LGPS schemes could make vast savings if they improved their governance, according to new research from CLERUS

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Bad advice comes at a price, and now that has been quantified.

LGPS schemes have suffered a loss of £17bn thanks to poor decision making over the last ten years, according to new research from CLERUS. The study found that the vast majority – more than 90% - of LGPS funds do not comply with the Myners Principles relating to good governance and data quality, which can be a costly mistake to rectify.

More shocking still, schemes which used investment consultants reported annual returns that were 0.4% lower than those which did not.

Speaking at Workplace Pensions Live 2014, Henrik Pedersen, managing partner and co-founder at CLERUS, said: “What’s interesting is the funds that state full compliance and substantially comply (those funds that do measure their performance) actually performed substantially better (net of fees) over the last ten and five years”.

Full compliance with the Myners principles involves regularly measuring the performance of investment advisers and trustees’ decision-making.  

The Myners Principles have been around for such a long time now we don’t think about them in each meeting

“The Myners Principles have been around for such a long time now we don’t think about them in each meeting – they’re just so embedded in what we do they form an integral part of any set of decisions we might make,” says Tom Morrison, principal accountant at the North Yorkshire scheme.

The North Yorkshire fund is one of the best performing LGPS schemes, according to an independent assessment by Aon Hewitt. So what’s the key to its success?

“I think it’s the implementation of our governance framework, which helps us to keep a tight control over monitoring the activities of the fund, and putting in robust plans to make any changes that we think are necessary to address any shortcomings,” Morrison.

“It all starts from having strong governance”.  

We will go back and look at certain decisions to see whether they were reasonable to be done at the time they were done

North Yorkshire is not the only scheme implementing good practices. “We will go back and look at certain decisions to see whether they were reasonable to be done at the time they were done, with the information available,” says Geoff Reader, the Bedfordshire pensions manager, adding that their advisers tend to have short term contracts, so are regularly reviewed.

What can schemes learn from this?

Pederson says: “Improving investment governance via the formal measurement of the performance of investment decisions and advice has the potential to yield significant results for institutional investors”.

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