Regulating public service pension schemes – Sackers’ response to consultation

In this response:

• Background
• General comments
• Legal requirement
• Conflicts of interest
• Specific issues

Background

TPR was given an expanded role in the Public Service Pensions Act 2013 in relation to the governance and administration of public service pension schemes. From April 2015, it will set standards of practice to help the Local Government, NHS, Teachers, Civil Service, Armed Forces, Police, Fire Fighters and Judicial pension schemes to meet the governance and administration requirements set out in the legislation.

In connection with this, TPR is consulting on a draft code of practice and draft regulatory strategy for public service pension schemes. The draft code is designed to provide practical guidance to help public service pension schemes to meet the new requirements. The draft regulatory strategy sets out how it will educate and enable public service schemes to meet the standards of practice outlined in the draft code.

General comments

Overall we consider the draft code to be a useful document and a helpful point of reference for public service pension schemes. We particularly welcome TPR’s proposed light touch regulatory strategy for public service schemes, with its focus on educating and enabling scheme managers and pension board members to meet their legal obligations.

In the private sector, trustees’ experience using TPR’s codes of practice and guidance to expand on legislative requirements is generally positive. As such, we anticipate a successful expansion of this practice to the pension scheme managers and board members of public service pension schemes.

As advisers to trustees and employers of occupational pension schemes, we have focused on the issues in the draft code that are relevant to our practice and we have not sought to answer every question in the consultation.

Legal requirements

There are a number of places in which the draft code summarises the legal requirements applicable to public service pension schemes, for example, in paragraph 8, and in the summary at the beginning of each section of the draft guidance.

It would be helpful if the guidance were clearer that the information given in this regard is a summary, rather than a complete overview, of the legal requirements that are set out in primary legislation and in the detailed regulations which set out the specific elements for each scheme.

Conflicts of interest

In our experience advising trustees and employers, the issue of conflicts of interest (and confidential information), both actual and potential, is one of the most complex issues that arises day-to-day.

The examples of conflicts of interest which could arise or be perceived to have arisen that are set out in the draft guidance are helpful. However, although the examples illustrate how conflicts can arise in various scenarios, the guidance does not go on to outline ways in which those conflict situations might be addressed in practice. As such, there could be a risk that the examples are taken to be permissive, ie situations in which scheme managers and pension board members are always permitted to continue to act. It would therefore be helpful if the examples were expanded to explain whether the scenarios described are situations of actual or potential conflict and what steps need to be considered or taken to address them (which might include stepping out of the relevant discussion, taking advice, resigning etc).

As the guidance notes, this can be a complicated area and it is important that professional legal advice is taken where appropriate. Where practical steps are illustrated in the guidance (such as in the example conflict situations which we suggest are expanded), it would be helpful if these reiterated the need to take such advice, so that the guidance is not seen as a substitute for taking legal advice where it is appropriate to do so.

Specific issues

Knowledge and understanding required by pensions board members

The TKU requirements of the Pensions Act 2004, backed TPR’s code of practice and scope documents, require the trustees of private pension schemes to be conversant with their scheme’s trust deed and rules, statement of investment principles, statement of funding principles (if applicable) and “any other document recording policy for the time being adopted by the trustees relating to the administration of the scheme generally”. In addition, trustees are required to have knowledge and understanding of the law relating to pensions and trusts, the principles relating to funding and investment and “such other matters as may be prescribed”.

TPR’s code and scope documents are useful for helping trustees meet their duties in this regard. It is therefore welcome that similar guidance is being made available for public service pension scheme managers and board members.

We have a number of specific comments on this section of the draft guidance that we outline below.

• The draft guidance makes reference to “scheme rules” (for example, paragraph 32(a)). As the rules of public service pension schemes are set out in legislation, how wide is this reference intended to be? It could be seen as wider than the equivalent requirement for private sector schemes.

• Paragraph 33 refers to “the law relating to pensions”. Given that not all pensions legislation applies to public service pension schemes (as noted later at paragraph 44), it may be worth noting up front the limits of this provision for public service schemes.

• At paragraph 35, TPR states that schemes “should establish and maintain policies and arrangements for the acquisition and retention of knowledge and understanding for their pension board members”. It would be useful to have examples here of the type of record that TPR expects to see.

• TPR expects pension board members to “be able to challenge any failure to comply with scheme rules and legislation relating to the governance and administration of the scheme…” (paragraph 46). Clarification would be welcome here as to how such a challenge might be brought, and to whom.

• TPR notes that its e-learning programme for public service pension schemes is intended to be available from autumn 2014 (paragraph 54). As with private sector schemes, we envisage that this is not a tool to be used in isolation, as pension board members will need to tailor their knowledge and understanding to their own scheme’s rules.

Conflicts of interest: Legal requirements

• Paragraphs 58-61 are expressed in an unusual way, given that they set our guidance on the legislative provisions. We suggest that in each of these paragraphs, the word “must” is deleted from the final guidance, so that the actual position under the regulations is described.

Outsourcing services

• In the paragraphs on the outsourcing of services (111, 112 and 132), it would be helpful to include a note that it is good practice to ensure that contracts relating to outsourcing contracts contain adequate provisions to ensure that compliance with appropriate standards (such as those provided for in the draft code) are complied with.

Scheme record-keeping

• In the section on “records of member information” (paragraphs 118 onwards), is it TPR’s intention that there will be specific targets to be complied with, as there is for “common data” in private sector schemes? In addition, to what extent will pension board members be required to check historic data?

• In relation to the retention of scheme records (paragraph 128), it would be helpful to have guidance on the acceptability of (and any requirements in connection with) theconversion of old paper records to electronic records.