The Local Government Pension Scheme (LGPS) Advisory Board has published draft guidance on how local authorities must set up pension boards.
The advisory board was set up to test and advise local authorities on new LGPS regulations coming into force in April 2015.
Under the regulations, authorities which administer the local sections of the LGPS will come under the remit of The Pensions Regulator (TPR), and will be required, by 1 April 2015, to set up pension boards which will oversee the running of their section of the fund.
Pension boards will mimic the trustee boards that are legally required to run private sector, trust-based defined benefit pension schemes.
Currently, LGPS funds are run by pension committees, which may interact with the council’s chief financial officer and any relevant sub-committees. They are comprised of councillors, as with any committee, and may also include representation from unions and private or third sector employers that are part of the local LGPS fund.
However, there will be different rules for the composition of pension boards, which the advisory board has published in draft form.
The draft guidance said pension boards must include an equal number of employer and member representatives, with no less than four members in total. They may contain more members.
No officer or councillor who is part of a pension committee can also be on the pension board.
In some circumstances, the guidance said, authorities’ existing pensions committees could fulfil the role of the pensions board - but only with approval from the secretary of state for communities and local government.
However, the advisory board warned that it would be “difficult” for a pension committee to fulfil the role of pension board. This was because it would need to meet the requirements of three different pensions acts and the LGPS regulations at once.
It said that if a pension committee were to fulfil the pension board role, “it is difficult to see how the pension board can effectively and objectively fulfil its statutory function of assisting itself (as the Pensions Committee) to secure compliance with legal and regulatory matters and to ensure the effective and efficient governance and administration of the LGPS”.
The draft guidance also outlined the knowledge, skills and experience a member of the pension board should have.
It said board members should know and understand the rules of the LGPS, as well as investment regulations affecting the scheme; any policies about the administration of the fund; and the law relating to pensions.
Earlier this year, the Local Authorty Pension Fund Forum warned that councils “may struggle” to recruit people suitable for their boards given the levels of knowledge required.
The draft guidance clarified what constitutes a conflict of interest for a member of a pension board, and how to manage it.
It said that boards should follow TPR’s code of conduct for dealing with conflicts of interest.
Being a member of the LGPS does not automatically constitute a conflict of interest for a board member.
Instead, the advisory board gave an example of a local authority finance officer being appointed to the pension board.
If this officer was tasked, as a member of the board, to make a decision about departmental spending on the scheme’s administration, but was at the same time responsible, as part of their role as a finance officer, to make decisions about reducing departmental spending, this would constitute a conflict of interest, it said.
The consultation on the draft guidance closes on 21 November.