Lothian Pension Fund has completed the first full year of governance reforms designed to increase representation for stakeholders and strengthen processes.
The scheme has awarded membership of the pensions committee to two members from its 12-strong consultative panel, along with full voting rights. It also introduced a pensions audit subcommittee and independent professional observer.
The decision to award voting rights was made after Scottish ministers issued best practice guidance on council governance, including increased scrutiny of pension funds. “We wanted to formally involve non-council stakeholders in the decision-making,” said a spokesperson for the council.
Barry Mack, head of governance for consultancy Hymans Robertson, said: “It’s not atypical for committees to have representation for people outside the county council, they’ll also usually have representation for members.”
However, Mack said stakeholder representation was usually a minority on the board, with the majority of representation still dedicated to the sponsoring employer.
Better-value advice
He added the use of subcommittees and professional observers was an effective way of getting more value from advice.
“It helps to enhance the knowledge and understanding of those sitting around the table,” he said.
“What is more common is if a committee has an investment subcommittee, to have an independent investment adviser [who is] independent of investment consultants to help them challenge the advice they’re given,” said Mack.
Writing in the fund’s annual report, councillor Alasdair Rankin, pensions committee convenor at the City of Edinburgh Council, said: “Pension issues can be technical and complex and these changes have helped to scrutinise advice in more detail and further strengthen the governance of the funds.”
Pension committees often form an important part of the decision-making process on local government pension schemes, but questions remain about how the role of the committee in the face of the consultation on LGPS governance.
The consultation is being carried out by the Scottish Public Pensions Agency and covers a number of aspects of scheme governance, including the role of pension boards.
A similar consultation by the Department for Communities and Local Government covering scheme governance in England and Wales closed at the end of August.
One of the main questions it raised was the role of the pension board. The boards are being set up to ensure compliance with regulations from both government and the Pensions Regulator, as well as “such other matters as the scheme regulations may specify”, the DCLG said.
But it is not yet clear how the boards will interact with pension committees, or whether they will replace them.
Steve Simkins, head of public sector pensions for consultancy KPMG, said LGPS schemes may struggle to award voting rights to non-elected members of pension boards due to section 101 of the Local Government Act 1972.
The issue of representation on LGPS boards has been controversial in the past, with the University of East Anglia calling for voting rights on the pensions panel on the Barking & Dagenham Pension Fund.
However, Simkins said even members with observer status could contribute to decision-making.
“They often participate fully in decisions, a lot of the time committees don’t even vote,” he said, adding that relying on discussion and consensus as opposed to voting could have achieve a similar outcome.
