role on the Scheme Advisory Board.
Q19. Should Scheme regulations require the Scottish Ministers to approve any
recommendation made for the position of Chair?
Comments:
No.
Q20. Should Scheme regulations prescribe tenure of office? If so, what should
the maximum period of office be and should this also apply to the Chair of the
board?
Comments:
No. It is recommended that this is included in the constitution of the Scheme Advisory Board
(see above) and should be determined as part of the consultation to agree that.
The constitution should prescribe sensible tenures for the Board membership and reflect the
knowledge, skills and expertise standard. We would anticipate that the different
representative groups would require their own rights and process to nominate, remove and
hold accountable their own representatives (e.g. members, employers, Pensions Boards (by
rotation) etc.).
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Q21. Should Scheme regulations make provision for board members,
including the Chair, to be removed in prescribed circumstances, for example,
for failing to attend a minimum number of meetings per annum? If so, who
should be responsible for removing members and in what circumstances
(other than where a conflict of interest has arisen) should removal be sought?
Comments:
As above, the representative groups should each have the right to appoint and remove their
members on this board in line with their own requirements and interests, but there should be
a general power for members to be removed by a vote of the Scheme Advisory Board if that
member is not seen to be carrying out its role (whether through non-attendance or lack of
requisite knowledge and understanding etc.) as the Scheme Advisory Board must be able to
continue to effectively carry out its role, notwithstanding that interest groups have the right to
elect the members to that body.
Q22. Should Scheme regulations prescribe a minimum number of meetings in
each year? If so, how many?
Comments:
This should be included in the constitution of the Scheme Advisory Board (see above).
We would recommend a minimum of 2 meetings per year, but would not anticipate the role of
the Scheme Advisory Board involving too many more meetings on an annual basis (except
perhaps in the years of the cost cap mechanism review or annual valuation).
Q23. Should Scheme regulations prescribe the number of attendees for the
board to be quorate? If so, how many or what percentage of the board’s
membership should be required to be in attendance?
Comments:
This should be included in the constitution of the Scheme Advisory Board (see above).
We would recommend a minimum of one per interest group for the meeting to be quorate
(see suggested groups in question 18).
Q24. Rather than make specific provision in Scheme regulations, should the
matters discussed at Q16 to Q23 be left as matters for the scheme advisory
board itself to consider and determine?
18
Comments:
As above, we believe that SLOGPAG should be given the initial role to propose the
constitution and membership profile of the Scheme Advisory Board for wide ranging
stakeholder engagement and consultation.
The constitution would ideally be approved by the Scottish Ministers, the Pensions Regulator
and at least 75% of Scottish LGPS funds (with appropriate consultation with, and taking
account of the views of, their employer and member representatives). This general control
should be prescribed in the regulations.
Shadow Advisory Board
1.29 The Scheme Advisory Board will be established from 1 April 2015 and the
establishment of a Shadow Scheme Advisory Board will be kept under review, but
such a Shadow Scheme Advisory Board is anticipated to be beneficial from Autumn
2014 onwards.
1.30 In the period until the Board (or Shadow Board) is established, SLOGPAG will
review the governance arrangements within its agreed remit of developing a new
Scottish LGPS. Topics for consideration will include, but are not limited to:
a. The structure of the 4 governance related roles identified by the Public
Service Pensions Act 2013
b. The membership and constitution of the Scheme Advisory Board
c. Operation of the cost control mechanism
d. The requirements of the Pensions Regulator
e. Publication of scheme information
f. Relevant provisions in the Institutions of Occupational Retirement
Provision (IORP)
g. Data collection
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Q25. What other specific issues should SLOGPAG consider prior to the Board
being established?
Comments:
In particular there is a need to gain clarity, and a consistent view, on what this process is
seeking to achieve (i.e. a focus on governance and compliance), address certain common
misconceptions that have been apparent in the discussions and finalise the structure and
roles of the Pensions Board, Scheme Manager and Scheme Advisory Board proposed by the
Act and their inter-relationship with each other.
Thereafter, the priority will be to gain clarity and agreement on the membership, remit and
constitution of the Scheme Advisory Board. Any shadow board needs to properly reflect this
agreement, otherwise the establishment and operation of a shadow board would simply be an
unnecessary distraction and drain on valuable and limited resource.
Once the membership of the Scheme Advisory Board is established the focus needs to be on
securing the appropriate level of knowledge and understanding of the members ahead of the
April 2015 commencement.
Q26. Under what circumstances should a Shadow Board be established prior
to April 2015?
Comments:
The priority should be in finalising a workable governance structure to be implemented for
April 2015 (see above) rather than distracting the process with the establishment of a shadow
advisory board prior to this – given limited time and resource.
Resourcing of the Advisory Board
1.31 If the scheme advisory board is to undertake its full range of duties effectively, it
will need to have access to finance for example to pay for secretarial services and
the necessary advice or analysis on which to base its decisions.
1.32 It is proposed this is regarded as an administration cost and therefore payable
by the individual pension funds.
Q27. Do you agree that the scheme advisory board should be funded by a
mandatory levy on all Scheme pension fund authorities? If not, what
alternative approach would you propose?
20
Comments:
A consistent approach should be adopted in funding the Scheme Advisory Board for the
LGPS (Scotland) as for the advisory boards for other Public Sector Pension Scheme Advisory
Boards (in terms of government/stakeholder funding).
Subject to that consistency, we believe a low level administrative levy should be applied
consistently to all LGPS funds and there may be scope for certain larger costs/expenses to be
levied on an ad hoc basis and borne in proportion to fund size (should the scheme advisory
board deem that demonstratively fair and equitable). However the Scheme Advisory Board
must ensure the funding provided from the LGPS Funds is utilised in a transparent and value
for money manner in the best interests of the LGPS funds collectively.
There should be an annual review/report/audit on the spending of the Scheme Advisory
Board to ensure its financial accountability.
Please use this space for additional comments
Q28. How should the subscription vary by fund? Should it be a fixed fee for all
funds or proportional to their membership?
Comments:
See answer to question 27 above.
Constitution
1.33 The Act requires the setting up of the scheme advisory board but not the
manner of its legal constitution. This would imply some form of body corporate to be
set out in scheme regulations. Beyond setting out the corporate status of the board,
scheme regulations would also need to spell out the personal liability protection for
board members.
Q29. What would be your preferred manner of legal constitution of the scheme
advisory board and how should Scheme regulations deal with the issue of
personal liability protection for board members?
Comments:
The constitution of the Scheme Advisory Board should be established to enable it to efficiently
and effectively deliver a clear and focused function. Please see our response to Question 24.
The members of the Scheme Advisory Board should act with the benefit of taking proper
advice and should only be liable if they have acted in a negligent manner either without the
benefit of such advice or at odds with such advice. The body should retain appropriate liability
insurance.
Part 4 – “Review of the Structure of the Scottish LGPS”
21
1.34 The Heads of Agreement includes the commitment for SLOGPAG or the
Shadow Scheme Advisory Board, as appropriate, to establish a process,
commencing April 2014, to consult on, and collate data relevant to, a review of the
structure of the Scottish LGPS, in order for the Scheme Advisory Board to be in a
position to complete such a review.
Q30. What factors should be taken into account in a review of the structure of
the Scottish LGPS?
Comments:

