The creation of national and local advisory boards for the Local Government Pension Scheme is expected to improve engagement and representation for members, but could lead to increased cost for compliance.
The Department for Communities and Local Government is consulting over the creation of a national advisory board for the LGPS, along with local advisory boards for each of the 89 local authorities in England and Wales.
Other recommendations
The consultation also includes proposals for the DCLG to monitor the cost to employers of running the scheme.
The paper stated: “The department would need to ensure that any increases or decreases in the cost of the scheme of two percentage points or more would be offset, for example, by varying the rate at which scheme members’ benefits build up.
“In addition, the proposed national scheme advisory board would aim to ensure that the total pension contributions paid by employers and employees were within one percentage point of 19.5 per cent of pensionable pay and that employee contributions were one third of the overall costs.”
Karen McWilliam, head of public sector benefits and governance at consultancy Aon Hewitt, said local boards would improve engagement among LGPS schemes that do not yet have representation of members and employers.
However, she added: "A lot of them already have representation on their committees. For those ticking the boxes already it could be a minimalist approach... there's an additional layer of compliance."
McWilliam said most schemes would have to set up a separate board regardless of whether they already had representation for members and employers, due to restrictions on non-elected members on local government pension boards. "It will be a big resource commitment," she said.
Dave Prentis, general secretary of public sector union Unison, said: “The new boards will give scheme members, for the first time in the history of the LGPS, the ability to take part in the investment decision-making process. However, it remains to be seen how well employer representatives, who up until now have had exclusive control of the pension scheme, will adjust to the participation of the scheme members.”
He said the government should consolidate the investments of the funds. "This will allow for more in-house fund management and tackle transaction costs, which will significantly improve investment performance.”
Bryan Freake, national pensions officer at union Unite, supported the changes and called for the shadow scheme advisory board, which will become the national advisory board next year, to have further powers.
He said: “We’d like to see the powers of the shadow board increase so it can get a grip on the variable level of funding on local boards. At the moment, recovery plans and contribution levels are set by each authority. We’d support the national boards having more influence over that.”
The consultation also proposes the creation of local advisory boards for each of the 89 local authorities in England and Wales.
The government earlier this year recommended the establishment of a collective investment vehicle for the listed assets of LGPSs and one for alternative assets, saying savings could reach £660m a year. However, some have argued the vehicle could reach a point where it started to suffer from "diseconomies of scale".
The DCLG consultation paper stated: “A national scheme advisory board would advise the department on changes to the scheme’s regulations, for example to reflect changes in costs.” The consultation began in early October and will run until November 21.
