Agenda and minutes

The Chair will ask the Committee Administrator to draw attention to the emergency evacuation procedure as set out under Note 5.

The Chairman drew attention to the emergency evacuation procedure.

There were none.

The Chairman informed the Committee that Geoff Cleak, Pensions Manager was due to retire soon and asked the Head of Pensions to address them.

Nick Dixon, Head of Pensions said that Geoff had worked for Local Government for 40 years and had been responsible for creating a strong culture of service within the Fund. He added that he will be greatly missed as part of the team.

Geoff Cleak addressed the Committee and said that it had been a pleasure to have worked for the Fund for the last 35 years. He added that he welcomed the commitment and resource that has been given to the Fund during his time.

The Head of Pensions informed the Committee that Claire Newbury, Digital Services Project Manager would become the new Pensions Manager in due course.

At this point in the meeting declarations of interest are received from Members in any of the agenda items under consideration at the meeting. Members are asked to indicate:

(a) The agenda item number in which they have an interest to declare.

(b) The nature of their interest.

(c) Whether their interest is a disclosable pecuniary interest or an other interest, (as defined in Part 4.4 Appendix B of the Code of Conduct and Rules for Registration of Interests)

Any Member who needs to clarify any matters relating to the declaration of interests is recommended to seek advice from the Council’s Monitoring Officeror a member of his staff before the meeting to expedite dealing with the item during the meeting.

There were none.

There was none.

Elaine Ashley had submitted the two following questions to the Committee.

Question 1

You state that you support the Engagement rather than an urgent Divestment strategy with Fossil Fuel companies (and presumably also Fossil Fuel investors such as Black Rock). I would like to know what evidence you have to suggest that this strategy is likely to work and what detailed plans you have in place to monitor what progress is being made and at what point you disengage due to lack of progress.

The divestment campaign has been developing for more than 10 years and many bodies have been pursuing a strategy of engagement for many years, even though we have seen some considerable green-washing in the fossil fuel sector, some of which has been very publicly exposed and legally challenged. We have also seen fossil fuel companies continuing with very major plans for continuing expansion and increasing output, when we know that this is disastrous for the future of life of earth, which requires 45% reduction in carbon emissions before the end of this decade, with fossil fuels being the source of the vast majority of those emissions. We have also seen major financial institutions sometimes respond to shareholder pressure one year, only to quietly reverse the changes the following year.

In terms of whether divestment works better than engagement, there is an expert review of a range of evidence that suggests that divestment does work, with further robust evidence published since that review also coming to the same conclusion.  

Additionally, one very recent report raises the risks of failing to divest very seriously indeed, while another author suggests that ‘…the financial debate about divestment is as settled as the ethical one…’ as a result of research and analysis by Black Rock. 

So there would seem to be evidence to show that Engagement does not work and the other there is major expert evidence to show that divestment does work, and, further, that failure to divest presents a very major risk. This risk is very high, and increasing all the time, in regard to Avon Pension Fund – although it has done more than many funds to move away from Fossil Fuel investments it still looks as if there is a serious danger of being left behind with stranded assets.

“ABP (Dutch Civil Service fund) are divesting over the next 10 years, while 1,500 asset managers are offloading more than $40 trillion in fossil fuel holdings,” says Shandal (Partner and Managing Director at BCG). “The trend is clearly focused on divestment rather than on engagement.”

“Investments in fossil fuel assets need to decline rapidly, because they work against the clean energy transition now and lock in GHG emissions for decades to come, leading to stranded assets in the future (Campiglio et al. 2018; Mercure et al. 2018; Kreibiehl et al. 2 022).

…Together with societal and litigation risks, these technological and policy risks cause a “transition risk” that should be managed to avoid financial instability  ...  view the full minutes text for item 49.

There were none.

Pauline Gordon advised the Committee that she had emailed the Democratic Services Officer regarding two minor amendments.

With those amendments in mind the Committee RESOLVED that the minutes of the meeting on 16^th December 2022 be confirmed as a correct record and signed by the Chair.

The Committee, having been satisfied that the public interest would be better served by not disclosing relevant information, PROPOSES, in accordance with the provisions of the Section 100(A)(4) of the Local Government Act 1972 that the public should be excluded from the meeting for this item of business, because of the likely disclosure of exempt information as defined in paragraph 3 of Part I of Schedule 12A of the Act as amended.

The purpose of this report is to present to Committee the 3-year Service Plan and Budget for the period 2023-26. 

The Head of Pensions introduced the report to the Committee and highlighted the following points from within it.

·  The Ukraine conflict and other global challenges have adversely impacted the Fund in 2022. Markets have experienced elevated volatility, with UK government bonds for example declining in value by c.30%.

