The Local Government Pension Scheme belongs to some 5.1 million Brits who are the legal owners of its £217 billion of assets. The scheme assets are being merged nationally into one of eight new "pooled" schemes but only one of these pools have made any plans for beneficiaries (owners in law) to have any representation on the boards of these pools whatsoever.
This is, of course, a complete and utter nonsense, is probably illegal, certainly divisive and definitely bad practice and seriously bad governance. Beneficiary representation was brought about in pensions to prevent fraud. Never forget that there is no Crown promise for the LGPS nor any Pension Protection Fund.
See below a well made argument by UNISON LGPS Member representative, Colin Lomax, to his Council Pension fund (Dorset County) about governance at their new "Brunel Pool" and why the pool should have beneficiary representation.
Picture is from the UNISON Local Government Pension Scheme seminar last week when we had over 120 LGPS Members representatives attend (including colleagues from GMB and Unite).
"Since the last meeting of
the Committee, we have had a presentation on the Brunel Pooling Proposal here
on 7th October when concerns were raised at the lack of provision of
representatives of scheme members on any of the Brunel Pooling governance arrangements
and that this was a serious omission. I attended a similar event at Keynsham on
14th October and raised the same issue there. The response I
received was that this could be arranged on an observer basis and I indicated
that this would be acceptable provided such observers had the right to speak.
The reports we have today
make no mention of scheme member representation and I can only assume that the
officers are so tied up with the details that they have failed to take this
into account.
We accept that it might be
inappropriate for scheme member representatives to be on the main board, but we
propose there should be 3 trade union representatives on the Oversight Board in
an observer capacity but with the right to speak. We are not assuming that we should be on that
board as clearly such representatives should be drawn from scheme members
across all 10 constituents of the Brunel Project Partnership.
We have had TU representatives
on this Committee since around 1988 and Roberto himself has been a continuous
member since then, a period of around 28 years, more than any member or officer
here present. My own period of such service is just 13 years. The contributions we have made in that time
have been welcomed, certainly by members, and we shall have a continuing role on
this Committee in the future, albeit in a diminished capacity as we acknowledge
the advantages of the pooling arrangements in reducing costs.
However, to exclude scheme
member representation within the new pooling structure is wrong in principle.
No private sector defined benefit scheme excludes worker representation and
there are few if any that have such a size of assets as large as the Brunel
Project. It is that size of assets, all
of which are held in trust for scheme members, that makes a very strong case
for scheme members to have representation to oversee and monitor how their
funds are managed and invested.
The Editor of Engaged
Investor writes:
“The case for (scheme) member representation
on the boards of pension schemes is difficult to argue against. Involving savers in the governance of their
funds improves oversight, confidence and trust, and ultimately makes it more
likely that savers will get the results they want.”
“In the defined benefit
world this is common-place – member nominated trustees were part of the answer
to the Robert Maxwell pensions scandal”.
In a separate article,
Sara Benwell writes
“In the world of trust-based schemes, (scheme)
member representation is relatively simple.
Under the Pensions Act 2004 all trust-based schemes are required by law
to ensure that at least a third of trustees…are membership-nominated”
Both Roberto and I are
members of the Association of Member Nominated Trustees.
Tim Middleton, technical
consultant at the Pensions Management Institute says
“Having a (scheme) member perspective adds
diversity and diversity prevents the risks of groupthink within boards”
Ian Pittaway who chairs
the Association of Professional Pension Trustees, adds:
“They’re brilliant in so many areas, they ask
difficult questions that other people might be frightened to ask”
“Every board I chair is
enriched by having (scheme) members on it and it would be a very sad day if we
sat there with just professionals running the scheme in a very arm’s length
way.”
LGPS is not a trust-based
scheme as such. It is a statutory
scheme, but even that has its risks in that the Government can (and has done) change
it. Certainly there is now a greater
emphasis being placed on elected members acting as trustees and professionals
also acting as trustees, which makes it more like a trustee based defined
benefit scheme.
It is not illegal for the
BPP to appoint scheme member representatives to any Board. Marcus Jones MP, the Minister charged with
approving these new pooling arrangements, in the Parliamentary Debate called in
response to a petition signed by over 100,000 scheme members, held on 24th
October, 2016 said
“I assure Hon.Members that there is an
opportunity for trade union representatives on pools. That is a matter for the individual governance
arrangements, but the individual local authority members that support each
scheme will have the right to be part of setting up those pooling arrangements,
and it will therefore be their decision on whether trade union representatives
are on their pools.”
Already we know of two of
the new pooling partnerships that have included provision for trade union
representatives to sit on oversight boards.
There were other issues
which were raised in the parliamentary debate.
There was general support for pooled arrangements but criticism of the
way the Government has handled the issue and criticism on it seeking to direct
how funds are invested. It was
emphasised that “funds must be invested in the best interest of their (scheme) members,
as European Directives lay out”. Article 18 of the European Directive on
Institutions for Occupational Retirement Provision also states that “Member
States shall not require institutions to invest in particular categories of
assets”.
There is no doubt that the
Government has rushed through these measures and that the pooling arrangements
have entailed a considerable amount of work by officers working for the 10
constituent partners. In so doing, they
have ignored the wishes that have been voiced on behalf of scheme members,
whose assets are being held and invested on their behalf. I would hate to say that this has been deliberate,
but it is now vitally important that this omission is corrected.
We cannot recommend the
Committee nor the Council to approve the recommendation in the report without
an assurance, indeed an undertaking, that the Committee recommends the County
Council to support the principle of trade union representation, with speaking
rights, on Oversight Boards, before this submission is formally made to
Government.
Colin Lomax"
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