The gender pensions gap, cyber risk and securities fraud

Defending against cyber-attacks, closing the gender pensions gap, and challenging securities fraud were the key issues tackled at the 2023 Local Authority Forum, hosted by the Pension and Lifetimes Savings Association last month [December]. Expert speakers outlined the potential solutions to these challenges... and some of the unanswered questions.

Securities fraud is a major cost to institutional investors, with an estimated $830 billion lost every year, delegates heard at the Local Authority Forum. Recovery rates from those frauds are, however, low and typically range between $4 billion and $5 billion a year.

Class actions in the US courts are now a constant feature of the investment landscape and local authority pension funds need to be proactive in protecting their interests and ensuring they recover losses wherever possible.

The essence of a securities fraud is when an issuer (typically a company) has misled investors or withheld information that would have been material to the value of the investment. Damages amount the sums of money that investors lost when accurate information is finally made public and causes the securities to fall in value.

Attendees heard that taking reasonable efforts to recover those losses is part of the fiduciary duty of any institution investing on behalf of members, including UK local authority pension funds.

UK local authorities may be tempted to take a back seat in US class actions for securities fraud, but a speaker warned, it was vital that funds took an active approach to ensure their interest were being fully addressed, and if necessary, they should be prepared to become the lead plaintiff in a case.

Taking action is not without stress, with a potential complication for local authorities – pooling of investments across funds. Pooling may create uncertainty in US law over who can act as the plaintiff. The contracted party who has lost money is the individual fund and its members, however, the Authorised Contractual Scheme will have oversight across the pooled assets. The status of all parties in such a situation has yet to be tested in the US legal system.

The gender pensions gap

The session on the gender pensions gap also outlined some tough questions. There is a problem across the population where women’s retirement income is, on average, only 33% that of men.

Research by the Government Actuary’s Departments commissioned by the LGPS Scheme Advisory Board (SAB) found the gap in local authority schemes was not as severe as the national average but still substantial. The gender gap for final salary gap that determined pensions was 46% and among members already receiving their pension the income gap was higher still at 49%.

Historic inequalities in pay are a partial explanation for the gap, but the data also reflected ongoing patterns in pension accrual, due to the high level of women in part time local authority work, and the career paths and life events that could impact their earnings.

SAB has established a working group to look at possible solutions, including whether schemes themselves can change their policies, whether employers can do more to encourage opportunities and career paths for women, and whether financial education and communications could help close the gender pensions gap.

Funds need to tighten cyber security

The gender pay and pensions gap has been a long-standing challenge, but the forum’s final session looked at a more recent threat – cyber risks.

Aon research had found a substantial proportion of funds were relying on their sponsor authority to provide cyber security, with just 19% of funds having their own dedicated cyber policy. Assessments of third-party risks were also lacking, with just 22% of funds having carried out an assessment of cyber risk that might stem from their investment manager.

Aon proposed a four-stage approach for funds: understanding potential exposure, shielding systems from risk; establishing solutions for when problems arise including an instant response plan; and regular reviewing of risks through cyber wargames and scenario tests.

The themes of the Local Authority Forum could not have been more varied, but all three are set to be ongoing issues for local authority funds and the LGPS in 2024 and beyond.

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