The Local Government Pension Scheme (Amendment) Regulations
2014 Draft Regulations on Scheme Governance - UNISON’s
Response
Introduction
UNISON welcomes the introduction of new governance regulations. We have long
campaigned for scheme members to have a much larger say in the running of the
Local Government Pension Scheme LGPS, which is built by contributions from
members and their employers.
UNISON believes that articles 8 and 18 of EU Directive 41/2003 Institutions for
Occupational Retirement Provision apply to the LGPS and its 101 pension funds in
the UK. Whilst The Department for Communities and Local Government (DCLG)
has agreed that the directive applies to the LGPS it is difficult to establish how it has
applied the directive to the scheme.
Article 8 of the directive requires the legal separation of the pension institution from
the sponsoring employers, to protect the assets in the event of a bankruptcy.
Article 18 requires that the assets are invested under the prudent person rule, and in
the best interests of scheme members, resolving potential conflicts of interest in their
favour. A recent Law Commission report, (the fiduciary duties of investment
intermediaries), has recently recommended that the current LGPS Investment
regulations are amended to reflect this and suggests that the Direct has a ‘direct
effect’ on the current 89 administration authorities.
UNISON’s response
The DCLG consultation paper is in response to the obligations established by Public
Services Pension Act 2013. That Act in turn was a result of recommendation 17 of
the Independent Public Services Pension Commission.
Recommendation 17 stated ”Every public service pension scheme (and individual
LGPS Fund) should have a properly constituted, trained and competent Pension
Board, with member nominees, responsible for meeting good standards of
governance including effective and efficient administration. There should also be a
pension policy group for each scheme at national level for considering major
changes to scheme rules”.
UNISON believes that the DCLG consultation paper does not fully meet the objective
of a “properly constituted” Pension Board because the proposals require the
establishment of the boards under local authority law and this conflicts with the
Public Services Pension Act 2013 (PSPA)
Section 101 Committee as the Local Pension Board (LPB)
The consultation paper suggests that the power included in section 5(7) of the Public
Service Pensions Act 2013 could be used to permit Section 101 Committees to be
the LPBs. There are a host of reasons why a Section 101 Committee cannot be an
LPB, arising from local government law:
1. Section 101 says that a local authority may discharge its duties by a committee or
officer. That means a committee of the local authority – which therefore consists of
elected members.
If the committee in question is a committee that regulates or controls the finance of
the authority, it must consist wholly of elected members. It is by no means clear that
a Section 101 Committee that is responsible for the LGPS fund is not such a
committee. If it is, unelected members (including employee representatives) would
be barred from membership altogether.
2. Section 102(3) says that a committee (other than a committee that regulates and
controls the finances of the authority) may include committee members who are not
elected members. Leaving aside the question whether an LPB is a committee that
regulates and controls the finances of the authority, “including” unelected members
is not the same thing as appointing a committee that consists wholly of unelected
members.
Draft regulation 107(2) (a) of the draft Governance Regulations says that an elected
member of a local authority (including the administering authority) may not be
appointed as an employer representative. It is not clear why.
The consultation paper suggests in paragraph 2.18 that this should be read
alongside the possibility that an elected member could be appointed to the LPB in a
capacity other than as an employer representative; there would therefore be at least
one councillor on the LPB and the committee could function as a committee of the
authority.
But the term “employer representative” is defined in the PSPA as a person
“appointed to the board for the purpose of representing employers for the scheme.” It
seems strange to appoint an elected member to the committee on the supposition
(or pretence) that his or her function is not to represent employers.
3. Section 104 of the Local Government Act 1972 prohibits the inclusion of any
person as a member of a Section 101 Committee who would be disqualified from
being an elected member of the local authority. Section 80 of the Local Government
Act 1972 says that a paid employee of a local authority is disqualified from being
elected as a member of the authority that employs him or her.
Section 1 of the Local Government and Housing Act 1989 also prohibits any
employee of any authority from being an elected member if he or she holds a
“politically restricted post”.
Therefore a member of the LGPS may not be a member of the Section 101
Committee that is responsible for his or her own fund (sections 104 and 80). Only
employee representatives who are not administering authority employees and not
employed in any politically restricted post may be appointed.
