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Firefighter's Pension Risk Register - Report of the Scheme Manager

Agenda Item No: 6
Date: 09 July 2020

Purpose of Report:

To update Board members on the current status of the Firefighter’s Pension Risk Register.

Recommendations:

That Board members note the updated Risk Register attached at Appendix 1.

Contact Officer

Name: Becky Smeathers , Scheme Manager
Tel: 0115 967 0880
Email: becky.smeathers@notts-fire.gov.uk

Background
1. The Pension Regulator recommends that the pension scheme manager must establish and operate adequate internal controls that enable them to manage the risks that relate to the scheme. The scheme should also have a process to identify, evaluate and manage risks on an ongoing basis.
2. The Pension Risk Register is a key document to identify areas of risk, identifying appropriate actions to mitigate this risk and to manage the process. The document is a live document, continually being updated and reviewed.

Report

Developments since last meeting
The current risk register is attached at Appendix 1. Changes since the October meeting and updates to the risks are highlighted in grey on the risk register.

The risks which score Very High on the Risk Matrix in Appendix 1 are identified below:

High Risk table
Risk Number	Risk	Comments
1	Transfer to new administration provider	A full OJEU tendering exercise has been successfully undertaken and West Yorkshire Pension Fund have been appointed. The new contract is due to start December 2020. Implementation is currently going to plan. This risk score should reduce as implementation takes place.
2/13	McCloud transitional protection remedy	Both the risk of disruption of service and additional costs remain a very high risk. This also impacts on several other risks, including the workload for the new administrators once the remedy is agreed upon.
3	Member data and records incomplete or inaccurate.	This risk remains at an elevated level until all data is transferred to the new administration provider and assurance can be gained around the accuracy of data.
4	Administration process failure/ maladministration	Again, this risk remains at an elevated level pending the transfer to new administrators. this will be reviewed once adequate arrangements are felt to be in place.
14	Four Yearly Pension Scheme Valuation – Risk of increased contributions and affordability	This follows the increase in employer contribution costs caused by the changes in the discount rates. The date of the next valuation is 31 March 2020. This could have a major impact on costs as it will need to reflect the McCloud judgement. For this reason, it may be some time before the results and likely impact are known.
19	Communications with Members may not meet statutory requirements	This has been left in the “very high risk” category until the new administrators are in place as they undertake the majority of communications with members.
20	Failure to interpret rules or legislation correctly	This continues to be a high risk area given the complexity of the Firefighters’ Pension Scheme rules and regulations.

There was one other significant change to the risk register which was the addition of Future Court Cases (Risk 24) as agreed at the Pension Board meeting held on 9 July 2020.

Financial Implications
There are no financial implications arising directly from this report. Any financial implications for the Authority will be reported to the Finance and Resources Committee.
Human Resources and Learning and Development Implications
There are human resources implications arising directly from this report, in that pension matters affect most employees. HR department staff are fully involved in pension issues to ensure that human resources implications are taken into account.
Equality Impact Assessment
An equality impact assessment has not been carried out as this is not a new policy.
Crime and Disorder Implications
There are no crime and disorder implications arising from this report.
Legal Implications
The Public Service Pensions Act 2013 introduced a framework for the governance and administration of public service pension schemes. This report aims to fulfil the requirement for Pension Board members to assist the Scheme Manager in ensuring that effective administration arrangements are in place.
Risk Management Implications
There are a number of risks relating to the firefighter pension schemes, and these have been presented to the Board in the form of a risk register. The Scheme Manager is responsible for ensuring that the risks identified are appropriately managed. All of the issues outlined in this report are being, or have been dealt with by close co-operation between the pension administration team and Officers.
Recommendations
That Board members note the content of this report.
Background papers for inspection (Other than published documents)
None.

