Regulatory intervention report issued under section 89 of the Pensions Act 2004 in relation to the Local Government Pension Scheme - London Borough of Barnet Superannuation Fund.
Published: October 2019
Summary
This report sets out how we issued our first ever Improvement Notice to a public service pension scheme solely focused on internal control failures. The London Borough of Barnet Superannuation Fund experienced a catalogue of errors, including £1.7 million of late contributions and a lack of clarity over its member data. As a result of our engagement the scheme manager has introduced a range of increasingly robust internal controls and is running the fund much more effectively.
Illustrated summary
Background
The London Borough of Barnet Superannuation Fund is part of the Local Government Pension Scheme (LGPS). The scheme manager (also known as the administering authority) is the London Borough of Barnet, supported by a local pension board which it appoints. It is responsible for securing compliance with the LGPS regulations and other legal duties.
We first took action against this scheme in 2017 when we issued them with a fine of £1,000 for failing to submit a scheme return – our first ever fine for a public service pension scheme. You can read more about the action we took in this regulatory intervention report (PDF, 66KB , 5 pages).
As a result of our ongoing engagement with the scheme manager we uncovered a number of weak governance processes within the fund, which included a lack of oversight covering member data quality and the payment of contributions. We also had concerns about delays in providing information to members, and that these had not been reported to us in a timely manner. This meant savers didn’t receive the information they were entitled to on time – and there was a strong possibility that the information they were sent was incorrect.
During our engagement there was a lack of consistent oversight in the senior leadership team in charge of pensions, which led to delays in establishing the full extent of the challenges being faced and steps being taken to address them. Over the course of two years there were at least four people nominally responsible for the fund, leading to difficulties with handover and effective information exchange.
Although the scheme manager gave us assurances that they were looking to improve the governance of the fund (and had secured additional funding for more staff to help them), we were concerned about the pace of change and the number of further governance failures coming to light.
Public service scheme manager duties
- Providing information to The Pensions Regulator (TPR). This includes making sure the annual scheme return is completed accurately and on time and keeping registrable information up to date.
- Reporting breaches of law. TPR must be informed of material breaches of legal duties.
- Establishing and operating internal controls that enable them to manage risks to the scheme.
- Maintaining accurate, complete and up to date records, whether managed in-house or outsourced to a third-party provider.
- Providing members with clear, accurate and accessible communications, including annual benefit statements to active scheme members.
- Publishing information about the pension board, including its membership and responsibilities.
- Setting up a payment schedule or contributions monitoring record, checking contributions are paid and reporting payment failures to TPR.
- Setting up an internal dispute resolution procedure.
Regulatory action
In May 2019 we issued the scheme manager with a Warning Notice, which set out our concerns over the breaches of law and our intention to issue them with an Improvement Notice. In response, the scheme manager listed the wide range of work they were doing to improve the situation. They accepted our reasoning for issuing an Improvement Notice but asked us not to take it any further as they were already making improvements. However, at the time we were not confident there would not be further delay without our involvement, so we issued the notice.
An Improvement Notice directs a scheme manager (or a scheme trustee for other types of occupational pension scheme) to complete a series of steps to rectify failures within the scheme, or to stop taking inappropriate actions, within a specified timescale. Failure to comply with an Improvement Notice can result in a penalty of up to £5,000 for individuals and up to £50,000 for other entities.
Outcome
Since we started engaging with the scheme manager we have seen a significant improvement in the steps they are taking to administer the fund. At the outset it was apparent they were over-relying on third party service providers with limited oversight of the work being done by these providers on their behalf. This has now changed, and the scheme manager now receives more detailed reports, with mechanisms in place to challenge the information they are given.
The internal controls that the scheme manager developed and implemented as a result of our engagement have led to further errors being identified, some going back over a long period of time. However, the scheme manager took decisive steps to remedy these additional errors in a timely manner without prompting from us. While the additional issues identified would normally be a cause for concern, in this case finding those problems demonstrates the effectiveness of the processes that the scheme manager has now introduced.
The scheme manager was not able to fully cleanse all the data they expected to be able to by 31 August 2019, with around 160 data lines outstanding as of 22 August 2019. However, they had demonstrated significant improvements in record keeping standards with around 40,000 lines of data being corrected. In light of this, and that all the other requirements of the Improvement Notice were met, we concluded that taking further action would be disproportionate.
Our approach
The governance and administration of all schemes, not just the funds in the LGPS, is very important, as a badly run scheme is less likely to produce good member outcomes. All scheme managers and trustees should have processes in place to ensure member data and contributions are correct and handled appropriately.
Where a scheme manager, or trustee for private occupational pension schemes, outsources elements of the running of the scheme they must put controls in place to ensure the work being done on their behalf is of a suitable standard and being completed in a timely way.
Where schemes are not well run, and this has a negative impact on members, we will look to engage with the scheme manager or trustees to ensure improvements are made. This may take the form of a regulatory initiative, where we focus on a particular risk and engage with schemes that fail to adequately address the risk, or more intense reviews of the administration and governance approach of schemes within our relationship supervision approach. If the trustees or scheme manager fails to make progress sufficiently quickly, we will consider the use of our formal regulatory powers.
Timeline
- May 2017 to February 2019: TPR engages with scheme manager to build understanding of issues and encourage improvements.
- June 2018: TPR meets with scheme manager to set out our expectations regarding improvements and reporting.
- June 2018 to February 2019: series of engagements between TPR and scheme manager to drive governance improvements.
- February 2019: TPR meets with scheme manager to explain powers we planned to use.
- May 2019: TPR issues Warning Notice.
- June 2019: TPR issues Determination Notice.
- July 2019: TPR issues Improvement Notice.
- August 2019: TPR receives notification of compliance status.