Agenda and minutes

The Chair drew attention to the emergency evacuation procedure.

Apologies had been received from Cllr Gabriel Batt and from Carolan Dobson.

Cllr Katie Hall had apologised that she would arrive late.

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 2, A and 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 Officer before the meeting to expedite dealing with the item during the meeting.

There were none

There was no urgent business.

The public and exempt minutes of the meeting of 22^nd June 2012 were confirmed as correct, with one amendment:  that Dr Mark Wright be amended to Cllr Mark Wright.

There were none.

There were none.

The Divisional Director (Finance) introduced the report.

The Finance and Systems Manager (Pensions) provided some explanations and also said that three amendments were needed to the figures on page 42 showing the analysis for year ending 31^st March 2011:  In the AAA column, the Overseas Government Bonds figure should read 39,886; the Corporate Bonds should read 16,228; and the total should therefore read 403,233.

Chris Hackett (Audit Commission) explained that he had not yet issued the audit opinion report which was included as appendix 2 to the report.  He said that his report would confirm an unqualified audit opinion.  He explained that there would be some new responsibilities to disclose the accrued pension rights of key officers but that a single figure to cover all would avoid divulging personal information.  He referred to Note 21, on page 41 of his report, and said that the key relationship had been disclosed and the amount was not material. Finally, he confirmed that there had been no adjustment to the audit figure.

A member asked who would sign the management letter, and it was confirmed that this would be the Bath & NE Somerset Council Section 151 Officer.

A member observed that in the Key Risk Table on page 78 of the pack, the reference to the risk of failure to achieve investment returns should mention the existence of the Investment Panel.  The Investments Manger acknowledged this but said that the responsibility ultimately fell to this Committee.

After other clarifications, it was RESOLVED (unanimously)

(1) To APPROVE the final audited Statement of Accounts for 2011/12;

(2) To NOTE the issues raised in the Annual Governance Report;

(3) To APPROVE the draft Avon Pension Fund Annual Report 2011/12; and

(4) To NOTE the arrangements for distribution of the 2011/12 Annual Report & Accounts.

The Investment Manager explained that this was the first annual report and said that the recommendations proposed areas for future focus.

The Chair welcomed Paul Hewitt (Manifest) who gave a presentation [a copy of which is attached to the minutes as Appendix 1 and on the Council’s website] in which he analysed voting patterns of different investment managers at shareholder meetings, particularly in the matter of Director elections, remuneration, annual reports and auditor appointments.  He explained that voting was not the most subtle way to influence the behaviour of companies.

Members of the Committee thanked Paul Hewitt for his presentation and he answered a number of questions.  In particular, he addressed the point made by more than one member that voting was a powerful way to influence behaviour, by reminding members that voting was only one option open to investors and that other means of engaging with Boards also could be very effective.

Tony Earnshaw (Independent Advisor) agreed with Paul Hewitt and said that the report was an attempt for the Committee to find ways of influencing behaviour without doing anything which would reduce the value of the funds held in trust for the members of the scheme.

A member felt that at least fund managers should be advised that their voting patterns were being monitored.

[Cllr Katie Hall arrived at this point]

The Head of Business (Finance and Pensions) warned of the dangers of rethinking the entire investment strategy.

A member observed that in his presentation Paul Hewitt had said that voting patterns were monitored against local regulatory regimes; and asked whether this meant that no attempts were made to improve 2^nd and 3^rd world markets.

Paul Hewitt responded that some governments and investors did intervene to encourage improvement.

The Chair thanked Paul Hewitt for his report.

The Committee RESOLVED (with two abstentions)

(1) To NOTE the review of voting activity undertaken in 2011 on behalf of the fund;

(2) To AGREE that based on this annual review, the issues the Fund will focus on with its managers in the 2013 voting season will be:

(i) remuneration policy and its link with strategic performance and

(ii) governance structures including the independence and diversity of the Board.

The Pensions Manager gave a verbal update on the consultation process on the Government’s proposals to change the Scheme from 2014.  He explained that the proposals had received wide acceptance from all unions except that the Fire Brigades Union had not been in favour.  The next step would be that government would issue a formal document, based on the informal discussions, for a 3-month formal consultation.

Union representatives expressed their concern to maximise membership of the Scheme and to minimise opt-outs.  Some expressed concern that the 50/50 provisions, while allowing low-paid employees to make a staged entry to the Scheme, might also allow existing members to reduce their contributions against their own best interests.  A union representative welcomed the better deal for some low-paid employees and the better accrual rate on offer.