·  Even though the Fund’s portfolio declined by 11% during 2022 to £5,231m, we enter 2023 in a robust financial position with a c.97% funding level.

·  Operationally the Fund has had more mixed success during 2022-23. Service performance in aggregate is below required levels, with only 5 of 19 service measures completed within target timescales. This is a result of high staff vacancy rates of c.13%, churn of leavers and joiners, regulatory change, and slow progress in digitising administration.

·  Administration Strategy - At its heart is a strategic change programme of projects to meet regulatory needs, raise operational efficiency, and improve member experience. To be implemented over 2023-26, this will raise our capacity and enable us to serve members and employers more effectively over time. The plan is being developed and will be shared in detail with the Committee in June 2023.

·  Funding Strategy - The Fund already has captive group-wide insurance for Ill-health retirement given that this can result in significantly liabilities. The main new funding project in 2023 is to explore similar groupwide captive insurance options for Death in Service, at minimal extra cost to employers. Officers will come back to the Committee with a proposal for their approval later in 2023.

·  Communications Strategy - Stakeholder engagement: the Fund needs to clearly communicate with key stakeholder groups, e.g. councillors, scheme members, trades unions, etc. on investments and climate change. This will encourage broad feedback and input to influence the Committee’s decisions on revised climate targets in September 2023.

·  The Fund’s overall budget for 2023-24 of £31.9m is £2.1m lower than in the previous year’s budget of £34.0m. There are two core budget components:

o  The administration budget of £7.0m for 2023-24 is £1.1m higher than 2022-23.

o  2023-24 investment fees of £24.9m are £3.2m (11%) lower than the £28.1m of 2022-23. The difference is driven by: asset values lower than 2022-23 budget, raising the proportion of passive equities from 39% to 50%, and changes in portfolio allocations.

Wendy Weston referred to page 139 and asked what sectors were increasing their active membership.

The Pensions Manager replied that there had been quite an increase in part-time workers and these were mainly within Academies / Multi Academy Trusts.

Pauline Gordon asked how our costs relate to other Funds in terms of benchmarking.

The Head of Pensions replied that there is an annual benchmarking report produced and he believed that the Fund was broadly in the middle of the pack in terms of cost per member and cost per asset. He added that most importantly they are looking to improve service levels and then seek to bring down unit costs.

Councillor Paul May asked how the review of pay scales for the Fund is  ...  view the full minutes text for item 53.

The Local Government Pension Scheme (LGPS) Regulations require LGPS funds to have an actuarial valuation every three years. The 2022 valuation has a base date of 31 March 2022 with new employer contribution requirements becoming effective from 1 April 2023. This report examines the outcome of the valuation process for the whole fund and highlights the principal changes which have occurred since the 2019 valuation.

The Group Manager for Funding, Investment & Risk introduced the report to the Committee. She said that it was anticipated that the Actuary will finalise the actuarial valuation report next week, before the 31 March 2023 deadline. She added that this was the first time that Climate Risk had been included within the report.

Paul Middleman, Actuary, Mercer said that the report would consider the impact of Climate Risk under three different temperature scenarios and it draws out how the strategy that the Committee has put in place aligns with those scenarios.

The Committee RESOLVED to:

i)  Note the outcome of the 2022 actuarial valuation exercise.

ii)  Delegate the finalisation of the Funding Strategy Statement to Officers.

The Committee is asked to approve the Fund’s Treasury Management policy each year. It was last approved in March 2022. The policy closely mirrors the Council’s policy set out in the Councils’ Annual Treasury Management Strategy. The policy proposed for 2023/24 set out in Appendix 1 is the same as the policy approved in March 2022. Counterparties acceptable under the policy and their Credit ratings are shown in Appendix 2.

The Finance & Systems Manager introduced the report to the Committee. He explained that the Committee is asked to approve the Fund’s Treasury Management Policy each year and that it was last approved in March 2022.

He added that the Policy closely mirrors the Council’s policy set out in the Councils’ Annual Treasury Management Strategy.

The Committee RESOLVED to approve the Treasury Management Policy set out in Appendix 1.

The purpose of this report is to present the Fund’s service performance for the three months to 31st December 2022 against target service levels. The report also addresses the Fund’s business operational position from an overall risk perspective and provides an update forecast on the Funds cash flow and budget.

The Pensions Manager introduced the report to the Committee and highlighted the following areas to them.

KPI’s

Incoming case work is generally increasing per quarter and the Fund continues to operate below its desired target of >90% for most case types. Although there has been a marginal improvement overall with previous quarters, generally, KPI benchmarking performance has remained below target.

A complex mix of challenges have contributed to the continued downturn including increased member churn and acceleration of scheme employers providing data monthly.

