Wednesday, November 08, 2017

Herding cats in the LGPS pools

Professional Pensions Magazine & website

"John Gray says the London CIV need a simpler and more representative governance structure 

The London CIV (collective investment vehicle) is currently undergoing a much needed governance review and hopefully lessons will be learned for the other seven Local Government Pension Scheme CIVs (pools or authorised contractual schemes) that are currently being set up across England and Wales. This is important since the London CIV already manages £5bn of employees' pension money and plans to manage £25bn by 2020.
As any pension trustee or investment adviser knows, good governance is absolutely vital to ensure the safe, efficient and effective management of funds.
Currently the London CIV has two 'governance' committees or boards overseeing the management special vehicle set up to run the CIV. One is composed of councillors from each of the 33 London authorities and another one compromising of council officers.
As you can imagine, a governance committee of 33 politicians from different and competing political parties is inherently problematic, and having another separate committee of paid officers can, at best, result in confusion and delay in decision-making. A well-placed source recently commented to me that running the London CIV must be like trying to "herd cats". Which is not a good place for any fund to be in.
So a simpler and more representative structure seems sensible and surely not beyond the wit of man or women to devise.
But good governance is not just about staff's pension futures and ensuring  contributions by employees and employers are kept as low as possible but also about making sure that the funds are run in the interests of beneficiaries first and foremost as well as the other important LGPS stakeholders (Such as councils and other employers). This, after all, is the primary duty of all pension schemes.
The best way of achieving this aim is to have beneficiary representation on the governance structure of the London CIV and the seven others. In the private sector up to 50% of pension trustees are employee representatives while currently in the London CIV there are none.
All funds have local pension boards that are made up of employee and employer representatives.
So far only two out of the eight pools have any form of beneficiary representation. Surely it cannot be right that a majority of pools are proposing to have no employee representation whatsoever?
Would not the London CIV and others benefit from having the 'buy-in' of beneficiaries who are actively participating in it?
Recent guidelines make it clear that there should be greater consultation with scheme members, in particular with regard to environmental, social and governance investments. However, their representatives on the governance boards of CIVs could be one way towards satisfying this requirement. 
It is more than ironic that it would appear that private sector schemes are more 'democratic' and accountable than comparable public sector schemes. Pensions are 'deferred pay'. The money belongs to employees and beneficiaries, not local authorities, so it is only right and proper that they share the responsibility of governance with the employers.
Local LGPS pension boards have now been in operation for two years and there are a number of experienced and capable employee representatives who could serve on a CIV board.
So as an employee representative on a London pension committee, then pension board for 20 years (as well as a councillor member of another London Borough's pension committee for seven years) I hope that a key recommendation of this review is that there should be employee reps on the future London CIV working in partnership with councillors and officers to make sure that the CIV is a success and exemplifier for all the other pools. 
John Gray is a member of the London Borough Tower Hamlets Pension Board (Personal Capacity only)

Post a Comment