Circular 016/2014: police pensions – scheme governance arrangements
Sets out the arrangements and responsibilities to be introduced under the Police Pension Scheme 2015 and the transitional arrangements under the existing schemes.
- broad subject: police service
- sub category: police pensions
- implementation date: 10/10/2014
- from: Crime and Policing Group (CPG) – policing directorate, police workforce and efficiency unit
- for more information contact: police pensions team at firstname.lastname@example.org
- addressed to: chief police officers of England and Wales
- copies sent to: police crime commissioners
- The Public Service Pensions Act 2013 (‘the act’), the primary legislation under which the new police pension scheme is being developed, places more statutory emphasis on governance than has previously been the case in public service schemes. The Police Pension Scheme 2015 will come into effect on 1 April 2015, but the governance arrangements will also cover the existing schemes which will remain in effect under transitional arrangements. The purpose of this circular is to set out the arrangements and responsibilities.
What needs to be in place?
2.The police schemes, in common with the fire-fighter and local government pension schemes, will have statutory arrangements in place at national and local level. Schedule 2 of the act provides that the Home Secretary is the responsible authority who can make scheme regulations. Under s7 of the act there must be a scheme advisory board to advise the responsible authority on the desirability of changes to the scheme. The Police Advisory Board for England & Wales (PABEW) will serve as the police pensions scheme advisory board (it having taken over the pensions function from the Police Negotiating Board, which ceased to exist on 31 Auguat 2014).
3.At the local level (that is, in the 43 forces in England and Wales), the chief officer will be the designated scheme manager with the responsibility to administer the pension scheme according to scheme regulations in respect of his or her force. The exception to this is City of London, where the Common Council of the City of London is the police pension authority and will therefore be the scheme manager. The Police Reform and Social Responsibility Act 2011 transferred the legal responsibility for ensuring the proper administration of police pensions from the former police authorities to chief officers, as police pension authorities (as defined at s11(2) of the Police Pensions Act 1976). This means that chief officers have responsibility for the administration of the scheme in respect of police officers in his or her force, with the specific exception that the responsibility for a chief officer’s own pension is the relevant police and crime commissioner (PCC) as pension supervising authority. Again, City of London is an exception to this - the Common Council of the City of London is the pension supervising authority, as well as the police pension authority. The Metropolitan Police Service is also an exception since there is no PCC. The Mayor’s office for policing and crime has the role here.
4.From April 2015 there will be a legal requirement under the act for the scheme manager (that is, chief officer) to be assisted by a pension board to ensure compliance with scheme regulations and the requirements of the Pension Regulator (TPR). The legislation allows scheme managers to join together to form arrangements for a single pension board that will cover more than 1 scheme if they consider that to be the most appropriate arrangement and the best way of securing the level of knowledge and experience required of board members.
5.Following discussions at the Police Negotiating Board it was suggested that a regional structure might be a preferred option, perhaps based on the 9 existing Association of Chief Police Officers regions with an option to opt-out if a force already has a well-established consultation structure with employer and staff association representation that might constitute itself as a single pension board for that force. Alternatively, forces which already collaborate with one or more other forces for pensions administration or other back-office functions might wish to combine to form a pension board. However, the regulations will allow sufficient flexibility for scheme managers to adopt either approach. Please note that the Home Office will not prescribe what the arrangement should be.
6.There are scheme members who are not directly employed by the 43 forces in England and Wales who will also need to be covered by appropriate governance arrangements. The following organisations may be police pension authorities:
- National Crime Agency
- College of Policing
- Independent Police Complaints Commission
- Disclosure and Barring Service
In addition, there are a number of circumstances in which the Home Secretary is the police pension authority (for example, for inspectors of constabulary). In certain circumstances where a scheme member is working under terms governed by international development legislation, the police pension authority may be a minister of the Department for International Development.The individual arrangements for non-police forces are not covered here, but are being addressed within the Home Office and the relevant organisations. If you have any queries on any these arrangements, please contact email@example.com.