Once in place, the agreed new Admin Operating Model will embrace available systems technology to bulk process the majority of leavers, reducing the amount of manual intervention.

McCloud

97% of our employers have supplied their data to us including one of the two outstanding Unitary Authorities. We are continuing to chase this unitary and the 13 employers who have not provided the data to us. The team are checking the data and will be shortly contacting employers with any missing information or queries in readiness for the rectification method anticipated to arrive in the summer, delayed from end of the year.

We continue to be in engagement with Aon Consultants in respect of the McCloud project for data Remedy. The McCloud Data scoping group are awaiting guidance from Scheme Advisory Board to enable us to deal with poor/missing data.

i-Connect – Monthly Data Returns

In the last quarter 30 employers have gone live with i-Connect equating to 78% of all active employers now supplying data monthly. A further 14 employers have now been onboarded since the agenda papers have been published.

Recruitment

Recruitment and retention remain a key factor impacting business operations with both member and employer services carrying vacancies (including maternity cover). Overall, the administration is approximately 88% resourced.

The Committee RESOLVED to note the Fund performance for the three months to 31st December 2022.

The purpose of this report is to update the Pension Committee on the latest position concerning the Local Government Pension Scheme [LGPS] and any proposed regulatory matters that could affect scheme administration. 

The Technical & Compliance Advisor introduced the report to the Committee. She informed them of the two following recent announcements.

CARE Revaluation Date

A short consultation had been issued in February 2023 to move the annual in-service CARE revaluation date from 1 April to 6 April to align with the tax year and reduce the number of members who would potentially breach the annual allowance as a result of the 10.1% CPI increase being awarded.

This change will now come into force from 31^st March 2023 and means that the revaluation of CARE will not be taken into account as part of the annual allowance calculation.

Our system provider, Heywood, have said that they are looking to have a procedure in place from May 2023 regarding this.

The change will impact a small number of members that change status between 1^st – 5^th April which may require some manual calculations from the Admin team. The LGA are due to provide guidance on this matter imminently.

Lifetime / Annual Allowance

It was announced by the Chancellor in the Spring Budget that the Lifetime Allowance would be abolished from 2024.

From April 2023 the Annual Allowance has been increased from £40,000 - £60,000.

Awaiting further information from the Treasury on both matters.

William Liew commented that he was aware that the NHS Pensions Team had already written to their members regarding the CARE revaluation and had updated their website.

The Technical & Compliance Advisor replied that they were awaiting further guidance from the LGA as to whether this was seen as a material impact and then a decision would be made on how this will be communicated to members.

Councillor Chris Dando commented that the Judicial Review (brought by the British Medical Association and the Fire Brigades Union) over the government proposed method of paying for costs incurred by the McCloud Judgment has now been dismissed.

The Committee RESOLVED to note the current position regarding the developments that could affect the administration of the fund.

The purpose of this report is to update the Committee with the quarterly review of the risk register.

The Governance & Risk Advisor introduced the report to the Committee. She outlined that a new risk framework had been introduced to assist risk owners to assess the risk and score, this was attached as Appendix 1, a high level matrix showing the distribution of risks by score was attached as Appendix 2 and the complete risk register was attached as Appendix 3.

She stated that following feedback from the Committee and Pension Board members pre-mitigation scores have also been added to the risk register.

She highlighted that the most critical risks were currently:

NR01 – ‘Ability to deliver admin service to members and employers within agreed standards’ - The current factors impacting this risk are set out in item 13 – Pension Fund Administration report.

NR12 – ‘Failure to achieve decarbonisation targets in the required timescales in accordance with climate change priorities’ - Government climate policies not moving fast enough or sufficiently enforced.

Councillor Shaun Stephenson-McGall said that he welcomed the changes that had been made to the risk register and thanked officers for their work on it.

The Committee RESOLVED to note the report.

Attached to this report is the work plan for the Committee (Appendix 1) and a separate one for the Investment Panel (Appendix 2) which set out provisional agendas for forthcoming meetings. The dates for future Committee and Panel meetings are also included. The provisional training programme for 2023 is included as Appendix 3.

The Governance & Risk Advisor introduced the report to the Committee. She explained that there is an intention to move the Committee meetings to Friday mornings on the same dates as outlined in the report.

She said that the Committee are being asked to approve the proposal that members study and complete all Hymans Learning Academy modules within twelve months of becoming a Committee member.

The Chairman commented that he would like it to be made sure that any new Committee member receives robust training and induction.

The Committee RESOLVED to:

i)  Approve the proposal for Committee members to study and complete all Hymans Learning Academy modules within twelve months of becoming a Committee member.

ii)  Approve the proposal for Committee members to restudy and repeat the completion of the modules every three years.

iii)  Note the Committee & Investment Panel workplans and training programme.