Why Oxfordshire is ready for its governance review

Interviewee:

Mark Smith
Head of Pension Fund
Oxfordshire Pension Fund

Oxfordshire Pension Fund’s Mark Smith on arm’s length independence, training pension committees, and why he can’t wait for the independent governance review

Always a Pensions Angle (AAPA): How do the roles and responsibilities of the senior LGPS officer differ from your current position as head of the Oxfordshire Pension Fund?

Mark Smith (MS): “It’s great because my predecessor had set up the role in line with the good governance review, which was really useful. So overall, probably minimal changes with regards to responsibilities for the role, but again I think it’s taken it to the natural next level of responsibility within that.

“And I think some of it’s an educational point from within our own administrative authority of where that role should sit and how that should be structured, and to make sure that it’s positioned correctly in the organisation.

“So, rather than the pension fund being seen as a service, it’s seen as a separate arm’s length function – which it is, and I think that is recognised, but it’s probably not widely understood.”

AAPA: Is it about the rest of the council fully understanding your independence?

MS: “At the senior levels, absolutely the understanding is there within the host authority, but it’s about how that filters through to the other areas within the local authority to ensure that the fund gets the support that we need going forward.

“We are arm’s length, it does clearly state that, but I think actually having the amendments to the constitution and that formal recognition from the process to get that approved by the monitoring officer is really critical.”

AAPA: Have there been moments when that misunderstanding of your role as arisen?

MS: “There has been a number of issues, and we find a lot of them are quite subtle. So it can incorporate policies impacting the fund, and actually that is more around the built-in culture within those policies impacting the fund.

“For example, we’re just going through organisational redesign, and it could be that the focus was headcount reduction, and recognising that local authorities are in a different place to pension funds.

“There could be headcount reduction, controls around spans and layers of organisational structures, which actually don’t marry up to the pension fund, so you can end up with structures that perhaps aren’t adequate or optimal for pension fund service delivery.

“That’s a key where senior LGPS officer needs to be able to have those conversations, and there needs to be that understanding that the pension fund will absolutely be consistent from an equal pay viewpoint, and all of that really important stuff that the host authority brings as a larger organisation, but actually recognising the pension fund might do something slightly differently, and documenting the reasons why to make sure we still align as much as possible, but do something slightly different.”

AAPA: Is there going to be an increase in demand on workloads when it comes to things like documentation?

MS: “I think there is definitely going to be more documentation, and I’m thinking with local government reform on the horizon, we’ve got a number of questions around how we can function going forward.

“This is because in Oxfordshire we’ve got three options that we could go for in the future, we could go as a one unitary – which makes a lot more sense from a pension fund viewpoint.

“But we could also end up with a two or a three option, which means potentially parts of West Berkshire could be brought into it, which then makes it really important that we have a memorandum of understanding with a new unitary to lay out where the fund will be focused on, when it will be different, when it will be the same, and when it will be aligned.”

AAPA: And have you been looking at how others are thinking about LGR reform?

MS: No spoilers, but I think every fund should consider what is in the best interest of their scheme members to deliver the service, what delivers that valuable service that provides excellent value.

“There’s lots of different ways. I look at it like a cake, and there’s lots of different ways to cut the cake – there’s no right way to cut that cake, but it’s really helpful having Surrey there, and having recently had that approval from the ministry.

“That’s incredibly helpful because it gives us the intent of government that actually there is an interest in supporting funds who may choose to do that, but equally I think it’s an opportunity for pension funds to redefine how they sit, how they operate, and how they interact with the unitaries, so again we’re considering all different options, and we won’t rule anything out at this point.”

AAPA: I suppose it’s also encouraging to see from that point of view, even if you decide to not go down the same path as Surrey, at least the government is actively engaging in where an LGPS fund sits in a reformed local authority.

MS: “Absolutely, and I mean, Surrey are a trailblazer, but we do have South Yorkshire as well, which is really helpful. But it’s about some tough conversations around what delivers the best value, can we do things differently?

“We shouldn’t be afraid to innovate, and I’d rather us make decisions in a positive way that show we’re thinking about the future.

“It should always be about the future. It’s never about the immediate, it should be about the long-term security of the fund and delivering the best service to our members and our employers.

