The cost of public sector pensions in Scotland Prepared for the Auditor General for Scotland and the Accounts Commission

The LGPS operates within a well-established governance system

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The LGPS operates within a well-established governance system

82. Operating within a framework set out by the Scottish Government, responsibility for the management and investment of each LGPS fund rests with councillors sitting on a pensions committee in each of the 11 lead councils responsible. The responsibilities of each committee are considerable:

• The value of the investment assets in each fund individually ranges from £138 million to £10 billion.

• All investment activity carries risk. All the funds are advised by actuaries and other experts. Under pension scheme regulations set by the Scottish Government, each fund prepares and maintains a funding strategy statement and a statement of investment principles. They also prepare and publish triennial fund valuation reports and have a target of being 100% funded. From September 2011 they are also required to prepare governance compliance statements, indicating how they achieve good governance requirements. All of these requirements are intended to support the effective operations of each fund.

83. The Scottish Government makes the regulations for the LGPS based on regulations for the equivalent scheme within England and Wales. However, the SPPA does not act as a regulator as it has no oversight of pension administration or the management of pension funds in the 11 administering authorities.

84. Each of the 11 member funds that make up the LGPS in Scotland has been established for many years. Each fund administers its own day-to-day operations in areas such as maintaining members’ records, collecting contributions and paying pensions once due. The LGPS:

• is the largest single public sector pension scheme in Scotland with currently more than 450,000 current pensioners and past and current employee members

• provides pensions and related services to all 32 councils in Scotland and some 600 other employing organisations that under legislation may participate in it

• has assets in management of more than £21 billion, including £5.5 billion invested in UK equities.

85. The funds are subject to internal and external audit. Before 2010/11, the activity of each fund was treated, for financial reporting and auditing purposes, as part of the lead council that administered it. However, from 2010/11, the Scottish Government requires that separate pension fund accounts will be published and subject to separate external audit and reporting. This will increase the transparency and accountability of the funds.

86. The financial audits of the 11 lead councils for the LGPS indicate that they are generally well managed. In particular, the larger Lothian and Strathclyde funds are examples of good practice. For example, both the Lothian and Strathclyde funds have won national pension fund of the year awards in UK-wide polls, which include funds of all sizes in both public and private sectors. Where audit issues do arise they tend to be in the smaller funds, in particular risks associated with succession planning where funds rely on a small number of staff.

87. The pension fund conveners interviewed during our fieldwork were experienced councillors and the pension fund committees operated in a non-partisan way. Fund conveners see good member training as essential to good pension fund management and all have taken steps to ensure that members are adequately trained.

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