New council, new committee: How do you train councillors on pensions?
Pardon the Interruption
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Local elections took place in England in May this year, often flushing a set of new councillors into pensions committees. How are these new committee members being brought up to speed? Can they adapt to a role which looks far beyond the election cycle?
Local elections were held in May this year after the 2020 elections had to be postponed because of the Covid-19 pandemic. Every time a new council is elected, the members of local authorities’ pensions committees – which are the decision-makers on the local authority pension fund – can change, posing a challenge to continuity and knowledge requirements.
How has committee training changed?
How new committee members are trained has however changed compared to some years ago, advisers say. The introduction of local pensions boards effective in 2015 came with explicit requirements about knowledge and understanding, which do not exist in the same way for pension committees; however, often local authorities now bring committee members into the same training sessions they run for board members. The Covid-19 pandemic has also changed the way in which training is delivered, with many finding it easier to complete online training flexibly instead of sitting in a room for two hours at a specific time.
“There has definitely been a greater recognition in recent years about the importance of training. It did happen in the past but it was patchier than it is now,” says Ian Colvin, who heads up Hymans Robertson’s LGPS benefit consultancy. “People have recognised that now that local pension boards are on the scene you have a statutory responsibility, and [the Pensions Regulator] is hot on this stuff.”
The increasing complexity of pension scheme governance and investments is another factor, as is the EU’s MiFID II directive, which means committees need to demonstrate they can act as professional investors, he notes.
Can councillors leave party politics at the door?
Part of training committee members is about making sure they understand “what they’re there for”, says Colvin – being aware of the constraints and expectations imposed by statute and case law and of fiduciary duty when making decisions. With training, “there those who are reluctant but there is a stronger recognition among them that they need to know this stuff”, he says.
For Colvin, taking decisions in the interest of members means leaving party politics at the door, which he says is usually the case, although discussions can sometimes digress into debates about council decisions.
Susan Black, who heads up Hymans’ governance, administration and projects division, says experience shows that detaching themselves from political thinking is difficult, however. “Everyone who is on a committee brings their whole selves, all your thoughts, biases etc. The key is accepting that,” says Black. “You know who is in the room, the job is to make that work… to recognise and manage conflicts.”
The LGPS had itself had some questions about councillors deciding on pension fund matters, fearing a perceived conflict of interest of committee members acting in the interest of the local authority rather than the scheme. The Scheme Advisory Board commissioned the good governance project from Hymans Robertson in early 2019, which in its first phase proposed that funds should report their level of compliance against a governance framework, including areas such as conflict management, sufficiency of resource and budget, and representation on governance committees and boards.
The SAB briefing was that it should have some local democratic accountability - which comes through having elected members involved in the process, explains Colvin, adding that he agrees with this view. “If you start to take it out of the control of local authorities you raise questions like, are you going to centralise it, unfund it... does it necessarily mean a better deal for members?”
Is LGPS governance improving?
The way training has changed is an example of how LGPS governance is getting better and better, says Kirsty Bartlett, a partner at law firm Squire Patton Boggs. She agrees many local authorities offer shared training for local pensions boards and committees, “which is brilliant, because although the responsibilities are quite different, making sure they all have the same base line knowledge, understanding what the fund is, how it’s governed, is really helpful”.
Bartlett says leaving party politics outside the meeting room doors is necessary because of the long time horizon of the investments and liabilities – compared to an election cycle.
“It's about stability and making sure the scheme is sustainable and affordable for all employers in the long run,” she says, admitting this can be hard for somebody without a background in finance.
Despite this, she agrees that decision-making and responsibility should lie with elected councillors rather than, for example, officers.
“From a legal perspective, if you go back to fiduciary duty, I think it’s right that the buck stops with the pensions committee,” she says, but adds that the committee needs support from officers and advisers. “By and large it seems to work,” she adds, noting that pooling has also been added to the support structure around committees. “Councillors are not trustees but they act in the same way,” she says.
Are councillors well placed to take decisions about pension matters?