Exclusive: LGPS funds switching focus to reviewing strategies in aftermath of pandemic

Local Government Pension Scheme (LGPS) funds are switching their focus towards reviewing their business and operation strategies after trying to maintain ‘business as usual’ during the pandemic, research from Mercer has found.

When polled on their main priority during the pandemic, 69 per cent respondents at Mercer's LGPS webinar stated that it was maintaining business as usual, while 18 per cent said it was supporting colleagues’ development and wellbeing, and 10 per cent said it was reviewing their business and operation strategies.

Just 2.5 per cent said that their priority during the pandemic was responding to business-related pandemic risks and opportunities.

When asked what their biggest priority would be over the next 12 months, the proportion of respondents citing maintaining business as usual fell to 37 per cent.

Almost a third (31 per cent) stated that their priority would be reviewing strategies over the next year, compared to 10 per cent during the pandemic, while 20 per cent said it would be supporting colleagues’ development and wellbeing.

The proportion of those prioritising responding to risks and opportunities created by the pandemic increased to 11 per cent.

Commenting on the findings, Mercer UK lead for LGPS and head of LGPS benefits, Nigel Thomas, said: “I think one of the emerging things that came through is how LGPS teams learned from what they experienced in the very early stages of the pandemic, learning the art of what's possible and what the potential of certain options are.

“Ultimately, there's an awful lot being asked of the LGPS. You've got McCloud, public sector exit cap changes, not to mention GMP and TCFD climate risk, in amongst a whole host of other things.

“But I think the strategic and operational opportunity here is more around knowing what’s on the horizon (if not here already), alongside the learnings of how teams have worked together in very different ways. The key is to use experiences to explore how to create capacity and opportunity to then attack some of these asks more effectively and more efficiently.”

Thomas urged LGPS funds to “take stock” of where they are, take the learnings of the pandemic, understand the shocks, understand what went well and understand what did not go so well.

“There’s a range of views, but the polls did support the idea that there’s an eye of the storm that has passed for many, although not everyone,” he added.

“It was commented by the panel that for those behind the curve, the pandemic has accentuated issues in some areas and forced focus.

“The direction of travel is really clear; from The Pensions Regulator’s consultation on its proposals around governance and risk assessments to the LGPS Good Governance Project and its recommendations - so LGPS funds need to be looking at all of this right now.

“We think the real value in all of this comes from the ability to draw that line in the sand now, to consider the impact of an extreme shock that many of us haven't experienced before in our working lives, and set a strategy that is mindful of all of that.

“At Mercer we have developed a ‘FIRM’ approach that considers all areas of activity; risk, operations, investments and governance. Our strong view is yes, there are requirements to do this, however, the true value from it is to actively shape the future approach.”

Mercer’s webinar poll also found that the majority (57 per cent) of attendees had found that the committee or local pension board of their fund had provided the same level of engagement and challenge over the past year.

More than a quarter (27 per cent) stated that their board had become more engaged and more challenging, while 7 per cent said they were more engaged but less challenging, 7 per cent were less engaged but more challenging, and 3 per cent were less engaged and less challenging.

“One observation from all of the panel members was that the committees/local pension boards have been really active and supportive at times of shock,” Thomas stated.

“One member of the panel wondered whether they had been as challenging as they otherwise would have been because of pressures everyone has been under.

“But that view wasn't universally shared, there was a counter view on the same panel where the engagement and challenge was still there, albeit that challenge did accept the of reality of the pandemic.”  

Alongside an increased burden at home, Thomas noted that there was also an increased call volume for memberships amid the pandemic, and “not just increasing volumes, but increased durations as well”.

“In addition to that, a lot of people have been reviewing their own life plans. There is obviously a high degree of knowledge within the LGPS in the in-house teams, and over the next few years much of this knowledge will be leaving the sector.

“So there's also a transfer of knowledge to the next generation that needs to happen in order to maintain that historic knowledge but then grow from it as well. And so, that FIRM position is not just about strategy development, driving for greater efficiency, or having clear systems of government, it's also about training, career path development and providing a framework through which the successors can grow and forge their own careers.

“This will allow funds to deliver that service to all the stakeholders; the pension fund members, the employers, and the governance structures that are in place.”

And whilst Thomas agreed that the pandemic has presented an opportunity in terms of greater mobility of knowledge, he argued that work needs to be done to ensure continued development for junior workers, who may miss out on subliminal kinds of learning.

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