22 July 2009
Union urges tougher control over pensions
Mark Conrad
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Unison has criticised the management of the £120bn Local Government Pension Scheme, urging ministers to impose tough governance standards forced on the private sector after the Robert Maxwell scandal.
A study of LGPS governance, obtained by The MJ, warns the scheme falls below private sector standards and is open to legal dispute.
The union claims eight authorities – Surrey CC, Worcestershire CC, Southwark LBC and five Welsh councils – delegate management of their pension fund to a single council officer. While this complies with local government law, Unison claims it is a largely-obsolete practice.
Colin Meech, Unison national officer, said: ‘This is now outlawed in trust-based pension funds. The response after the Maxwell debacle was to place scheme members at the heart of governance, something the CLG has failed to do.’
The study also calls for the legal separation of LGPS funds from councils by granting them non-departmental public body (NDPB) status.
Such separation would bring the LGPS into line with European pension law. Four LGPS funds, including those covering the Environment Agency and London Pensions Authority, are already NDPBs.
Past CLG ministers, including Phil Woolas, have supported improved governance and scheme member input into decision-making.
But Mr Meech said ministers had failed to back their words with action. ‘The CLG’s reform programme has failed and, as previous ministers promised, it is time to legislate for scheme member representation,’ he said. ‘The schemes must be legally separated from the councils, so that the obligation to invest in the best interests of scheme members can be delivered. The funds remain an integral part of the council, no different from the housing committee. This is totally unsatisfactory and a serious breach of European legislation.’
Unison’s report pre-empts a crucial LGPS valuation period in 2010 that will reveal some funds can cover just two-thirds of their liabilities, potentially requiring employers and staff to contribute more.
LGPS critics, including Conservative front-benchers, are pushing for cost-saving changes to the scheme. But Unison claims many problems stem from the absence of effective scheme member influence.
Elected councillors are legally responsible for the 89 LGPS funds, but they have a fiduciary duty to taxpayers, not scheme members.
Unlike other UK pension funds, there is no local government legislation requiring councillors to invest in the best interests of scheme members.
Most LGPS funds are managed on a day-to-day basis by a committee representing the political balance of the administering authority, but councils can delegate investment responsibility to the full council, committees, sub-committees or officers.
A spokeswoman for Surrey CC confirmed: ‘Responsibility for the overall direction of the fund’s investment is delegated to the head of finance, who acts in consultation with the chairman of the Investment Advisors Group.
‘As a statutory public scheme, the LGPS has a different legal status compared with trust-based schemes in the private sector. Most occupational pension schemes, primarily in the private sector, are established under trust law. Although those entrusted to make statutory decisions under the LGPS are in many ways required to act in the same way as trustees in terms of their duty of care, they are subject to a different legal framework.’
A CLG spokesman said: ‘The LGPS remains fair, solvent, protected against risk, and affordable to the taxpayer.
‘Managing funds is a matter for individual administering authorities which have a legal obligation to pay benefits.
‘We encourage best practice and most funds now have representatives from other employers and trade unions at local level.’
Unison’s report reveals that while 66 out of 89 LGPS schemes have member representatives sitting on the pension fund’s main decision-making body, only seven have voting rights.
On current trends it would take 54 years before every pension scheme has one member representative with voting rights on a town hall pension committee.
A study of LGPS governance, obtained by The MJ, warns the scheme falls below private sector standards and is open to legal dispute.
The union claims eight authorities – Surrey CC, Worcestershire CC, Southwark LBC and five Welsh councils – delegate management of their pension fund to a single council officer. While this complies with local government law, Unison claims it is a largely-obsolete practice.
Colin Meech, Unison national officer, said: ‘This is now outlawed in trust-based pension funds. The response after the Maxwell debacle was to place scheme members at the heart of governance, something the CLG has failed to do.’
The study also calls for the legal separation of LGPS funds from councils by granting them non-departmental public body (NDPB) status.
Such separation would bring the LGPS into line with European pension law. Four LGPS funds, including those covering the Environment Agency and London Pensions Authority, are already NDPBs.
Past CLG ministers, including Phil Woolas, have supported improved governance and scheme member input into decision-making.
But Mr Meech said ministers had failed to back their words with action. ‘The CLG’s reform programme has failed and, as previous ministers promised, it is time to legislate for scheme member representation,’ he said. ‘The schemes must be legally separated from the councils, so that the obligation to invest in the best interests of scheme members can be delivered. The funds remain an integral part of the council, no different from the housing committee. This is totally unsatisfactory and a serious breach of European legislation.’
Unison’s report pre-empts a crucial LGPS valuation period in 2010 that will reveal some funds can cover just two-thirds of their liabilities, potentially requiring employers and staff to contribute more.
LGPS critics, including Conservative front-benchers, are pushing for cost-saving changes to the scheme. But Unison claims many problems stem from the absence of effective scheme member influence.
Elected councillors are legally responsible for the 89 LGPS funds, but they have a fiduciary duty to taxpayers, not scheme members.
Unlike other UK pension funds, there is no local government legislation requiring councillors to invest in the best interests of scheme members.
Most LGPS funds are managed on a day-to-day basis by a committee representing the political balance of the administering authority, but councils can delegate investment responsibility to the full council, committees, sub-committees or officers.
A spokeswoman for Surrey CC confirmed: ‘Responsibility for the overall direction of the fund’s investment is delegated to the head of finance, who acts in consultation with the chairman of the Investment Advisors Group.
‘As a statutory public scheme, the LGPS has a different legal status compared with trust-based schemes in the private sector. Most occupational pension schemes, primarily in the private sector, are established under trust law. Although those entrusted to make statutory decisions under the LGPS are in many ways required to act in the same way as trustees in terms of their duty of care, they are subject to a different legal framework.’
A CLG spokesman said: ‘The LGPS remains fair, solvent, protected against risk, and affordable to the taxpayer.
‘Managing funds is a matter for individual administering authorities which have a legal obligation to pay benefits.
‘We encourage best practice and most funds now have representatives from other employers and trade unions at local level.’
Unison’s report reveals that while 66 out of 89 LGPS schemes have member representatives sitting on the pension fund’s main decision-making body, only seven have voting rights.
On current trends it would take 54 years before every pension scheme has one member representative with voting rights on a town hall pension committee.
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