Agenda item

This report updates the Board on recent developments within the Local Government Pension Scheme (LGPS) regulatory environment and any recent consultations issued which would have a significant impact on the Fund.

John Smith (Pensions Manager, Brent Council) presented a report that updated the Board on recent developments within the Local Government Pension Scheme (LGPS) regulatory environment and any recent consultations issued which would have a significant impact on the Fund. To begin, John Smith detailed that LGPS was now valued at £357.2 billion, a decrease of 1.9%, with 6.2 million scheme members as of 31 March 2023 and 87,129 retirements during 2021/22, a decrease of 8%.

As CPI in September was 6.7%, the Board was advised that pension contribution bands were increasing by the same amount. However, the details of the 2024/25 pay award were not yet known, however in 2023/24 the average pay award was significantly lower than the prevailing rate of CPI inflation and therefore as the employee contribution bands were being uplifted by a higher rate than the average pay award there were likely to be more members of staff dropping into a lower band than in previous years which reduced the contributions payable to the Fund by members. It was explained that this would have a small negative impact on the cashflow position of the Fund in the short term, however, higher inflation expectations had been factored into the 2022 valuation and therefore it was not a cause for concern in the longer term. Additionally, on 2 November 2023 His Majesty’s Treasury (HMT) confirmed that the Lifetime Allowance would be abolished from 6 April 2024.

In concluding, John Smith informed the Board that in October 2023 DLUHC published its initial prioritisation policy for McCloud which was attached in Appendix 6 of the report. Moreover, as whole-time teachers could not be in the Teachers’ Pension scheme in respect of a concurrent part-time teaching role, this group would become eligible for retrospective membership of the LGPS from 1 April 2015 – 31 March 2022 based on their part-time excess service. Lastly, it was detailed that the LGA had e-mailed administering authorities a spreadsheet for calculating the non-club element of transfers affected by McCloud on 24 February 2024 and the LPPA had advised the Fund that Civica (UPM) would load the red flags, which identified potential underpin cases, over the coming weeks.

Following the initial overview, the Chair opened the floor for questions and comments from the Board, with contributions summarised below:

•         In discussing the impact of McCloud on Brent members, it was explained that to benefit from the underpin members would need to be entitled to a significant final salary pension and therefore only a small cohort of members were expected to be impacted.

•         In response to a query as to why retirements had decreased, members were advised that one likely reason was the cost-of-living crisis and the other was the increase of retirements during the pandemic, although no research had been conducted on the issue.

In moving to the second part of the report, concerning The Pensions Regulator (TPR) Single Code, John Smith detailed that the Single Code consolidated ten of the existing codes and incorporated content from all 15 codes, coming into force on 27 March 2024. Moreover, the Single Code consisted of five sections: The Governing Body, Funding and Investment, Administration, Communications and Disclosure and Reporting to TPR. In discussing the main governance implications, the Board noted the following:

•         The LGPS the scheme manager was identified as the governing body, albeit the role appeared to be a composite of the Board, the Committee and officers.

•         The Code required effective systems of governance (ESOG) with greater emphasis on documentation of policies and procedures.

•         The scheme should carry out its own risk assessment (ORA) to identify the main governance risks facing the LGPS and it was good practice to develop business continuity/disaster recovery plans.

•         The module on cyber controls focussed on reducing the number of incidents and addressing any that may arise. Although this was identified as good practice, the code set out the legal obligations of public sector pension schemes.

•         The code expected schemes to have procedures and controls governing the selection and management of advisors and service providers that were supported by an effective conflicts of interest policy.

•         The code extended the requirements for Board and Committee members knowledge and understanding to include investment management and financial risk.

•         The code included modules on investment governance, investment monitoring and climate change although they were identified as good practice, as opposed to a requirement.

•         The module on administration focused on planning service delivery, conducting sound financial transactions, data security and maintaining IT systems.

•         The communication and disclosure modules set out general principles for scheme communications and observing the disclosure requirements, with a strong emphasis on scam prevention.

•         The Single Code presented fresh challenges and the LGPS and its advisors were currently reviewing the changes. Professional advisors were developing self-assessment tools to help schemes gauge their compliance and monitor their progress.

Prior to inviting comments and questions, John Smith reiterated that the LGPS already had high standards of governance and the new code represented evolution rather than revolution, with regulators stating that compliance did not have to occur immediately. Regarding next steps, members noted that officers would work with its advisors to ensure that the Fund’s policies and procedures were compliant with the Single Code of Practice and would publish reports that explained any changes to seek approval from the Board.

The Chair then welcomed contributions from members, with the resultant discussion summarised below:

•         Regarding the deadline for compliance for the new regulations, the Board was informed that a deadline had not been provided although officers were beginning preparations regardless.

•         In response to a query as to who was responsible if the Fund did not adhere to governance regulations, members noted that the Sub-Committee, Board and officers were all responsible, with members noting that TPR could utilise enforcement notices to compel to Fund to undertake an action and issue fines. In providing an example of the Board upholding its responsibilities, the Chair detailed that the Board recently reported the Fund to TPR regarding the late issuing of Annual Benefit Statements, although it was found that a material breach had not occurred.

With no additional contributions and in thanking John Smith for the update, the Board RESOLVED to note the report.