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Susan Martin asseses the key points to come from the LGPS consultation and outlines the moves the LFPA has been advocating. The current consultation on the Local Government Pension Scheme (LGPS) governance arrangements shines a spotlight on some interesting issues. The first of these is the skills and knowledge required by a pension board. As it stands, there is no requirement for administering authorities' pension committee members to have any specific pension management experience or to undergo training. However, the sums entrusted to each of the 89 individual LGPS pension funds are usually in the billions. This is an issue raised by Department for Communities and Local Government's current governance consultation which asks for views. Whilst it suggests those on the new pension boards should meet the Chartered Institute of Public Finance and Accountancy's (CIPFA) Knowledge and skills framework, it says it is ‘open to question' whether the same requirement should be made of local committee members. We'll be advocating that pension committee members should be required to meet the CIPFA Framework. The London Pensions Fund Authority (LPFA) board members are recruited for their specific mix of skills and knowledge of pension fund management, public service and corporate governance. We operate in line with the CIPFA Framework, promote the Pension Regulator's Trustee Toolkit and provide formal and informal board training as well as annual appraisals. In addition, we carry out regular formal board evaluations internally and this summer we will embark on our three yearly external board performance evaluation. We believe that skilled and experienced boards and executives working together provide a higher degree of governance which can ultimately produce notable improvements in performance – these close working relationships between our board and executive team have led us to change our investment strategy. This has considerably improved our management of liabilities and assets and has already been the catalyst for change within our portfolio. We have moved towards investing more of our fund in illiquids, such as housing, private equity and infrastructure as these assets provide return profiles which better match our liabilities. A further element being introduced to our investment strategy is a concentrated ‘buy and hold' approach to equities, which delivers substantial savings through reduced transaction fees and in-house management. The consultation also raises working relationships between LGPS funds. We believe this will be important for funds to tackle the LGPS deficit and so protect future taxpayers and future pensioners. Our submissions to both the current governance consultation and the recent Opportunities for collaboration consultation include our model for voluntary partnering between funds. The benefits of voluntary partnering include strong local accountability under robust governance arrangements as well as accessing scale economies, in house expertise and direct investment in asset classes which better meet long term liabilities. Susan Martin is chief executive of the London Pensions Fund Authority

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FINANCE

Spreading the governance dividend

By Susan Martin | 01 August 2014

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