Clarity and agreement on the objectives of the review of the structure of the Scottish
LGPS is essential to its success.

In particular, there needs to be clarity in relation to the duty of the Scheme Manager
(e.g. its fiduciary duty to members, employers and taxpayers) and how this should be
managed and/or how structural change could make the duty of the Scheme Manager
clearer and more workable. Related to this, the issues around certain conflicts which
might arise from the Administrative Authority/Scheme Manager being a single legal
entity but performing different functions that are the subject of conflicting
statute/regulation (e.g. separate legal distinction in relation to the administering body
of the pension funds, which could be achieved within the administering body) need to
be considered and addressed. This conflict also manifests itself in the current
requirement for a two thirds majority of local authority Councillors on Pensions
Committees, where that local authority in particular might not have an equivalent
stakeholder interest, which can artificially skew the representation in favour of the
Administering Authority/Scheme Manager. It is however important to also recognise
that Councillors are elected members with expertise in decision making roles and
boards do not always wholly comprise of stakeholder representation. We are generally
comfortable that our Pensions Committee, and wider structure, adopts a neutral role
(mindful of its separate regulation and duties), but that is not to say the current
regulation and structure of the LGPS support these essential principles of good
governance. Stakeholder participation at Administering Authority/Scheme Manager
level in Scotland varies.

Timescales for the review/any structural change need to be realistic and reflect the
other significant pensions’ management burdens and delivery requirements that are
currently impacting on the Scheme Managers.