4. Unless regulations are made that provide for an exemption, section 15 of the
Local Government and Housing Act 1989, says that if a local authority is responsible
for selecting the members of any ordinary or advisory committee, it must do so on
the basis of political balance and the majority group on the authority must have a
majority of the membership of an ordinary or advisory committee. That would prevent
an LPB which was a section 101 Committee having an equal number of employer
and employee representatives.
Apart from the fact that it is strange to suggest that a committee should be
responsible for assisting itself with compliance with the law (which is what an LPB is
meant to do), we do not believe it is legally possible to constitute a Section 101
Committee as an LPB without re-writing parts of the Local Government Act 1972.
Local Pension Boards
If an LPB is not a local authority committee (that is, a Section 101 Committee) the
question that follows is “well, what are they?” the answer is that they are committees
established under the Public Service Pensions Act 2013, and nothing more or less.
The Local Government Act 1972 does not apply to them because they are not
committees of a local authority.
The Public Service Pensions Act 2013 requires the establishment of LPBs, but it
does not say who must establish them. That is left to be decided in Scheme
regulations.
The draft Governance Regulations assume that they will be established by the
administering authorities and that does not seem to have been questioned by
anyone except UNISON.
Therefore the simplest and most transparent way of achieving compliance would be
for the DCLG to establish pension boards as non departmental public bodies and
transfer the assets to them accordingly. This would make the LGPS compliant with
both the IORP Directive and the 2013 Public Services Pension Scheme Act.
Reg 107(2)(b)
We oppose in the strongest possible terms the proposed pre-conditions to be a
member of a local pension board. Pre-conditions are not set for councillors; MP’s or
most importantly trustees of any other workplace pension scheme.
We do not believe a selection process based upon a pseudo “job description” is
appropriate. This is unnecessary as board members will be expected to become fully
conversant with their pension scheme within six months of appointment.
We would suggest that the following process is adopted
Scheme member-nominated board members
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are nominated by a process in which the following are eligible to participate
all the active members of the scheme or an organisation which adequately
represents the active members, such as a recognised trade union and
all the pensioner members of the scheme or an organisation which
adequately represents the pensioner members, such as a recognised trade
union’s retired members section
selection should be done by electronic ballot
Scheme Advisory Board
UNISON is supportive of the Secretary of State setting out in regulations the
constituent groups which will make up the membership of the Board we expect that
the trade unions as the largest member representative organisations to be members
of the board representing employees.
Reg 111(4) We are supportive of the SAB having control over appointments to its
sub-committees. However, we would wish to see provision in regulation that would
help to ensure that there is accountability and balance in the matter of subcommittee appointments.
Advisors, service providers and practioners should not out number employer and
scheme member representatives. Sub-committee appointments made by the SAB
Chair should be made with the agreement of the Board.
Reg 111 We support the SAB being able to invite non-Board members to sit on the
SAB in a non-voting capacity. These co-optees should be limited to a maximum of 3.
Comments on other sections
We are concerned that the draft regulations leave too much discretion to the local
level. We would like to see more direction on the key issues involved in the
establishment of the local boards.
There is far too much emphasis on the use of statutory guidance under the “comply
or explain” regime. Previous attempts by DCLG to reform the governance of the
LGPS have failed under this system.
Explain is not strong enough and could allow local funds to merely describe its
failings. If a system of flexibility is introduced then funds must be able to justifying
proposals to vary from the norm before they are allowed to move from it.
UNISON believes that the PSPA was meant to ensure that local boards fully assist in
all matters in relation to the delivery of the pension. We do not consider the boards to
be merely advisory. We are very concerned that many administration authorities are
already seeking way to downplay their role and use the term advisory to give them
little powers.
Consultation
We would like a requirement within the legislation to consult with local trade unions
on the establishment of the boards.
Funding
We agree that the boards should be financed by the funds. We expect this to include
all scheme member reps, from which ever employer. Board members should be
financed to prepare for and attend meetings through a facility time agreement.
AGMs
We believe that all fund boards should hold an AGM for scheme members and
participating employers and that this should be laid down in regulation
Public Sector Equality Duty (PSED)
We support the extension of the PSED to all boards.