How your pension fund is invested and managed - the future of LGPS governance

Collectively the LGPS is the largest pension fund in the UK worth billions of pounds. How our members' money is invested and how it is managed is crucial to delivering the pension benefits to UNISON members. Trade union representatives on LGPS funds are crucial to make sure the benefits are delivered and the funds are secure and well managed.

What is LGPS Governance?

Governance of pension funds such as the LGPS would include the following:

• The hiring of fund managers and advisors
• Decisions on asset allocation - i.e. whether to invest in shares/bonds/property/cash/venture capital
• Developing a 'statement of investment principle' and making sure that the principle is carried out
• Deciding on a programme of socially responsible investments
• Voting shares at company Annual General Meetings
• Making sure that the assets of the fund can meet obligation of paying pensions

LGPS New Investment Regulations - Statutory Consultation Until April 3rd 2009

This is against the background of general pressure from UNISON/GMB on the failure to implement the EU Directive 41/2003 Institutions for Occupational Retirement Provision or IORP and to take into account the 2005 Occupational Pension Scheme Regulations (amended 2007).

Key issues

• The new regulations do not meet the requirements of Article 8 of the IORP Directive - i.e. legal separation - they simply require the establishment of a separate bank account
• Borrowing from the funds must cease and all money paid back within 6 months of the regulations becoming law
• New guidance is proposed on managing conflicts of interest - but the recommendation for the new regulations is a made up version of the Directive's requirement to resolve conflicts of interest in favour of the 'fund' and not 'scheme members'

What is missing in the regulations that should enforced by the Directive?

• No legal separation of the scheme from the employers - this means that the pension fund remains a council committee and not able to resolve conflicts of interests
• There is no requirement to invest in the best interests of members or the sole interests in a conflict of interest - only to resolve them in the interests of the funds - the fund has no legal personality
• No requirement to invest predominately on regulated markets and avoid the complex derivatives market

UNISON believes the Local Government Pension Scheme (LGPS) may be in breach of UK and European law

Despite the Department promising to reform the LGPS, the scheme appears to fail to conform to at least two articles in the European IORP Directive as well as disregarding elements of the Occupational Pension Schemes Regulations 2006.

The key contraventions relate to Articles 8 and 18 of the European IORP Directive and Occupational Pension Schemes Regulation 12, which cover separation of decision making and restrictions on scheme investments.

Under Article 8 of the Directive, government is required to separate LGPS funds from the sponsoring employer. However, the LGPS is typically controlled by a sub-committee of the administering authority, which is usually the scheme's largest sponsoring employer, meaning there is no distinction between the two entities.

Article 18 of the Directive requires investments are made in the best interests of members and in the event of a conflict of interest, the scheme must be able to demonstrate its ability to make decisions solely in favour of members. Unlike funded schemes in the private sector which are obliged to have member-nominated trustees, LGPS investment decisions are made by pension committees linked directly to the administering authority.

With such limited member representation and independence there is little room for autonomous decision making on behalf of LGPS members.

UNISON argues that the complete lack of separation between LGPS investment decision makers and the absence of independent control of funds means the scheme is operating outside the law. The union calls on government to act immediately to ensure the LGPS is run at arm's length from administering authorities and to provide appropriate member-nominated representation on decision-making boards.

National Union - LGPS Seminar Thursday March 26th - National Union of Teachers HQ

UNISON has been campaigning for improved representation on the LGPS for the last two years, some progress has been made. The Department for Communities and Local Government, (DCLG) is currently consulting on new regulations that will have some effect on governance.

This seminar is being held to explore what the DCLG consultation is for and how far away the government is from creating statutory recognition rights for scheme members.

The seminar will have workshops on the key organising issues and on report on research undertaken by the national union on investments the LGPS authorities have made in private contractors, PFI programmes and Private Equity.