Consistency of data, particularly on investment costs, is a significant issue that needs
to be addressed in order to make the appropriate informed decisions.
General
1.35 The current LGPS (Scotland) Regulations have a light touch’ on governance,
instead they refer to the Governance Compliance Statement. This allows for
changes in governance arrangements to be made without having to amend existing
regulations.
22
Q31. Would it be preferable to retain a ‘light touch’ to governance in the
Scheme regulations, with reference instead to a Governance Compliance
Document which would contain the detailed governance requirements?
Comments:
Yes, within reason, however the new bodies to be introduced by the Act will require some
general principle based regulation in order for them to be effective (as above).
However a single source of guidance from Scottish Ministers on the areas referred to herein
(among others) would be welcomed.
Conclusion
1.36 Scheme governance has a critical role in supporting the delivery of excellent
LGPS performance and open and transparent governance arrangements have long
been encouraged and supported in Scotland. We would strongly encourage you to
consider this paper carefully and to respond to as many of the questions as you see
fit. Your contribution will be of great assistance in helping us to prepare a set of draft
regulations on Scheme governance for formal consultation.
23
List of Questions
Q1. What “other matters”, if any, should we include in Scheme regulations to add
to the role of local pension boards?
Q2. Should Scheme regulations make it clear that nobody with a conflict of interest,
as defined, may be appointed to or sit on a pension board?
Q3. Should Scheme regulations prescribe the type of information that may be
“reasonably required”?
Q4.
Should
Scheme
regulations
prescribe
the
requirement
for
managers/administering authorities to undertake regular checks to ensure board
members do not have any conflicts of interest?
Q5. Although not required by the Act, should Scheme regulations prescribe a
minimum number of employer and employee representatives?
Q6. How should the governance of the local government pension scheme in Scotland
change to incorporate the changes required by the Act?
Q7. Should the new Scheme regulations require local pension boards to be a body
separate from the statutory committee or for it to be combined as a single body?
It would be helpful if you could provide the reasons which support your answer.
Q8. To what extent should the new Scheme regulations specify the types of members
of the pension boards?
Q9. How should the Pension Boards be chaired?
Q10. What should happen in the event of a tied vote at a Pensions Board?
Q11. To what extent should the new Scheme regulations specify the manner in which
members of the pensions boards are selected?
Q12. Should the introduction of the pension board affect employer and member
representation in other parts of funds’ governance? If yes, how?
Q13. Should the new Scheme regulations include a requirement for each local
pension board to publish an annual statement of its work and for this to be sent to the
relevant scheme manager, all scheme employers, the scheme advisory board and
Pensions Regulator?
Q14. Apart from the training and qualification criteria that may be covered by the
Pensions Regulator in a code of practice, are there any specific issues that we should
aim to cover in the new Scheme regulations as well?
Q15. Should Scheme regulations simply replicate the wording of the Act? If not, what
specific areas of work should the new Scheme regulations prescribe?
Q16. Should Scheme regulations include a general provision enabling the scheme
advisory board to advise Scottish Ministers on the desirability of changes to the
Scheme as and when deemed necessary?
24
Q17. Are there any specific areas of advice that Scheme regulations should prohibit
the scheme advisory board from giving?
Q18. What would be your preference be for establishing membership of the scheme
advisory board?
Q19. Should Scheme regulations require the Scottish Ministers to approve any
recommendation made for the position of Chair?
Q20. Should Scheme regulations prescribe tenure of office? If so, what should the
maximum period of office be and should this also apply to the Chair of the board?
Q21. Should Scheme regulations make provision for board members, including the
Chair, to be removed in prescribed circumstances, for example, for failing to attend a
minimum number of meetings per annum? If so, who should be responsible for
removing members and in what circumstances (other than where a conflict of interest
has arisen) should removal be sought?
Q22. Should Scheme regulations prescribe a minimum number of meetings in each
year? If so, how many?
Q23. Should Scheme regulations prescribe the number of attendees for the board to
be quorate? If so, how many or what percentage of the board’s membership should
be required to be in attendance?
Q24. Rather than make specific provision in Scheme regulations, should the matters
discussed at Q16 to Q23 be left as matters for the scheme advisory board itself to
consider and determine?
Q25. What other specific issues should SLOGPAG consider prior to the Board being
established?
Q26. Under what circumstances should a Shadow Board be established prior to April
2015?
Q27. Do you agree that the scheme advisory board should be funded by a mandatory
levy on all Scheme pension fund authorities? If not, what alternative approach would
you propose?
Q28. How should the subscription vary by fund? Should it be a fixed fee for all funds
or proportional to their membership?
Q29. What would be your preferred manner of legal constitution of the scheme
advisory board and how should Scheme regulations deal with the issue of personal
liability protection for board members?
Q30. What factors should be taken into account in a review of the structure of the
Scottish LGPS?
Q31. Would it be preferable to retain a ‘light touch’ to governance in the Scheme
regulations, with reference instead to a Governance Compliance Document which
would contain the detailed governance requirements?
25
CONSULTATION RESPONSE FORM
LOCAL GOVERNMENT PENSION SCHEME (SCOTLAND)
(please complete and return to the address at the end of the form to ensure that we
handle your response appropriately).
1. Name/Organisation
Organisation Name
The City of Edinburgh Council / Lothian Pension Fund
Title
Surname
Forename
2. Postal Address
For the attention of: Clare Scott and Struan Fairbairn
Lothian Pension Fund
Level 5 &9, City Chambers, 249 High Street,
Edinburgh
Postcode
EH1 1YJ
Phone
0131 469 3865
Email Clare.Scott@edinburgh.gov.uk
and Struan.Fairbairn@edinburgh.gov.uk
3. Permissions - I am responding as… (please complete either sections (a), (b)
and (d) or sections (c) and (d):
or Group/Organisation
Individual
(a)
Do you agree to your response being made
available to the public (in Scottish Government
library and/or on the Scottish Government web
site)?
(c)
The name and address of your organisation
will be made available to the public (in the
Scottish Government library and/or on the
Scottish Government web site).
Please state yes or no:
(b)
Where confidentiality is not requested, we will
make your responses available to the public on
the following basis
Are you content for your response to be
made available?
Please state yes to one of the following:
Please state yes or no: Yes
Yes, make my response, name and
address all available
..........
or
Yes, make my response available,
but not my name and address
……...
or
Yes, make my response and name
available, but not my address
(d)
26
………
We will share your response internally with other Scottish Government policy teams who may be addressing the
issues you discuss. They may wish to contact you again in the future, but we require your permission to do so.
Are you content for Scottish Government to contact you again in relation to this consultation exercise?
Please state yes or no: Yes
Please e-mail your response to locgovpensionsreform@scotland.gsi.gov.uk or send
via mail to:
LGPS Governance Consultation
SPPA Policy
7 Tweedside Park
Tweedbank
Galashiels
TD1 3TE
The closing date for receipt of comments is 3 February 2014.
27
Heads of Agreement - Scheme Governance proposals
The following details the governance proposals in the Heads of Agreement agreed by the
Scottish Local Government Pension Scheme Advisory Group.

