Pensions governance

Pensions governance: an introduction

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Pensions governance is all about monitoring pension schemes to make sure they are run in their members’ interests. There are several aspects to pensions governance, including:

  • the hiring of fund managers and advisers;
  • deciding how money is invested between asset classes – in shares, bonds, property, cash or as venture capital;
  • ensuring that the pension fund runs efficiently, making sure the costs and charges are known and reduced
  • agreeing the principles that govern the way the money is invested – and making sure those principles are adhered to;
  • making sure there’s always enough money in pension funds to pay pensions;
  • ensuring members have a voice in the running of their pension scheme and investment of their contributions.

Big issue – pension fund investment costs and charges

It’s true to say the costs and charges made by fund managers and others when investing your money need to be calculated. Costs and charges take place when your pension contributions are invested; they take money out of defined benefit funds and put a strain on the ability to pay benefits.

They can take out a lot of money from your individual defined contribution pot of cash and assets leaving you with less to live off when you retire. In order to ensure you get the best out of the investments you must know the costs that are being taken from you.

The Local Government Pension Scheme launched its cost system in April 2020 and some other schemes, both DB and DC have done similar work within the Cost Transparency Initiative.

The Local Government Pension Scheme

The Local Government Pension Scheme (LGPS) has three government departments responsible for the running of the scheme. These are based in England and Wales, Northern Ireland and Scotland.

To go to Northern Ireland and who run the LGPS fund in Northern Ireland.

To go to Scotland contact: Simon Watson:

There are 11 funds in Scotland and a Scheme Advisory Board that partners the running of each fund.

England and Wales

There are currently 87 funds in England and Wales, alongside a Pension Board running next to each fund. The funds are all local authorities with exception of Environment Agency and the South Yorkshire fund.

There are over 13,000 employers and 5 million members. Roughly a third each are active, deferred or pensioners.

The funds need to be governed efficiently and effectively so that pensions can be paid, and all other costs should be kept under control. However, this is not how the LGPS is generally managed.

We produced our findings about how the funds were managing their responsibilities in our research and review of each fund’s investment strategy statement in April 2019. UNISON-ShareAction-LGPS-responsible-investment-final-report-319_2.pdf.

They have generally one or two UNISON representatives. The boards were created in April 2015 and are required to have an equal number of representatives from employers and scheme members.

UNISON encourages members to join the LGPS funds and boards. We have a network of just over 200 LGPS pension fund and board members.

LGPS Cost Transparency

UNISON began the debate about cost transparency after we had experienced details about the issues involved back in 2014. We were concerned that LGPS funds were under reporting on the charges the fund managers were making.

The first stage of the LGPS cost transparency was launched in April 2020. It will mean that each fund will be producing updated cost data from their asset managers and Pool funds at the end of the financial year, but it will be collected four times a year.

As part of the process, investment managers are required to complete and submit the template for the relevant contract, without request, to their LGPS funds on either an annual or quarterly basis. The purpose of the system is to provide cost effective data collection and LGPS Code compliance checking, it includes useful reporting and comparison data facilities.

The data is being managed for England, Wales, Northern Ireland and Scotland through the LGPS Scheme Advisory Board.

LGPS Scheme Advisory Board

The Scheme Advisory Board (SAB) was created in 2015 and has taken over the advisory role of the LGPS in England and Wales and reports to Luke Hall MP Under Secretary of State for Housing, Communities and Local Government.

The SAB meets four times a year it has 6 trade union seats and 6 employers, including a Chair and Vice Chair. UNISON holds the Vice-Chair.

It has two sub committees – Investment, Governance and Engagement and Cost Management, Benefit Design and Administration. It has a range of activities on both sub committees.

LGPS Investment Pooling

Investment pooling was the alternative to the UNISON suggestion of the establishment of one LGPS fund back in 2015. It is now up and running with eight pools.

The pools have taken some assets, but not all them have been included, the funds still contain them. There have been mixed results representation wise for UNISON despite the SAB chair writing to establish how the Pools deal with trade unions.