What scheme managers need to do
7.The act stipulates that the scheme manager should ensure compliance with scheme regulations and the requirements of TPR on matters such as record-keeping and publishing information. The act also provides that the scheme manager must be assisted in these matters by a pension board. Scheme manager responsibilities for police pension boards can be delegated. Once established, a pension board may determine its own procedures, subject to the approval of all the relevant scheme managers. There is therefore no set requirement for a specific agenda or frequency of meetings.
8.Each scheme manager must therefore ensure a pension board covering their force is in place. The board must be in place by 1 April 2015 and scheme managers are advised to begin action to take this forward immediately if they have not already done so. It may be helpful to have a structure in place in advance of April, say from January 2015 so that the board could begin operating in shadow form in advance of the implementation date. The scheme manager must appoint the chair and deputy chair. The chair then appoints the voting and independent members, with scheme manager approval. The primary legislation stipulates that there must be equal numbers of employer and scheme member representatives and scheme regulations will specify those to total from 4 to 12. There may also be up to 4 independent members.
9.There is a requirement in the primary legislation (schedule 4 to the act amends the Pensions Act 2004 to create a new s248A) for members of pension boards to have knowledge and understanding of the rules and regulations of the scheme and other matters of law relating to pensions. The degree of knowledge and understanding required is that appropriate for the purposes of enabling the individual properly to exercise the functions of a member of the pension board. TPR is planning to issue public service scheme educational material to help board members to get up to speed with public service pensions.
Conflicts of interest
10.Before appointing or approving an appointment of any person the scheme manager must be satisfied that the person does not have a conflict of interest. This should be kept under regular review. If a member of the board does have a conflict of interest, the scheme manager must terminate the appointment. A member or a proposed member of a board must provide any information the scheme manager may reasonably require in order to determine whether such a conflict exists.
11.The Home Office has a limited role and capacity to advise and support all individual forces to establish their governance arrangements. Scheme managers may find it helpful to draw on the support of commercial consultancy to assist them in establishing effective governance arrangements and preparing and training their board members. Forces may also wish to consider the value of purchasing such services on a collaborative basis. TPR will also have a role in providing advice and support to scheme managers and are producing training materials and guidance set out in various codes of practice.
12.Although the act places more emphasis on governance than has previously been the case, it is not intended that the arrangements should be unduly burdensome. The government and TPR recognises that much of this is new and supports a pragmatic approach, for example with regard to the degree of knowledge and understanding required is that appropriate to exercise the functions of a member of the pension board. There are no set requirements and scheme managers will be able to form their own view on what is most appropriate. It will also be up to scheme managers to make a judgement about if and where conflicts of interest exist. The arrangements allow a sufficiently level of flexibility so that changes can be made whenever they are required in the future.
13.Paragraph 3 above (under ‘What needs to be in place’) refers to the pension supervising authority in relation to responsibility for the chief officer’s own pension. Where any provision in the scheme requires a pensions authority to make a determination, decision, exercise a discretion or otherwise form an opinion, that power is to be exercised by the pension supervising authority rather than the police pension authority in respect of a chief officer. The other main responsibility of the pension supervising authority is in respect of pension forfeiture. PCCs and equivalents in London will also have an overall interest in funding and pensions financing arrangements. We would expect pension supervising authorities to be represented on pension boards but would not expect that specific boards would need to be set up in respect of these responsibilities.
How the boards might work
Scheme advisory board
14.The Home Secretary is responsible for the scheme and establishing a scheme advisory board, in this case the PABEW. The SAB is responsible for providing advice to the Home Secretary (at the Home Secretary’s request) on the desirability of any changes to the scheme. The SAB can provide advice (on request or otherwise) to a scheme manager or to a police pension board in relation to the effective and efficient administration and management of this scheme. The SAB will operate as a separate committee of the PABEW when carrying out its statutory role. More detailed matters may continue to be considered at the pensions working party or the full PABEW.
