UK - Local authorities could retain control over investment policy but would need to adopt standard guidance on valuation assumptions, according to proposals put forward by the London Pension Fund Authority (LPFA) for an independent commission for local government pensions.
In a Green Paper discussion document entitled A Fair and Affordable LGPS, the LPFA outlined the potential terms of reference and structure of an independent Local Government Pensions Commission - an idea first touted at a symposium in February. (See earlier IPE article: LPFA proposes Dutch solution to local council pensions)
The paper reiterated plans to allow the Commission to take on the day-to-day responsibility of the LGPS, to enable the UK government to reduce its role to monitoring the performance of the commission, albeit with some retained powers such as setting an overall cap on contributions and establishing the solvency target for the LGPS.
The LPFA argued the remit of a commission would be to determine an "appropriate and affordable scheme structure" and to manage the affordability of the scheme in the future as well as make recommendations to reduce deficits.
Key decisions given to the commission would include the basis of the scheme itself, either as the existing defined benefit (DB) final salary, or a move to career average or hybrid DB/DC arrangement. It would also be expected to set the solvency and conditional indexation parameters, the accrual rates and the normal retirement age.
The Commission would have to consult and take advice on any changes to the basis of the scheme, but it would also be able to "make or amend existing scheme regulations and call for whatever information it thinks appropriate from individual funds whenever it feels it appropriate to do so".
In particular, tools at its disposal to ensure the scheme remains affordable could include:
The LPFA suggested the local council or administering authority would continue to administer the scheme at the local level within the rules set out by the Commission, and would retain "existing levels of control over investment policy".
However, the main changes to affect individual schemes could be that indexation would depend on local performance of the scheme and valuation assumptions would have to reflect the standard guidance set by the Commission, instead of being solely negotiated between the actuary and the local authority.
Mike Taylor, chief executive of the LPFA, said while the LGPS is funded and benefits from a positive cash flow, "it is becoming increasingly evident that even this scheme must adapt in the face of growing pressures around longevity and public concern over long term costs".
He said the ideas proposed in the Green Paper are intended to "promote debate, and ultimately provide politicians with a blueprint for ensuring all stakeholders, whether scheme members, council tax payers or local authority employers, have a say in the scheme's continued success".
The Commission would comprise of a chairman and around 10 board members representative of employers, taxpayers and scheme members, acting in a trustee capacity for a five-year term. It would report annually to the secretary of state on its performance, with an additional special report after each triennial valuation of the LGPS.
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