Access – no trade union representation – Cambridgeshire, East Sussex, Essex, Hampshire, Hertfordshire, Isle of Wight, Kent, Norfolk and Northamptonshire

Brunel – UNISON – Avon, Buckinghamshire, Cornwall, Devon, Dorset, Environment Agency, Gloucestershire, Oxfordshire, Somerset, Wiltshire

Borders to Coast – UNISON – Bedfordshire, Cumbria, Durham, East Riding, Lincolnshire, North Yorkshire, South Yorkshire, Surrey, Teesside, Tyne & Wear, Warwickshire

London CIV – UNISON – has 32 London Boroughs

LPP – no trade union representation – Berkshire, Lancashire, London Pension Fund Authority

Northern – UNISON – Greater Manchester, Merseyside, West Yorkshire

Wales – no trade union representation – Cardiff and Vale, Clwyd, Dyfed, Gwent, Gwynedd, Powys, Rhondda, Swansea

Private Sector Defined Benefit (DB) Pension Schemes

There are 5,442 defined benefit pension schemes in the UK, the vast majority are now closed either completely or open only to existing members with exceptions such as EDF and the Social Housing Pension Scheme.

Typically, the schemes that are still open are larger like the Universities Superannuation Scheme or linked to the trade unions, like UNISON.

The total amount of money involved in the schemes fluctuates but is currently around £1.8 trillion but we can expect to see decline with the economy due to current economic crisis resulting from Covid-19. Benefits will change as trustees seek to deal with changes in the economy in the coming months and years.

UNISON has argued that many small and medium size pension funds should combine their assets in low cost fund management structures. Millions of people, some of which are our members, are still at risk of losing pension benefits unless pension schemes consider consolidating, which would absorb and replace existing schemes.

This highlights the fact that they have only a chance of having their benefits paid in full by their pension scheme. As trustees are faced with the task or closing the scheme completely.

Defined Contribution (DC) Pensions

Auto-enrolment is expected to see over 10 million people newly saving or saving more into a workplace pension scheme. Many UNISON members will be auto enrolled into a DC scheme or they will have had their DB scheme replaced by DC.

UNISON has more than 150,000 members working in the private, community and voluntary sector and in some cases the contributions are higher. It’s imperative that members of defined contribution pension schemes do not get left behind as while they are in it each member has the sole responsibility of running their individual fund.

A DC scheme has a set contribution for the employee and a set contribution for the employer. If you were entered under Auto-enrolment the contribution rate is currently 8% of qualifying earnings of which at least 3% must be paid by the employer.

Some DC schemes allow members to choose the level of contribution they wish to pay, with a related employer contribution.  Contributions are invested on behalf of each scheme member.

The retirement benefits for each member depend on how much money has been built up by the member’s retirement date and so it is not possible to know in advance what benefits a UNISON member will receive.

Collective Defined Contribution (CDC) Schemes

After a five-year delay, the secondary legislation for CDC schemes is finally moving through Parliament. The UK’s first CDC scheme will be Royal Mail’s, and this will be a case study as to how this new-style pension will be received by UK workers.

The concept of Collective Defined Contribution (CDC) provision is simple: contributions into such schemes are pooled and invested with a view to delivering a target benefit level.  CDC is an interesting development in the UK and where employers do not wish to continue offering a DB scheme and UNISON members would prefer not to opt for individual DC arrangements.

Advantages of CDC scheme over DC are as follows:

  • They provide a savings and income in retirement option to people who are uncomfortable making complex individual financial decisions at retirement
  • They enable the sharing of risk between members, therefore providing each UNISON member with an element of protection without the cost of accessing insurance, like DC
  • Allow employers to offer UNISON members a pension scheme, which offers an income in retirement from the scheme’s own assets

Currently used in a number of countries including Canada, Denmark and The Netherlands, CDC schemes are a variation on the standard defined contribution pension scheme. Both involve a ‘money purchase’ arrangement, whereby the scheme member and the employer both pay into a pension pot that grows and declines over time.

The key difference is that, with a CDC scheme, this pot is shared between all scheme members, instead of each member saving into their own individual pot. Benefits are paid out of the scheme’s central fund, which is funded by employer and member contributions.

A CDC scheme will not cause the same financial considerations that a DB scheme could as the company or charity would not have varying pension payments. Many public sector schemes will continue to operate the same current system, private sector, charities, and housing associations employers would have plenty of reasons for choosing CDC schemes.





Pensions governance

  • How can I become a pension fund trustee?

    Becoming a trustee gives you some control over your pension savings.

    More information on pension power

  • I have a query about my pension. Who should I speak to?

    Contact your UNISON rep. If they can’t help, you’ll be referred to your branch and if they can’t help the query will go to the central pensions unit.

  • What is a pension champion and how can I become one?

    UNISON has a network of pension champions to promote and support the provision of good pensions.

    Champions make sure the latest pension information is available, deal with queries, build networks of contacts and help to coordinate the fight to save public sector schemes.