“I think it’s really important that we consider that, and don’t necessarily rule anything out. I mean, certain routes create a huge amount of work, but actually that’s not a reason not to do something, even though our bandwidth is pretty limited at the moment.”

AAPA: One aspect of the new LGPS guidance is more education for pension committees and pension boards. How ready do you, as a fund, feel to be able to provide that training?

MS: “Firstly, I was quite sad because I’m a pensions nerd, so I was really excited, and as soon as it popped up I had a brief read through and I was reading that last night. I still need to go through in more detail, but I think the key is Oxfordshire has always been really focused on supporting its committee.

“Last year we had a nearly entirely new committee, so we’d ratcheted up our induction programme, but even so it’s a huge ask to expect people whose normal day to day perhaps isn’t in the pensions industry or in the finance background to build that success and build that knowledge.

“There’s a number of different mechanisms that we use, we use a certain online tool provided by a third party, which is quite useful. We have mandatory inductions, but I think it’s a really good time for us to review that and review the expectations, and particularly around substitutes as well.

“We’ve always struggled with that, because if a substitute needs to come in, they need to have the training. But in reality, who would commit that time and effort because it is a huge commitment in time and effort, just on the off chance they might be called as a substitute. So, I guess you know we’ve got a lot more work to do in that space.

“We have a really strong governance team, and we’re taking part in the national knowledge assessment this year, and we’re looking forward to the results from that because, effectively, in the last 18 months we’ve been focusing on that training.

“We’ve done the national knowledge assessment, and we should have a really good outcome from that, and then that’ll give us an indication of where the weaknesses are, and we can pull up those gaps in the next 12 months’ training plan.”

AAPA: How ready are you for the independent governance reviews (IGR), and all the key documentation?

MS: “I think I must be a glutton for punishment, because I’m really looking forward to it. I can’t take all the credit for that, because the pension fund – back in 2018 – had a few issues, and my predecessor created a governance team, and we’ve continued in my time at the fund to develop that.

“We are in a really good place, we’ve really focused on the general code, we’ve had regular reports to committee, so we’ve gone through that with a fine tooth comb, we’ve already had our independent governance review of sorts, perhaps not to that level, but a third party came in.

“We divvied up the general code, we’ve done half, and we’re about to get the second half of that independently reviewed, and we received a good rating. There’s always more to do, and conscious with the Fit for the Future changes, there’s a lot of updates to our policies, but we have all the policies in place.

“We’ve had pension administration strategy for many, many years now, so it’s really focused on updating, so I don’t actually think there’s huge amount of extra work for us in that space.

“But really, what we’re looking to do over the next 12 months is really do mock and preparation for the IGR, so that we can do as much preparation as we can, and then take the IGR.”

AAPA: Do you think other funds are in a similar place?

MS: “I shan’t mention any names, but I think the key thing is funds are in different places, and there’s some real challenges out there, particularly for smaller funds, and I have a great deal of sympathy for my colleagues in the smaller funds, because they have a huge amount of work to do.

“There are funds who are historically in different places because of governance. You also have the larger funds who are in really good, positive places, because they have larger teams and larger capacity to deal with that.

“I think there’s a real mixed bag out there, and we’ll see a mixed bag in the outcomes from the IGRs, and I hope within the first one is that we actually genuinely support the funds and get together collectively as groups of funds to support those that perhaps don’t do as well in that and help them to move forward in a supportive way.

“It seems a bit like an Ofsted red rating type of thing seems a bit harsh, and we are all pension funds within the LGPS, and we should support each other.

AAPA: “It’s a bit scary because it’s so clear and measurable, even if you don’t cover the nuances of what’s going on.

MS: “And no one wants their fund to be a red or an amber. And certainly, as soon as I saw those ratings, we’re certainly aiming for gold.

“If we fall short to green, that’s passable, but we definitely want to go for the gold.

AAPA: Do you think your prep with your pre-IGR review will help you with that?

MS: “I think we’ll be in a really strong place, and something I have recently done, we’ve added an extra role to the governance team, so we are strengthening our governance team in the recognition of Fit for the Future.

“We need to do more, and we’re looking forward to that, and we’ve got a really fantastic strategic governance manager in place, and a really strong governance team. I’m really fortunate, because I have a team to support me, so I get to do all of the fun stuff of reviewing the governance work.”