Becky Smeathers
Scheme Manager

Appendix 1

Pension Board Risk Register - Operational Risks
Number	Risk	Level	Impact	Risk Score	Existing Controls	Revised Level	Revised Impact	Revised Score	Further Controls Required	Risk Owner
1	Transfer to new administration provider. Risk of reduced service during transfer period. Risk of errors in transfer of information. Risk of project not being completed by 31 December 2020.	4	5	20VH	Planning already underway. Joint exercise being undertaken with Leicestershire and Derbyshire Fire Services. Involvement of all key staff across 3 organisations and current suppliers. Project manager appointed to project. West Yorkshire Pension Fund (WYPF) have been awarded the contract. Project Plan in place. Regular project meetings in place.	4	5	20VH	Ongoing monitoring of risks and progress against timelines. Effective performance monitoring to form part of contract. Specific arrangements to be agreed for those retiring close to cut over date.	Scheme Manager
2	McCloud Transitional Protection Arrangements discrimination case. New administrators unable to cope with workload; Internal staff unable to cope with workload Lack of national advice / direction; Unable to provide timely/ accurate advice to members; Over complexity of new arrangements	4	5	20VH	Membership of Local Pension Board Effectiveness Committee – to gain knowledge and ability to influence national picture. Attendance at relevant training events. New administrators have understanding and awareness of situation.	4	5	20VH	Continued engagement at national level – both LGA and Fire Finance Network. Ensure new administrators have adequate plans, including ability of software suppliers to adapt to new regulations. Consideration being given to procuring additional resources to assist with pension scheme management across Nottinghamshire / Leicestershire and Derbyshire Fire Services.	Scheme Manager
3	Member data and records incomplete or inaccurate.	3	4	12VH	Full review of records undertaken post transfer of pension administration from NCC to LCC. Pension benefit statements issued on annual basis. Errors in records rectified and identified. Reconciliation to HMRC records 2017. Reconciliation between payroll and Administrator records. Internal Pension Audits.	3	4	12VH	Introduction of monthly returns from NFRS (Iconnect) to reduce risk of data errors or missing data and reduce impact of year end work. This is being progressed. Improved recording of data within ITrent. Will need reviewing once new administrator in place. Complete Data Audit with new admin supplier. Implement Data Improvement Plan once data audit complete. Data cleansing can be undertaken as part of transfer to new administration supplier.	Scheme Manager
4	Administration process failure/ maladministration. Risk with new Administrators once new contract commences.	3	4	12VH	Regional quarterly client meetings to discuss current pension issues. National advice and guidance from Pensions Adviser at the Local Government Association. Review of pension administration by internal auditors in March 2018 provided substantial assurance. Quarterly meeting with NFRS and Service pension administrators. Completion and feedback from TPR Scheme Return. Pension Governance Audit judged as Substantial Assurance. Formal agreement in place with administrator to include SLA and performance indicators against defined criteria.	3	4	12VH	Will require reviewing once new administrator in place.	LCC Pensions Manager Scheme Manage
5	Termination given by new administrators due to workload / risk etc	2	5	10H	New administrators fully aware of additional workload resulting from current legal challenges. Have knowledge and experience to assess risks.	2	5	10H	Build adequate securities into contract. Keep under review following commencement of new contract.	Scheme Manager
6	Pension software supplier disruption.	2	5	10H	Software suppliers involved with McCloud discussions.	2	5	10H		Scheme Manager
7	Incorrectly applied Tax Rules, including incorrect advice given to members.	3	3	9H	Periodic national pension training organised by scheme advisory board. Attendance at training / conference events. Keeping up to date with information provided through circulars.	3	3	9H	Scheme Advisory Board looking at developing common list of benefits to be included in pensionable pay.	Scheme Manager
8	Impact of O’Brien case on Modified Scheme (judged that periods of service prior to the coming into effect of Part Time Workers Directive should be taken into account in calculating the amount of pension to be paid upon retirement)	3	3	9H	Awaiting guidance on any impact on the Modified 1992 Scheme.	3	3	9H		Scheme Manager
9	Common Data / Scheme Specific Data scorings for TPR survey – have dropped significantly	2	3	6M	Quality of data is being maintained. Discussions held with Scheme Advisory Board regarding data specification.	2	3	6M	Ongoing discussions with TPR / SAB and system providers	Pensions Admin Manager Scheme Manager
10	New General Data Protection Regulation (GDPR)	2	3	6M	Staff being provided with appropriate training Covered within organisation’s wider GDPR controls. Working with other Regional Fire Authorities to ensure compliance. Privacy Notice in place	2	3	6M	Will need to be reviewed once new administrator in place.	Scheme Manager
11	Risk of interruption of service due to COVID-19	2	3	6M	One Pension Board meeting cancelled in March. Remainder of meetings moved to virtual platforms. LGA training has been moved to virtual platform. Administration contract been successfully tendered for – meetings being held virtually. Internal functions and Pension Admin functions currently working well.	2	3	6M	Continue to monitor situation	Scheme Manager
12	Operational disaster fire/flood for example.	1	5	5M	Business continuity procedures in place for NFRS Pensions Administrator (LCC). Business continuity plans in place Finance and Payroll Team (NFRS). These were reviewed in March 2020. Business Continuity Plans for the administrators are embedded in their corporate plans.	2	3	6M	Continue to monitor situation	Scheme Manager

