From any vantage point along the Local Government Pension Scheme (LGPS) reform continuum from May 2010 until May 2015, it is clear that the scale of the Hutton-inspired recommendations are having significant impacts.
Most critically, administering authorities who are statutorily and democratically responsible for the local administration of pension rights and the management and investment of their pension fund assets, are facing considerable challenges.
As the April 2015 deadline for the completion of the reform timetable looms, scheme interests face a demanding 14 months or so in which to complete unfinished business and adjust to much which is new and untested.
Ministers themselves have another important personal deadline, involving the May 2015 General Election, at which their performance and delivery of reforms will be assessed.
Two major steps have so far been well achieved in legislative terms. Those involved deserve the fullest praise for their skill and drive to achieve a satisfactory outcome.
The Public Service Pensions Act 2013, a product of Hutton and central departments who believed it was an essential centralising step, provides a clear national framework for individual scheme benefit design, new governance structures and methods of managing future affordability and viability.
Stemming from that has been the Department for Communities and Local Government's (DCLG) herculean task of providing secondary legislation to deliver a new LGPS benefit structure which takes effect from April 2014.
But, many more potentially contentious work streams remain to be resolved and introduced by April 2015. The key political challenge for ministers is to deliver on
several policy initiatives that were started last year. Some stem from the 2013 Act and have always had a coming-into force date of April 2015.
Others have been introduced for reasons best known to their initiators and are based on wider than immediate scheme-specific needs.
Reforming the LGPS on the basis of the 2013 Act, achieves many improving reforms for the scheme, including a long-awaited move to CARE, a SPA link and some limited higher contribution levels in the tariff for higher paid members from April 2014.
Perhaps one of the elements which concerns commentators, and which could threaten future viability, involves the new accrual rate and depth of the protections embodied in the new framework.
Given that it remains government policy to meet any future cost increases in the scheme through higher member contributions and/or benefits changes, introducing a new benefit package on such generous terms potentially threatens to undermine the objective of ensuing future affordability and long-term sustainability from the outset.
Will the upshot be that in the short-term, and after the 2016 valuation exercise, that the impact of this generosity could be reflected adversely in the centrally-prescribed cost-management process?
The single 2014 scheme reform process, achieved by combining increases in contributions and a new benefit structure, delivered the reforms one year in advance of the unfunded schemes.
This was laudable, but now appears to some as the progenitor of a potentially high risk event looming for the reformed scheme, post-2016.
Hopefully, the outcomes of the 2013 valuation exercise will help to provide a baseline for employers taking account of the new LGPS benefit structure.
The 2013 Act, reflecting Hutton's recommendations, driven by central departments to bind-in the funded, locally-stewarded LGPS into the national strictures imposed on the centrally-managed schemes, imposes a new governance challenge on the mostly council-managed LGPS.
The intermingling of extensive local government and bespoke local authority financial legislation with national governance compliance standards and new structures will
inevitably create tensions – at least initially.
To help minimise these events, full credit is due to the Pension Regulator's team who are so usefully engaging with LGPS interests.
A challenge involves blending the new compliance role of the unelected regulator with locally-elected councillors' duties under separate legislation. In parallel, the other locally-managed schemes, for fire fighters and police officers, mirror many of these interface issues.
Establishing an LGPS scheme advisory board with specific roles, stemming from the 2013 Act, primarily to advise the secretary of state, will be supplemented by other
relevant matters expected to appear in draft regulations from the DCLG after the summer break.
These provisions will need to be operational by April 2015. Such matters will be ‘advisory' and so cannot usurp the current powers and duties of democratically-elected LGPS pension fund authorities under extant primary and extensive secondary legislation.
The new stewardship and compliance duties will mean new challenges for elected members and their officers within administering authorities, along with newly- appointed, non-councillor members of soon- to-be constituted local pension
boards.
These boards are set to become key locally-focused compliance units within the functioning administering authority framework to which they will report. There is an
over-arching supervisory role for the regulator, to whom local pension boards can report any local non-compliance events.
At a recent seminar organised by Barnett-Waddingham, Bob Scruton from the regulator, welcomed the possibility of bespoke material emerging from within the scheme to assist elected members and others involved in the new governance structures and compliance responsibilities.
The intention would be to use this LGPS material alongside the regulator's comprehensive, but generic, code for public service schemes. Such an initiative could prove a very useful step towards improving the practical skills and knowledge necessary for members of local pension boards.
It is to be hoped that the DCLG's regulations will help to strengthen the national provisions and add depth to the requirements to be set out in the regulator's generic code.
In particular, these include a grasp of scheme knowledge and sufficient understanding of its legal basis to help ensure the competence to fulfil board members' duties under the legislation, and also the aspects and sources of their training needs to help achieve this objective. Such first steps are key foundations to the ultimate success of the new regime.
Professional bodies, in particular, have an important role to play in respect of developing new relevant qualifications.
Additionally, independent consultant board advisors, experienced in scheme legislation and operation could have a key specialist educational role to play to improve initial capacity and learning in respect of the new governance and administration requirements of the new boards whose members will face significant challenges in the run-up to 2015 and beyond.
Scheme familiarisation for the boards is now the first priority and hopefully, LGPS fund authorities are considering what steps are needed locally, with their advisers, in advance of the DCLG regulations but within the framework of the 2013 Act and the regulator's current draft code.
Perhaps the single most important LGPS current unknown involves expected decisions by ministers on their proposed next steps in possible structural reform of the scheme in England and Wales.
Consideration of the call for evidence submissions and the consultant research findings, submitted in mid-December, has been under way across government as the focus of the initiative is wider than just being an LGPS/DCLG matter.
It is expected that the initial outcome will be a national consultation exercise on ‘next steps'. Many informed and experienced LGPS observers are hoping that the integrity and sovereignty of locally-managed LGPS pension fund authorities can remain intact, rather than undergo a major structural upheaval for which many believe primary legislation would be required, as well as a lengthy and expensive interim period of adjustment across several complicated contractual and legal fronts.
More favourable would be a modest reform package which is achievable before April 2015, involving secondary legislation.
To achieve improved efficiency savings in the locally-managed investment process, reforms to the extant management and investment of funds regulations could be
introduced.
Current initiatives in London provide a clear pathway of experience and support. Such reforms, if introduced quickly, might permit fund monies from more than one authority to be invested collectively within the scope of individual statements of investment strategies, with subsequent income apportioned to the investing authorities in the arrangement.
The LGPS dynamic always requires constant updating, monitoring and high quality stewardship by those who know it and who have statutory responsibilities, both nationally and locally.
The coalition Government's reform process concludes next year, but the likelihood is that its outcomes, combined with anticipated future cost and liability pressures, will
require the most careful analysis and management within a much broader economic and political domestic and international framework.
Terry Crossley is senior pensions adviser at Barnett- Waddingham and was formerly deputy director, workforce pay and pensions for the DCLG