AAPA: Thinking about the guidance more broadly, what’s the one change you go that that there is going to change how we run X?

MS: “I’ll touch on pooling, because I couldn’t not mention pooling because my life has been pooling for the last 12 months.

“And I guess the biggest change is the pooling governance, and again that’s more around making sure we’ve got the right structures in place, and we’re working through those with our other 13 funds at Central.

“The great thing is we’ve been able to bring all of the lessons we’ve learned from Brunel and bring that into those conversations, which I think has helped. Similarly, the ACCESS funds have been able to bring their views and what worked for them in ACCESS.

“And then we’ve got the founding Central funds in there, and we should be able to build something stronger, more resilient, and more fit for the future.”

AAPA: Another key governance role is the independent person. How involved are you in the process of recruiting that individual to the organisation?

MS: “I would say I’m involved in the late planning stages as a diplomatic answer. I’ve purposely waited for the final guidance, but I’ve also been out there talking to other funds. Different funds are taking different views, and I guess the key thing for me is what delivers the most value for our committee and for the scheme members.

“I’m very much focused on what’s not necessarily what’s the right thing now. I’m from a private sector pensions background, so I’ve worked with some incredible professional trustees, and looking at that decision-making process and the support that committees have around making effective decisions is really critical.

“And in the private sector, that’s kind of taken as red, but it’s really challenging with political leaders that politicians will change, different political persuasions will change, and having that stability around decision making will be really helpful, and I’m really looking forward to the relationship of how myself, the senior LGPS officer, works with the independent person, with the chair of committee, and the rest of committee and board.

“And one of the reasons why we waited for the final guidance is so that we could put together a brochure, which is effectively not just a job description, but it’s the objectives, the behaviours, the things we want to actually achieve.

“Then when we release that, we’ll be asking for expressions of interest, and going down that route, and really interested to see who’s out there, and certainly from the other funds that have done that, they’ve seen some really great interest. So, I’ve got some high hopes we’ll get a really high-calibre individual.”

AAPA: There are some funds that are sharing independent persons. Is that something you may consider, or are you very much if they’re the right person, then they’re going to be independent person for two or three funds, that’s fine?

MS: “It’s a really good question, because when does an independent person become no longer independent? You want them to have the knowledge, but then you also want them to be independent, so it’s really a good point.

“There’s also the capacity and bandwidth of that person, I can see the benefits of having one across a number in the same pool, but actually then having one that covers a number of different pools can bring the external pool knowledge as well to committee, so at the moment we’ll see what we get and work through them.”

AAPA: Finally, we have the investment strategy statement. How comfortable are you that you’re going to hit all the government’s new requirements for what that investment strategy statement looks like? And have you been given any guidance from Central saying ‘it’d be beneficial for us if you include this, this, this, this, and this in more detail than this bit’?

MS: “We’re a fairly early mover in that, so we’ve gone out to consultation with our members. We’ve already involved the pool.

“We acknowledge this journey we’re on with the pools, it will take quite a long time before that whole process works fully, but certainly the pool has been engaged, and we’ve sought feedback, and it’s been really useful to have that feedback.

“We’re bringing our investment strategy statement to committee in September, but again, I’m not opposed to potentially reviewing again, and we’ll see how things go.

“We’re reviewing so many of our documents that actually we’re just in a constant cycle of review, and committee is used to that, so if we see some excellent examples of ISS out there, we are happy to learn from other funds as well.

AAPA: Local investment is a key aspect of that, what are your plans with that?

MS: “In Oxfordshire, we’ve been doing local investing since before it was a thing, place-based and all that. We have a fantastic university, not surprisingly, lots of university spin-offs, and so we are incredibly involved in that space, and again that’s something we see expanding.

“I’m heading off tomorrow to meet someone within the Oxfordshire area around a potential collaboration, it might be a large estate and things that can be done in that space, so there’s lots of things that we can do.

“We’ve done affordable housing, transitional housing, we’ve got a number of other things in the pipeline, and some really innovative stuff as well, which I can’t really mention, but that they’ll be out there in the public domain.

“But we’re also interested in being innovative in that space, so engaging with the pool on natural capital and picking that baton back up, but prior to the legislation coming in, a lot of local investment, we did make sure that we got that through in advance of the changes, because we’ve done quite significant work on that.”