Follow the pension schemes road!

Written By:

Thomas Parker
Lead Writer
LAPF Investments

With the bricks now in place, attention turns to the concrete – the secondary regulations still to come. Thomas Parker reflects on the live edition of the Always a Pensions Angle podcast at the recent LGPS Pooling Symposium event, where the panel weighed up what the new Pension Schemes Act really means for the sector

Here we go! A refrain more typical of a well-known football journalist (if you know, you know!), but it was certainly a phrase that shot front and centre of my mind – albeit with a little less giddy excitement – when the Pension Schemes Bill evolved into the Pension Schemes Act late in April. And not a moment too soon, with the Bill on the cusp of falling into the next Parliament and delaying its implementation yet further.

Ignoring the fact that the LGPS hit its deadline nearly a month before the Bill requiring them to introduce the reforms was actually in place, there was a now hypothetical conversation being had about how the sector would respond to the Bill falling flat on its face, given how much disruption it’s caused.

As it is, the Bill is no more – and we can all get used to calling it the Pension Schemes Act. Right, there we are, we don’t have to talk about it anymore, and I’m going to make a cup of tea and put my feet up…

Oh, if only it was so simple.

Its nature was such that, as has been pointed out throughout its passage on a whole cavalcade of aspects of the Bill, most of the specifics will be filled in, like a house builder slapping on concrete only after the bricks are in place.

That, as Clair Alcock pointed to in our recent live podcast on the Act, will be brought in the form of secondary legislation.

Asset pooling becomes mandatory: What forms part of the Pension Schemes Act?

For all the whys and wherefores of the now Pension Schemes Act, it does seem there’s a lot of confusion as to where Fit for the Future ends and the Act begins.

To dial it down to its simplest form, and battling against the convention in legislative circles of making things as complicated as humanly possible, the Act puts into the law some of the policies set out in Fit for the Future.

As Clair explained: “The Act is only part of a trilogy of legislation that brings in the Fit for the Future changes, albeit the most important part, as it creates the primary powers for the secondary regulations, and then the statutory guidance.”

This includes the rules around mandatory asset pooling.

Although, as was eloquently outlined by Clair and – to be totally frank – is common practice for a lot of parliamentary bills, the Act creates the powers for MHCLG to write those secondary regulations.

There’s a raft of other measures it brings formally into law, most of which have been part of the general lexicon of the LGPS sector and doesn’t really need to be relitigated in exhaustive detail (such as the mandatory governance reviews, and cooperation requirements with strategic authorities on local investment).

Having said that, there’s one aspect of the Act that’s worth bringing to the fore before we move on to the less legalistic aspects of our on-stage natter. Forced mergers – which were put on a statutory footing thanks to the Act.

Clair did, however, explain: “During the passage of the Bill, when we talked about the merger of funds, the department repeatedly said that’s not a planned use of those powers, but it’s useful to have them in while the Act was being created.”

You see, it’s not just mandation where the government’s main strategy to alleviate fears is “we won’t use it, trust us”.

In fairness, there are legitimate reasons to have such a power in place – including, as Clair explained, to negotiate potentially thorny issues like Local Government Reorganisation and devolution, which threaten to radically change the shape of local government in England and Wales.

Whether such changes find there way into the LGPS remains to be seen.

LGPS’s rise in post-election prominence

The high profile of the LGPS in such a landmark piece of legislation for the pensions sector is very much reflective of LGPS’s rise in prominence in recent years.

So much so there’s a part of the Act which is literally titled LGPS, making life so much easier for those of us who have to read this stuff.

Its quite prominent position in such a landmark piece of legislation for the pensions sector (so much so there’s a part of the Act which is literally titled LGPS, making life so much easier for those of us who have read this stuff) is very much reflective of LGPS’s rise in prominence in recent years.

It’s a break from tradition in that sense, with Roger Phillips – the second of our esteemed panellists – saying the LGPS had traditionally been a low priority for incoming local government ministers.

He explained: “When a local government minister was appointed and handed the boxes, the LGPS was halfway down the third box because – frankly – we were doing a very good job and quietly getting on with it, and therefore weren’t in the urgent box.”

But it’s risen in importance over the past few years. While the reasons for this would be purely speculative (increased funding levels + limited government finances for local infrastructure spending is a heady brew) interest has been growing, with the MHCLG beginning to build capacity in the department even before the last election.

Despite this build-up, no one quite expected how fast the LGPS would become a priority for the government.

Roger said: “Even their own officials were quite surprised how quickly we rose up the agenda after the last election.”

This rather loftier status, he reflected, places real responsibility on the LGPS to deliver – particularly as there is more political attention on the sector. He explained: “We have to make sure that the new arrangements work – that they’re transparent, practical, and sensible, they add to the integrity of the scheme, and the governance is good.”

Part of this has to do with how the LGPS sells itself, with Roger calling on the industry to communicate its strengths better – with a case in point being that MHCLG have only recently become aware of how much money the LGPS actually invests in UK infrastructure.

No respite on the horizon

If there was any hope that getting the Act over the line might mean a chance to catch a breath, Clair was quick to temper expectations. The challenges, she warned, will keep coming across public sector pensions.

While the Act provides structure, what follows is a sustained period of deliverability.

As Clair put it, the sector might have “more clarity, which sort of allows us sometimes to take a collective breath,” but there should be no illusions: “we will be continuing on this path of lots of work for some time.”

Roger echoed the sentiment from the funds’ perspective, but welcomed the certainty it becoming an Act has brought, even as apprehensions remained. “You may not always like where you are, but you know where you stand,” he reflected.

The fiduciary duty flashpoint

If one issue stirred genuine frustration, it was fiduciary duty – and specifically, the LGPS’s exclusion from a DWP working party set up to examine it.

Roger didn’t mince his words. “I don’t find it acceptable that the government can set anything up like that and not include us in it,” he said, warning that an exclusion on something so obvious raised a bigger question: “what else are we not going to be included on?”

The Scheme Advisory Board, he stressed, has historically led on this issue, obtaining legal advice to give funds and pools the cover they need. And with the LGPS operating, in Roger’s phrase, “in a goldfish bowl,” the stakes are high.

So, what comes next?

For all the legislative heavy lifting now done, the real work is just beginning. The immediate watch is on those secondary regulations – the concrete, to borrow the earlier metaphor, that the bricks are waiting for.

Beyond that, attention turns to delivery and to the new relationships the Act sets in motion. For Clair, the answer to “what comes next” was refreshingly straightforward: “Strengthening those great partnerships that the LGPS is already really good at anyway. So the success of the LGPS comes in the LGPS itself.”

The Act simply provides the hooks to develop that relationship management further, with the mandatory governance reviews offering a chance, further down the line, to look back collectively and see what’s worked.

There’s also the independent persons regime to bed in, with the sector still awaiting updated guidance and grappling with how to balance local judgment with consistency across the system. As Clair noted, the landscape is likely to look “very different in 18 months to where we’re starting now.”

So where does that leave us? Sadly, it appears we are at the end of the beginning rather than the beginning of the end.

That feels like a downbeat note to end on. So here’s my kernel of optimism: the scrutiny that comes with this new prominence is exactly what gives the LGPS its chance to show the wider world how well it’s doing.