TPR highlights gap in public service pension scheme risk management processes

The number of public service pension schemes with all six processes that The Pension Regulator (TPR) monitors as indicators of scheme performance fell to 64 per cent in 2019 following a change in criteria.

TPR’s Public service governance and administration survey found that results were consistent with the 2018 survey for five of the six processes, with between 92 per cent and 97 per cent of schemes having these in place.

However, the proportion of schemes with documented procedures for assessing and managing risks fell from 92 per cent in 2018 to 82 per cent in 2019.

It clarified that this was likely due to a change in the question that specifically asked if schemes had their "own" documented procedures, and asked respondents to answer no if they relied on their local authority’s procedures.

As such, the fall was primarily driven by the difference in local government schemes, with 80 per cent stating they had their own documented procedures, compared to 96 per cent in 2018 saying they had documented procedures.

This follows TPR's recent engagement report on governance and administration risks in public service pension scheme, which warned that public service schemes were over-reliant on controls put in place by the local authority.

The engagement report, published in September, also noted that concerns over risk management were "particularly prevalent" in relation to cyber security.

However, despite these concerns, the latest research revealed that schemes had a greater range of cyber risk control in place than in 2018, with 82 per cent having at least half of the 14 specific cyber controls in place, compared to 74 per cent in 2018.

Furthermore, whilst around four in 10 schemes reported experiencing some kind of cyber breach in the past 12 months, this again represented a fall from 2018, when almost half of schemes (49 per cent) experienced a breach.

In particular, the report noted that these incidents typically involved staff receiving fraudulent emails or being redirected to fraudulent websites.

The research also revealed a fall in the number of schemes evaluating the board’s knowledge, from 82 per cent in 2018 to 76 per cent in 2019.

This was primarily driven by police schemes, with just 60 per cent of these schemes evaluating the board annually, compared to 82 per cent in 2018.

Scheme complexity was highlighted as the main barrier to improving governance and administration by almost two-thirds (63 per cent) of schemes, whilst a further 39 per cent cited a lack of resources or time, and over a third (36 per cent) pointed to issues around recruitment, training, and retention of staff and knowledge.

Furthermore, almost half (49 per cent) stated that the volume of changes required to comply with legislation was the main barrier, with a further 42 per cent specifically citing the McCloud judgement.

Indeed, the report noted that the McCloud judgment was both a "major" and new concern, with almost all ‘other’ schemes (91 per cent) pointing to this as one of their top barriers, as well as 60 per cent of police and 51 per cent of firefighters’ schemes.

However, this fell amongst local government schemes, with just under a quarter (24 per cent) noting the same concerns.

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