The Pensions Manager advised the Committee that he would be arranging a series of Pensions Roadshows, probably from February 2013, to explain the proposals to employees.

The Committee RESOLVED (unanimously)

(1) To NOTE the Pensions Manager’s verbal report.

[Cllr Katie Hall left the meeting at this point]

The Pensions Manager introduced the report.  He observed that one of the biggest challenges was updating members’ details in a timely way because the Fund had a large number of employer organisations some of which did not notify changes to personal details, leavers, joiners etc until the end of the financial year.  He asked the Committee to agree to an increase in the salary costs so that new staff could be employed to deal with the extra workload which resulted from the need to be prepared for the introduction of the new LGPS scheme in 2014.  He also asked the Committee to agree to the purchase of new middleware software which would facilitate monthly updates of member details straight onto the pensions database.

A member asked whether, once the extra workload of implementing the new scheme had been completed, the intention was to manage down the establishment.  The Pensions Manager stated that this would be achieved when appropriate, through natural wastage.  He reminded the Committee however that there were now 170 employers in the scheme, and that benefits under the anticipated 2014 scheme would be calculated on a totally different basis from the previous schemes so extra work would be involved for some time to come.

The Committee RESOLVED (unanimously)

(1) To AGREE the proposed change in the structure of the Pension Benefits Department;

(2) To AUTHORISE:

(i)  An increase in the annual staff salary costs as shown in Appendix 2A

(ii) Additional spend on other necessaries to meet future challenges including new middleware software which will assist employers with their legal obligations under auto enrolment and provide monthly updating of member changes to the Fund’s pension administration database as shown in Appendix 2B.

Cllr Charles Gerrish introduced the draft minutes of the Panel, which had been attached to the agenda.

The Investment Manager explained that one member of the Panel had attended in an observer role only, since he had not at that point signed his declaration of interest form so was not entitled to participate.

The Committee RESOLVED (unanimously)

(1) To NOTE the draft minutes of the Investment Panel meeting held on 5^th September 2012.

The Investment Manager introduced the report.  She reminded members that it was a legal requirement to update the Investment Principles whenever there was any material policy change.  The changes incorporated the responsible investment policy and the cash management policy.

A member asked for clarity about the distinction between cash management and treasury management, particularly in the light of the third paragraph on page 3 of the amended statement.  Officers were asked to respond to this.

A member drew attention to the statement in paragraph 9 (Exercise of Voting Rights) on page 7 of the statement, in which it was made clear that the Fund would actively require its fund managers to vote their shares in line with the fund manager’s own internal voting policy.

The Committee RESOLVED (unanimously)

(1) To APPROVE the revised Statement of Investment Principles.

The Chair moved that Appendix 3 to the report was exempt from publication.  Members applied the public interest test to appendix 3 of the report and

RESOLVED (with one objection)

(1) Having been satisfied that the public interest would be better served by not disclosing relevant information, in accordance with the provisions of section 100(A)(4) of the Local Government Act 1972, that the public be excluded from the meeting during the discussion of appendix 3 of the report for this item because of the likely disclosure of exempt information as defined in paragraph 3 of Part 1 of Schedule 12A of the Act as amended.

[Having agreed not to refer to the exempt material, the Committee returned to open session]

The Committee RESOLVED (unanimously)

(2) To NOTE the information as set out in the report.

[Rowena Hayward, the GMB union representative left at this point]

The Chair moved that Appendix 7 to the report was exempt from publication.  Members applied the public interest test to appendix 7 of the report and

RESOLVED (with 2 objections)

(1) Having been satisfied that the public interest would be better served by not disclosing relevant information, in accordance with the provisions of section 100(A)(4) of the Local Government Act 1972, that the public be excluded from the meeting during the discussion of appendix 7 of the report for this item because of the likely disclosure of exempt information as defined in paragraph 3 of Part 1 of Schedule 12A of the Act as amended.

[The Committee then held a debate in closed session, the details of which are exempt from publication]

The Committee returned to open session.

A member referred to the graphs on page 315 of the pack and asked why, when the number of actives was reducing, the number of cases was increasing.  An officer explained that this was partially due to late data arriving from the member employers.

The Committee discussed the need to impress upon member employers the importance of prompt data updates.

The Committee RESOLVED (unanimously)

(2) To NOTE the expenditure for administration, the Stewardship Report on performance and management expenses incurred for the 12 months and Performance Indicators and Customer Satisfaction Feedback for the 4 months to 31 July 2012.

The next meeting is scheduled for 2pm, 14^th December 2012.

It was RESOLVED (unanimously)

(1) to NOTE the future workplan.