Pension Board Risk Register - Financial Risks
Number	Risk	Level	Impact	Risk Score	Existing Controls	Revised Level	Revised Impact	Revised Score	Further Controls Required	Risk Owner
13	McCloud: Costs may escalate to fund additional resources for implementation and system development; Risk of fines / compensation if incorrect advice given due to complexity of the system.	4	4	16VH	Membership of Local Pension Board Effectiveness Committee – to gain knowledge and ability to influence national picture. Attendance at relevant training events.	4	4	16VH	Consideration being given to procuring additional resources to assist with scheme management. Exercise due to commence to identify those staff who may be affected and associated impact levels.	Scheme Manager
14	4 Yearly Pension Scheme Valuation – Risk of increased contributions and affordability.	4	4	16VH	LGA have sub group who work on behalf of authorities to challenge any assumptions made that will affect valuations. LGA have appointed independent Actuaries to verify figures and challenge GAD if necessary. Revised Firefighter Pension Employer rates announced 1 March 2019. Increases resulted in additional budget requirement of £2.6m, of which £2.3m is to be funded by grant. Funding continuing in 2020/21.	4	4	16VH	Funding beyond 2020/21 still to be determined – will be included in spending review. The date of the next valuation is 31 March 2020. This may again have a major impact due to McCloud. The results may not be known for some time	Scheme Manager
15	Pension Fund Accounting mistakes	3	4	12VH	Checks undertaken by accountancy and HR of ill health and injury charges which has shown they are charged to the Authority, not the Pension fund. GMP checks have highlighted prior year errors that have been corrected. Internal audit reports provide substantial assurance.	2	4	8H	Keep under review using national guidance, audits and reconciliations.	Scheme Manager
16	Excessive charges by NFRS Pension Administrators.	2	4	8H	New administrators appointed. Savings in region of £15k per year achieved through change in system providers. Costs could still escalate given additional McCloud work, although West Yorkshire Pension Fund represent several Fire Services, and costs will be spread across them all.	2	4	8H	Monitor costs related to McCloud. Monitor risk of financial loss should maladministration occur.	Scheme Manager
17	Collection of Incorrect Employer Contributions	2	3	6M	Ensure correct procedures in place – especially surrounding tapering between schemes. Received positive Internal Audit assessment.	2	3	6M	Include in future audits.	Scheme Manager
18	Fraudulent behaviour, including members forgetting to provide updated information	1	4	4M	NFRS Internal financial processes. Check incoming and outgoing scheme funds against schemes forecast – reconciliation process. Internal audit have reviewed processes as part of their pensions audit which was judged to provide substantial assurance.	1	3	3M	Conduct regular fraud monitoring process of incoming contributions payments against the schedule of contributions. Consider periodic information check with retired members.	Scheme Manager

