Public sector pension changes ‘could be recipe for confusion’

8 Nov 12
The governance and regulatory systems proposed in the Public Sector Pensions Bill could be ‘extraordinarily complex and onerous’ for even the best run pension schemes, the chief executive of the National Association of Pension Funds has warned.
By Nick Mann | 8 November 2012

The governance and regulatory systems proposed in the Public Sector Pensions Bill could be ‘extraordinarily complex and onerous’ for even the best run pension schemes, the chief executive of the National Association of Pension Funds has warned.

Speaking at CIPFA’s Pension Network Annual Conference yesterday, Joanne Segars said there were an ‘awful lot’ of unanswered questions around the Bill. Put before Parliament in September, it brings in a rise in pension ages and a change from final salary schemes to ones based on career average earnings. It also includes new governance requirements that mean a scheme must have a manager and a pension board.

Segars said that compliance with this new regime ‘would require significant changes, even for already well-run, well-governed, public sector pension schemes’.

In particular, a ‘slight reality check’ was needed in how the plans addressed potential conflicts of interests for those running public sector pension schemes, she said. There appeared to be an expectation that there wouldn’t be conflicts of interest instead of taking ‘the far more logical approach of finding a way of managing those conflicts of interest’.

Segars also warned about potential confusion over the regulatory framework for pension schemes. ‘Splitting the regulation between the regulator, the Treasury and the sponsoring department, could, we think, be a recipe for confusion, so we need to see some very clear boundaries about who is going to do what.’

She said there was particular uncertainty over the role of The Pensions Regulator in terms of valuing the assets and liabilities for funds that were part of the Local Government Pension Scheme. These valuations must continue to be carried out on a local basis, she added.

Segars stressed the importance of getting the Bill through Parliament ‘quickly’ so it could receive royal assent by next spring, and said similar urgency was needed with setting out regulations specific to reform of the LGPS. A deal on changes to the scheme was agreed between the government, councils and trade unions in May, but draft regulations are yet to be published.

The settlement ‘ticks the right boxes’, Segars said. But she added: ‘There’s still a huge amount to be done, the building blocks are in place but it’s going to be all about the detail. We need to make sure the consultation and process move ahead swiftly and further work on cost management is carried out.’

During the process of agreeing a settlement, concerns were raised that plans for increased contribution levels and reduced benefits could lead to increasing numbers of council employees opting out of joining a pension scheme. ‘It’d be a pyrrhic victory if we got these reforms but with huge numbers of people leaving the schemes,’ Segars noted.

She said that the settlement as it stood protected low-paid workers, which was essential to minimising opt-out rates, but added that it was an issue the NAPF would be monitoring ‘very, very carefully’.
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