The Public Service Pensions Act 2013 identifies 4 core governance related roles
which must be established from 1 April 2015:
a.
b.
c.
d.
Responsible Authority – the Scottish Ministers who make the regulations for
the LGPS (Scotland)
Scheme Manager – the function of managing and administering the scheme
Pension Board – the body responsible for assisting the Scheme Manager in
relation to compliance with scheme regulations and the requirements of the
Pensions Regulator
Scheme Advisory Board – the body responsible for providing advice to the
Responsible Authority, at the authority’s request, on the desirability of
changes to the scheme. The Scheme Advisory Board also provides advice to
the Scheme Manager and Pension Board in relation to the effective and
efficient administration and management of the scheme.

SLOGPAG recognises the critical role governance has in supporting the delivery of
excellent LGPS performance and therefore encourages and supports good practice
through open and transparent governance arrangements.

SLOGPAG will review the governance arrangements within its agreed remit of
developing a new Scottish LGPS. Topics for consideration will include, but are not
limited to:
a. The structure of the 4 governance related roles identified by the Public Service
Pensions Act 2013
b. The membership and constitution of the Scheme Advisory Board
c. Operation of the cost control mechanism
d. The requirements of the Pensions Regulator
e. Publication of scheme information
f. Relevant provisions in the Institutions of Occupational Retirement Provision
(IORP)
g. Data collection




28
SLOGPAG will discharge its duties, as defined in the ‘Role of SLOGPAG’ document
agreed by SLOGPAG members in December 2012, and will then cease to operate.
The Scheme Advisory Board will be established from 1 April 2015 and the
establishment of a Shadow Scheme Advisory Board will be kept under review, but
such a Shadow Scheme Advisory Board is anticipated to be beneficial from Autumn
2014 onwards.
It is anticipated that the Scheme Advisory Board will be bilateral with an equal
number of employer and employee representatives. There will be an independent
chair and the size of the Board will be around 15 people. In addition, advisors and
observers will also attend the Board but will not have membership status.
SLOGPAG or the Shadow Scheme Advisory Board, as appropriate, will establish a
process, commencing April 2014, to consult on, and collate data relevant to, a review
of the structure of the Scottish LGPS, in order for the Scheme Advisory Board to be
in a position to complete such a review.