Pension Board Risk Register - Governance, Regulatory and Compliance
Number	Risk	Level	Impact	Risk Score	Existing Controls	Revised Level	Revised Impact	Revised Score	Further Controls Required	Risk Owner
19	Communications with Members may not meet statutory requirements.	4	4	16VH	The Annual Benefits Statement is one form of communication, and this is already shown as a separate issue on the risk register. Information is sent to those members who are breaching or close to breaching the Annual Tax Allowance. Communications to starters, leavers and those whose circumstances change are generally good, with processes embedded.	3	4	12VH	Probably could have revised downwards due to continued high performance of existing administrators but left as will need reviewing after new administrators take over	Scheme Manager
20	Failure to interpret rules or legislation correctly.	4	5	20VH	Regional quarterly client meetings to discuss current pension issues. National technical advice and guidance from Pensions Adviser at the Local Government Association and CLG. Attendance at national training events. Advice and guidance from pension regulator. Policies and procedures in place. Formal IDRP process in place for addressing individual pension disputes LGA Bulletin to be reviewed by Pension Board.	3	4	12VH	Will need to be reviewed once new administrators in place.	Scheme Manager
21	Training and understanding of members of the pension board	4	4	16VH	National training provided by LGA Regional training on key topics. Training session undertaken as part 2 of each Pension Board Training Register kept up to date	3	3	9H	Provide training to address knowledge gaps identified: on-going. Skills and knowledge audit of the Board and key staff	Scheme Manager
22	Annual Benefits Statements to be issued by statutory deadline	2	4	8VH	Regular liaison between pension administrator and software supplier Data supplied by NFRS in accordance with template and subject to checking by pension administrator ABS statutory deadline achieved for last 4 years	2	4	8H	Moving towards implementation of IConnect and monthly inputting. Will need to be monitored with new administrators.	Scheme Manager
23	National GMP Reconciliation – risk that exercise will not be completed by December 2018 and errors remain in the system.	4	4	16VH	Progress on pensioner and deferred member cases has been good so far. Regional quarterly client meetings to discuss current pension issues will highlight any concerns at an early stage The Pensions Administrator has a dedicated resource working on this, and HMRC has outsourced some of the work to improve the timeliness of responses.	2	4	8H		Scheme Manager
24	Impact of Future Court Cases. Risk of increased potential work load and costs.	2	4	8H	Monitoring of national situation via LGA updates and training. Liaison with Scheme Administrators.	2	4	8H	Consideration being given to procuring additional resources to assist with scheme management	Scheme Manager
25	High turnover of Board members	2	3	6M	Ensure initial training available to new members to maintain knowledge of Board	2	3	6M	Will improve if Joint Board is set up successfully	Scheme Manager
26	Creation of Joint Pension Board – impact on scheme governance / reputational risk	2	2	4L	Working closely with Derbyshire and Leicestershire Pension Boards to ensure governance of individual scheme is not weakened through creation of joint board	2	2	4L	This is on hold pending appointment of new pension administrators.	Pension Board
27	System failures	2	4	8H	Back up and Business Continuity plans	1	4	4M		Scheme Manager
28	Cyber Risk	2	4	8H	Fire Walls / ICT processes / accreditation	1	4	4M	Include in data audit	Scheme Manager
29	Restricting Exit Payments – the proposed new cap on exit payments to £95k will be insufficient to meet statutory pension payments.	1	4	4M	Response to consultation exercise	1	4	4M		Scheme Manager
30	Classification of pensionable allowances	2	4	8H	All allowances were reviewed against Blackburn principles when initially paid. Attendance at LGA training seminar July 19. Internal Review of pensionable allowances July 19.	1	4	4M		Scheme Manager
31	Potential conflict of interest for members of Pension Board.	2	4	8H	Pension board members to declare any conflicts and potential conflicts of interest on appointment to the Board and on an ongoing basis. Pension Board conflict of interest register to be completed by Pension Board members. Members of Pension Board to declare any potential conflict of interest at Pension Board meetings. Conflict of interest policy has been adopted by the Board Forms part of Pension Regulator training Covered by Pension Governance Audit which provided substantial assurance.	1	3	3M	Review and acceptance of reviewed Conflict of Interest Policy – October 2019 Board meeting.	Scheme Manager

Risk Score Matrix
	Likelihood 1 - Negligible	Likelihood 2 - Minor	Likelihood 3 - Moderate	Likelihood 4 - Significant	Likelihood 5 - Severe
Impact 5 - Severe	Medium	High	Very High	Very High	Very High
Impact 4 - Significant	Medium	High	Very High	Very High	Very High
Impact 3 - Moderate	Medium	Medium	High	High	High
Impact 2 - Minor	Low	Low	Medium	Medium	Medium
Impact 1 - Negligible	Low	Low	Low	Low	Low

09 Jul 2020 - Firefighter's pension Risk Register - Local Firefighter Pension Board Meeting

Firefighter's Pension Risk Register - Report of the Scheme Manager

Purpose of Report:

Recommendations:

Contact Officer

Background

Report

Developments since last meeting

Financial Implications

Human Resources and Learning and Development Implications

Equality Impact Assessment

Crime and Disorder Implications

Legal Implications

Risk Management Implications

Recommendations

Background papers for inspection (Other than published documents)

Appendix 1