Agenda item

The Pensions Manager presented the report.

Members discussed the impact of regulatory changes on the efficiency and effectiveness of the Fund.

The Chair recalled that in 2006 the Government had introduced ‘pension tax simplification’. However, in the intervening years laws and regulations impacting on the LGPS had become more and more complicated. In the FT the previous Saturday a Government minister had been quoted as saying that the health pension scheme should not worry about breaking the tax laws. The Chair’s concern was that over the past few years the LGPS had been subjected to unceasing change. How could the Board understand the impact of these changes on the service that the scheme’s administrators were able to provide to members and, while forming its own opinion on how well the Fund was performing, work constructively with it? The Pensions Manager said he believed that the Fund’s officers should demonstrate that robust processes were in place to respond to regulatory changes, that workloads were being regularly reviewed and that there was appropriate prioritisation.

The Head of Business, Finance and Pensions said that the Chair’s question was a difficult one. The Fund was resourced for a ‘normal’ level of activity, but the legal and regulatory environment was constantly changing. He felt that the LGPS was being used as a means by which the Government pursues objectives that go beyond just the payment of pensions. He felt the most constructive thing that could be done through the work of the Board would be to try through engagement to ensure change happened in a more sensible way, and to try to get HMRC, the Scheme Advisory Board and other bodies to understand the impact of their directives  etc on the LGPS. Part of the problem is that local government pensions practitioners are poorly represented on all the national bodies which dictate to the funds what they have to do, and that the Local Government Association (LGA), which might be expected to be the champions of local authority funds, is very under-resourced. The Chair commented that at a conference he had attended pensions managers had said that a subscription to the LGA of a couple of thousand pounds a year was excellent value for money in terms of the support received, and that they would be prepared to pay double the subscription to provide LGA with double the resources.

The Chair said that it was important for the Board to understand how the regulatory challenges were being managed by the Fund. The Head of Business, Finance and Pensions replied that the Fund tried to address them in its Annual Service Plan and Budget in March each year. There was, of course, always the possibility of a totally unforeseen issue arising during the year. The McCloud decision is a case in point: the legislative process is unlikely to resolve the issue for the next couple of years, but it is known that the impact will be as great as the mis-selling scandals of the 1990s. The Fund has to start addressing this now. So the next Service Plan will include provision for a specialist team to deal with McCloud, which will work on case identification and obtaining required information from employers where this was lacking. The Pensions Manager added that all retirement cases back to 2014 would have to be inspected, and potentially it might be necessary go back further than 2014, if there were appeals. A Member commented that this could put pressure on employers, who might find it difficult to put extra resources into pensions administration. There was also the possibility that the employer owing backdated payments did not exist anymore. The Head of Business, Finance and Pensions pointed out that in addition some members may have passed away adding further complexity. Another Member suggested that in a fair world the additional costs imposed by McCloud would not fall on the LGPS. The Chair agreed, and said that it now seemed that LGPS administrators were expected to be tax experts as well, when big accountancy firms struggle with the interpretation of rules relating to lifetime allowances, annual allowances and protections.

A Member suggested that a summary sheet listing ongoing issues, such as McCloud, with actions taken, state of play, expected date of resolution and outcomes, would assist the Board in understanding how the Fund was responding to them. The Chair agreed, and noted that one of the first workshops proposed for the Board was on administration and delivery. He suggested this could include the Fund’s response to regulatory challenges. The Board needed to understand how the Fund responded, how it developed and monitored plans to address the challenges, how it prevented important issues being overlooked and how it managed any unexpected challenges that arose.

After the discussion was concluded the Board RESOLVED to note:

1. the current position regarding the developments that could affect the administration of the Fund;

2. the responses sent to the MHCLG consultation on the ‘Local Valuation Cycle and the Management of Employer Risk’ and the HM Treasury consultation on ‘Restricting Exit Payments in the Public Sector’.