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Agenda item

Governance Update

To provide Committee Members with an update on governance related matters and to agree the response to the MHCLG consultation on Fair Deal – strengthening pension protection.

Decision:

(a)  That the Committee considered the update and provided comments.

 

(b)  That the Committee agreed to the extension of the existing Custodian contract until it is no longer required due to asset pooling.

 

(c)  The Committee considered the proposed response to the Fair Deal consultation, highlighting any changes they would like to make and agreed to the response being submitted to MHCLG, subject to delegating incorporating any further changes agreed to the Clwyd Pension Fund Manager.

 

Minutes:

Mr Latham confirmed that they are making progress on item 1.01 and that interviews for the Accountant and Governance Support Officer are tomorrow, they will be advertised through the graduate post shortly. Mr Everett commented that they have been working hard on the staffing restructure and posts.

 

Mr Latham highlighted page 117 and the work that the Scheme Advisory Board are undertaking and its importance as it impacts on the Fund.

 

Mr Middleman gave an update on Fair Deal, highlighting that there has been a consultation and that there is a draft response in the papers for agreement in principle.  Mr Middleman gave an overview of the background on Fair Deal, noting that it is about protecting the rights of employees who are outsourced from a public sector to a private sector employer. Currently they remain in the LGPS or transfer to a scheme which offers benefits that are “broadly comparable” to the LGPS as certified by an actuary. Under New Fair Deal the broadly comparable route will disappear. 

 

The questions asked and answered are set out from page 134. The second question discusses the definition of a Fair Deal employer, which is all public bodies with the exception of further and higher education employers. In the response, the Fund has commented that this seems reasonable but there is a potential inconsistency which needs to be clarified if it’s the intention.

 

Question 3 relates to transitional arrangements, for example what happens to those that were in a broadly comparable scheme when the contract ends. Their pensions and rights will be compulsorily transferred back to the LGPS, which potentially increases risks and costs to employers as they will be transferred across on an individual transfer basis which can be generous for individuals due to the assumptions used versus the transfer offered. Previously they would be transferred on a “bulk basis” in a way that usually protected the employer but gave a fair outcome to the members also. Mr Middleman commented that there are not many broadly comparable schemes so in the overall scheme of things for the LGPS it may be something that can be lived with to make it simple to operate.

 

Mr Middleman noted that the key element of the consultation is on page 136 which discusses the introduction of “deemed employer status”. If the Council outsourced services, then the Council could be the “deemed employer” and the outsourced employer would not require an admission agreement or bond.

 

Whilst the admitted body route would still be available, this would simplify the process in cases where the Council agrees to take all the risk. This would mean that an exit debt calculation is not required. However, Mr Middleman noted that the new employer’s relationship with the Fund should be fully documented as they still need to pay contributions to the Fund. This makes it critical for employers in the Fund to have clear policies so that all parties understand their obligations and this should be part of the process for any contract between the employer and the contractor (or other entity admitted in this way).

 

Mr Middleman commented that the most effective route would be that employers need to compulsorily make pension considerations part of the procurement process to ensure it is dealt with immediately and fully understood. Whilst the ideal would be for the procurement Regulations to change to achieve this, it would be difficult to implement that route.  Mr Everett agreed but noted that it can still be implemented through a Council’s policy on transfer of services. Mr Middleman agreed whilst noting that it can be difficult to ensure this is the case.  

 

Mr Middleman noted that the proposed consultation also includes some points about the process of merging employers. He highlighted that there should be some sort of consent for a receiving authority.  For example if an employer transfers from another Fund to the Clwyd Pension Fund; if it fails then the risk has been transferred to the Clwyd taxpayers.

 

Mr Hibbert asked for the definition of a broadly comparable scheme and whether it could mean a defined contribution scheme with small contributions (e.g. 1%) paid by the employer and employee. Mr Middleman explained that broadly comparable could be a private sector scheme that provides benefits that replicate completely the LGPS benefit structure but not backed by taxpayers. It could also be a Defined Benefit scheme with benefits of equivalent actuarial value to ensure that the benefits are “broadly equivalent”. It required actuarial certification of broad comparability. This could not be a DC scheme.

 

Mr Latham noted that the introduction on page 149 mentions accounting requirements. Employers have to include pension debts in their accounts which can cause them issues bidding for contracts. The deemed employer route could mean that they don’t have to show this liability on their balance sheet so it is right to ask this question. However, he expects that the answer will be that they do need to include them.

 

Miss Gemmell talked the Committee through the cost management slides. It was noted that the cost management process is now on hold due to the McCloud judgement which is a case brought against the Government on age discrimination grounds in relation to protections given to members when public sector schemes changed their benefit structures in 2014 or 2015.  The challenge was in relation to the Judges and Firefighters Schemes. The outcome was that the protections were found to be discriminatory. The Government are considering an appeal which could take more than 12 months to resolve. If Government accept the judgement or are unsuccessful in the appeal it would mean additional costs for the LGPS, backdated to 1 April 2014 at least, and a reassessment of the cost management outcomes.  If Government win an appeal the cost management process would recommence and any changes could be backdated to 1 April 2019 which is far from ideal from an administration viewpoint. 

 

Administering Authorities have been asked how it should be dealt with in the 2019 valuation.  In particular, whether they would prefer to make their own judgements about how to allow for the McCloud judgement (for example, in the actuarial valuation, in exit calculations etc.) or whether they would prefer central guidance that all funds should follow consistently. A response should be sent from Funds by 1 March 2019.  Mr Middleman’s view is that the guidance approach would be better to give consistency across the Funds but that he does not want the guidance to be too prescriptive as each Fund needs to take into account local circumstances. Mr Middleman also noted that the costs of the McCloud judgement could well be higher than the initial cost management impact for employers and that the benefit is more valuable to the younger members.   

 

Mrs McWilliam commented that this will be confusing for members and employers, especially if the benefits are backdated. The impact on the administration team will also be large. Mr Middleman agreed and noted that implementing the backdated employee contribution changes will be complicated. He commented that the cost management process is less of a burden than the implications of the McCloud case, if they are deemed to be unlawful.

 

Mr Jones asked whether this was included in the risk register. Mrs McWilliam confirmed that whilst the risk register has been intentionally kept high level, one of the sections relates to national risks and so this is therefore covered. 

 

RESOLVED:

 

(a)  That the Committee considered the update and provided comments.

 

(b)  That the Committee agreed to the extension of the existing Custodian contract until it is no longer required due to asset pooling.

 

(c)  The Committee considered the proposed response to the Fair Deal consultation, highlighting any changes they would like to make and agreed to the response being submitted to MHCLG, subject to delegating incorporating any further changes agreed to the Clwyd Pension Fund Manager.

 

 

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