Local government funds should ditch prescribed governance models and move instead towards an outcomes-based approach with minimum standards, a report has proposed.
This is the conclusion of research conducted by Hymans Robertson and commissioned by the Scheme Advisory Board (SAB), which looked at how governance is working in the LGPS and whether it could be strengthened.
Governance has become an increasingly important focus in the LGPS in recent years, particularly since the scheme came under the oversight of The Pensions Regulator and the introduction of local pension boards.
The report is based on an online survey of 140 LGPS respondents and other forms of research at interviews and seminars. The SAB wanted to know how existing and alternative governance models performed against criteria such as standards, consistency, representation, conflict management, clarity of roles, responsibilities and cost. Online responses showed preference for improved practice with greater ring-fencing, followed by support for improved practice.
According to the report, an outcomes-based model should have mandatory critical features such as robust conflict management with clarity of roles for decision-making, assurance on the sufficiency of administration and other resources, explanation of policy on employer and member engagement, as well as a regular independent review of governance.
It also proposed enhanced training requirements for decision-makers, section 151 officers and section 101 committee members, as well as improving sign-posting and updating relevant guidance.
Respondents did not think new bodies were needed, with governance models such as a joint committee and a separate local authority body attracting little support.
Other ideas rejected in the report were: a separate section 151 officer for the pension fund; compulsory benchmarking; legal separation of pension fund accounts; removing section 151 officers from decisions around administration budgeting due to conflicts; and merger of funds to facilitate different governance models.
If the SAB agrees with the proposals of the report, it is likely to consult on the features of an outcomes-based model.
Hymans Robertson head of LGPS actuarial, benefits and governance, Catherine McFadyen, said: "We know that the LGPS is full of strong governance examples and this survey has successfully highlighted many of them. By moving to an outcomes based approach rather than imposing a prescribed ‘model' we will ensure that funds can maintain their individuality while delivering the highest standards of governance."
She added that funds should take this opportunity to review what they currently do and assess how they would stand up against this approach if it was introduced today.
"This will allow them to address any areas where improvement or change may be required and ensure they are in the best position moving forward. Funds will need to think carefully about how they plan to evidence the approach they are taking key areas and to show they are willing to learn from the experience of others. This will ensure that every fund in England and Wales is working together to continue to drive governance standards higher."
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