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Officers 'dismayed' by Lyons' letter...
Officers 'dismayed' by Lyons' letter

By Dan Drillsma-Milgrom, finance reporter

The Audit Commission's reputation among councils has taken another blow after its public criticism of the management of the Local Government Pension Scheme last week.

Sir Michael Lyons, the commission's acting chairman, wrote a letter to communities and local government secretary Ruth Kelly, complaining that only a third of the 81 pension fund administering authorities published separate annual reports.

A subsequent article in the Financial Times written by the commission's chief executive Steve Bundred mentioned the deficits in the scheme, and suggested a lack of transparency offered potential for contributions to the scheme to be missed.

Bob Summers, director of finance at Norfolk CC and chair of the Chartered Institute of Public Finance & Accountancy's pensions panel, said the commission should have consulted the panel before going public with its views.

'I am dismayed at the way the Audit Commission has handled this,' he said.

'The commission sits on the CIPFA panel which issues best practice advice - surely that is the place to raise any concerns?'

Mr Summers also dismissed Steve Bundred's suggestion that pension funds be treated as standalone bodies: 'I would challenge the Audit Commission as to whether it knows what it is talking about.

'There are legal issues about the democratic process. There are elected members acting as trustees to the pension scheme. Is the commission asking for that democratic link to be broken?'

A spokesman for the commission said: 'This was a letter designed to stimulate debate, and it wouldn't have been appropriate to circulate it in advance of it being sent to the secretary of state.'

The Audit Commission also drew council criticism on publishing the 2005 comprehensive performance assessment results for single-tier and county councils. Then chair James Strachan claimed 'nearly half of councils are either at or below what we consider minimum standard' for value for money, when just seven councils were below the threshold.

The commission is also due to report next month on the potential for cost savings among the London borough pension funds. Potential options include combining the administration and procurement for the schemes or relocation outside of the capital.

Analysis - Commission's valid point was poorly executed

If local government pension funds are not required to publish annual reports separate to the councils' accounts, does the fact that 27 of the 81 funds do so make the cup one-third full or two-thirds empty?

If the answer to that question is the former, it goes some way towards justifying the sense of anger felt by those involved in the day-to-day running of the Local Government Pension Scheme (LGPS) towards the Audit Commission, for airing its opinions in the press without giving them a 'heads up' first.

Bob Summers says he speaks for a number of his colleagues when he accuses the commission of 'shooting from the hip'. You can hardly blame them when you look at the negative coverage the LGPS received in the press on the back of Sir Michael Lyons' letter.

Both Sir Michael and Steve Bundred were careful not to directly link the scheme's corporate governance arrangements with the sizeable deficits carried by many funds, but by even mentioning the two issues within a couple of paragraphs of each other, they gave the Daily Mail enough to run an alarmist story.

But substantively, the commission makes a valid point. Treating a pension fund as a standalone body is not the same as actually separating it from the council. Cost implications aside, it is hard to think of a good reason why all local government pension funds do not produce a separate set of accounts.

However, the commission must be careful not to whip up too much negative sentiment to a pensions scheme that is still far from gold-plated for the low-paid majority of members.

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