Tackling LGPS deficits should be main focus says Joanne Segars

Joanne Segars, Chief Executive of the National Association of Pension Funds (NAPF), recently told the NAPF Local Authority Conference 2015 that “it’s important the LGPS community comes together to focus on making the right changes and delivering a scheme that’s sustainable and affordable in the long term.”

Speaking as the new Parliament returns to Westminster, Joanne will reveal findings from a recent NAPF poll of Local Government Pension Scheme (LGPS) members. When asked what the new Local Government Minister should focus on, over a third (35%) said the Minister’s priority should be tackling deficits – 9% said governance and 4% said merging funds. Almost a third (30%) said the government’s priority should be to do nothing on the LGPS and no one said mandating passive investment should be a priority.

Local pension boards
Joanne will speak about the latest addition to the LGPS governance matrix − local pension boards. The NAPF poll of LGPS members found that almost all local pension boards (96%) have been set up as single board, with only 4% set up as joint boards.

When asked what the main challenge was when setting up their local pension board, 15% of respondents said they faced no difficulties, but over half (57%) said the biggest problem was the delay in regulations. For 11% the biggest difficulty was a lack of people, or people with the right skills, to sit on the board.

Now that the boards have been established, two key challenges have emerged: uncertainty about what the board’s role will be – an issue for 43% of funds, and ensuring board members have sufficient training to meet the knowledge and skills requirements – a challenge for 35% of funds. To support LGPS members, Joanne will announce that the NAPF plans to publish a guide to LGPS governance and also extend the existing NAPF training programme to support LGPS members, including those on the new pension boards.

Valuations
“If bedding down local pension boards is the challenge for the LGPS this year, valuations will be the big challenge for 2016,” Joanne will say.

The NAPF poll of LGPS members found that almost three-quarters (72%) thought their funding position would improve, or at least stay the same, compared to 2013, whereas around a quarter (22%) thought their overall funding level would worsen.

In the event that funding levels do worsen, 39% of respondents said they would look to increase deficit contributions for some participating employers and 22% would do so across all employers.

Joanne will say: “This will put even greater pressure on employers at a time when austerity will be already presenting problems for councils and participating employers. Asking for extra money at a time when there isn’t any won’t be an easy, or welcome, ask.”

Deficit management
Dealing with the £47 billion deficit is the “defining issue” for the LGPS over the next couple of years, Joanne will explain: “So we need to cut a good and sensible path through the noise. And it is why we need a clear and consistent way to measure deficits – and why we need to be innovative in developing solutions for managing them.”

To conclude, Joanne will say: “The LGPS is a great scheme, but we know there’s room for improvement. And one of the great strengths of the scheme is that drive for continual improvement – that common ambition to deliver a lasting and sustainable LGPS that binds us together.”

She continues: “Our commitment at the NAPF is to be at the heart of that process – supporting our members by raising governance standards through training and development; ensuring legislation is fit for purpose, and a good fit for the LGPS; working to ensure there is a sensible outcome on any plans for structural reform, outcomes that do not damage the scheme; and a focus on deficit management that will have lasting benefits. We are doing that alongside our members, who are at the very centre of NAPF decision-making.”