Membership of a pension board
15.The legislation does not prescribe the size of a pension board but does stipulate that there must be equal numbers of employer and scheme member representatives. Police pension boards are to consist of at least 4 and no more than 12 persons appointed by a scheme manager or board chair. If there is more than one scheme manager relating to the pension board, the appointment must be with the approval of all the relevant scheme managers. The chair of the board may be independent – that is neither an employer nor a member representative. However, if there is no independent chair, there must be an arrangement agreed by both sides for the chair to alternate between both sides. Side representative members and the independent chair, if there is one, will be entitled to vote in proceedings, though there is no requirement to hold votes. Independent members of the board who are neither an employer nor a member representative will not be entitled to vote. Again the Home Office will not prescribe the way the board is constituted. The recommendation in respect of the chair is that an independent chair is preferable, but the regulations allow either an independent chair or for a joint arrangement to be agreed so that a HR or finance manager from a force might share the duties with a staff association representative. Member representatives may be active, deferred or pensioner members. The National Association of Retired Police Officers, for example, may be invited to nominate prospective members.
16.There is a suggestion below of what the pension board might do. This cannot and should not be prescriptive because of the range of administration models and other factors which exist. The main areas might be:
- efficiency/effectiveness – whatever model a force uses for pension administration (local authority, commercial services supplier, in-force), it will wish to keep the arrangements under review and look for efficiencies from continuous improvement. There are likely to be opportunities for increasing collaboration, re-negotiating contracts, business process change, benchmarking, developing and promulgating best practice
- information management – there may be a need for improvements in quality and management of information for both record-keeping and communications with scheme members, particularly pensioner and deferred members ie those who have retired or left the force
17.A board may wish to address, or raise with the SAB the kinds of issues which cause concern. Examples might be ill-health retirement, where perhaps forces might operate varying policies, pensions financing issues, tax where some issues might arise from the interaction of tax rules with the pension scheme, and similarly some issues might arise from the interaction of the pension scheme with pay and conditions regulations and determinations.
18.Some functions which a board may consider for its terms of reference:
- ensure compliance with scheme regulations
- ensure compliance with TPR code of practice; respond to any requests/directions made by TPR
- set the scope and direction of the administration and any new strategic approach
- develop communications link with Scheme Advisory Board to receive advice from it and escalate issues to it
- establish the effectiveness, efficiency and value for money of scheme administration
- scrutinise the level and quality of service; challenge and direct service providers to improve scheme performance; focus on continuous improvement and value for money; identify opportunities to enhance the range and quality of services offered by the scheme
- ensure that members receive correct benefits on time
- develop and manage a risk management framework
- improve pension data quality
- challenge the performance of the service providers; benchmark the scheme administration; identify and promote good practice and address any areas of weakness with the service providers
- oversee the procurement of administration services, making recommendations on the scope of the service, budget, evaluation criteria and signing off preferred provider proposals
- commission additional services from the administrator to meet changing needs of membership and employers
- oversee the development of processes and systems to incorporate any new statutory requirements
- oversee and provide challenge to scheme budget forecasting
- ensure that there is an effective audit strategy is in place for the scheme; approve and monitor audit delivery plans
- monitor complaints / disputes; address issues arising from cases referred to IDRP, Pension Ombudsman etc
- ensure the scheme administrator supports employers to communicate the benefits of the scheme
- ensure the administrator supports members with a range of tools to improve their understanding of their pension benefits
In fulfilling these functions, the following types of information may need to be collected and managed:
- risk/issues register
- reports from contract manager
- reports from administrator on range and quality of services
- SLA and service performance reports
- financial reports
- details of complaints/Ombudsman’s determinations about scheme administration
- benchmarking data
- audit reports
- feedback from stakeholders, including members’ forum
19.More information about pension boards is available in the Pension Regulator’s draft code of practice.
Enquiries about this circular should be addressed to firstname.lastname@example.org.