Agenda and minutes

The Democratic Services Officer read out the procedure.

Apologies were received from Councillor Gabriel Batt, Councillor Clive Fricker, and Councillor Mike Drew.

There were none.

Officers reported that Steve Macmillan, the Pensions Manager, had undergone a triple bypass operation and was now recuperating. Members requested that their wish for his speedy recovery be communicated to him.

There were none.

There were none.

The public and exempt minutes of the 21^st June 2013 were approved as a correct record and signed by the Chair.

Agenda item 13: Statement of Investment Principles: Councillor Pearce informed the Committee that Bristol City Council had narrowly passed a resolution calling on the Mayor of Bristol to press the Fund and its employers to disinvest from tobacco. Councillor Pearce said that he had asked the Mayor for a response. Councillor Brett reported that the Bath and North East Somerset’s Health and Wellbeing Policy and Development Scrutiny Panel had expressed its disapproval of investment in tobacco and that this has been communicated to the officers of the Fund. It was noted that this issue was discussed as part of the review of Responsible Investing in 2012, and that it will be reviewed next when the Committee has its annual review of Responsible Investing in 2014.

The Finance & Systems Manager (Pensions) presented the accounts. He informed Members that these had already been approved by the Corporate Audit Committee. He drew attention to the changes made since the draft accounts were presented to the Committee at the June meeting, which were listed in paragraph 4.1 of the covering report.

Mr Hackett presented the Annual Governance Report. He said that the auditors had given an unqualified opinion on the Fund’s financial statements. There was one misstatement and a few disclosure changes, which were listed on agenda page 61. Asked by a Member about a management response to the internal control issues noted on agenda page 63, he said that this had been tabled at the recent meeting of the Corporate Audit Committee. Officers said that a copy of this could be made available to any Member who required one.

Members then considered the Fund’s Annual Report. A Member queried whether the number of Investment Panel meetings had been stated correctly. The Investments Manager said she would make sure the information is correct.

A Member asked whether there was a strategy for raising employers’ contributions to 16%. The Head of Business, Finance and Pensions replied that there was a triennial valuation which looked at liabilities and contribution rates. The Member asked whether the Committee could influence this process. The Head of Business, Finance and Pensions replied that the Fund worked with the actuary to achieve a balance between affordability and the need to cover the liabilities. The Chair said that the issue was generally discussed between the actuary and the Fund’s four largest employers.

RESOLVED:

1. To note the final audited Statement of Accounts for 2012/13.

2. To note the issues raised in the Annual Governance Report.

3. To approve the draft Avon Pension Fund Annual Report 2012/13.

The Investments Manager presented the report. She reminded Members that the Committee had agreed the broad principles to be included in the draft Funding Strategy Statement after the Committee workshop on 21 June 2013. The draft had been circulated to the employers, requiring them to return comments by 10 September 2013. Very few comments had been received. Individual employer results from the valuation would be disseminated in October and November. An Investment Forum had been arranged for 22 November 2013. The actuarial outcome would be reported to the Committee at the December 2013 meeting, which would be attended by the actuary.

RESOLVED to approve the Funding Strategy Statement as set out in Appendix 1, subject to the insertion of information which can only be included when the actuarial valuation is complete, for general publication and distribution to the Fund’s employing bodies.

The Technical and Compliance Manager updated Members. The Fund’s responses to the two consultations that had been ongoing at the time of the last meeting were attached to the report. The Regulations for the new scheme were now expected to be issued in mid-October.

A Member asked whether any analysis was being done on the possible impact on administration costs of the new scheme. The Head of Business, Finance and Pensions replied that the Fund’s officers had anticipated the impact and resourced appropriately.

A Member urged that there should be effective communication with employees about the new scheme.

RESOLVED to note the response made in August 2013 by Bath and North East Somerset Council in connection with the relevant consultations.

The Investments Manager presented the report. She tabled a copy of the Fund’s response to the DCLG’s call for evidence (attached as Appendix 1 to these minutes) The response to the governance paper supported the proposal for a national supervisory board but not the proposal for local scrutiny committees in addition to statutory committees. The call for evidence focussed on investment and administration costs, but in fact the key issue was liabilities, as had been pointed out in the responses of the majority of pension funds. The DCLG intended to consult on proposed changes to governance arrangements with a view to having the new arrangements in place in 2014/2015.

Members supported a national supervisory board, but not local scrutiny boards.

Members had a general discussion about some of the other ideas that were being put forward in relation to the LGPS, such as merging Funds and the joint administration of Funds.

RESOLVED to note the Fund’s response to the governance paper and call for evidence.

The Assistant Investments Manager presented the report. He said that there were no recommendations to the Committee from the Panel. At the 18 July 2013 meeting, the Panel had agreed:

1. the emerging markets mandate specification and the make-up and timing of the selection panel;

2. the target allocation within the overseas regional equity portfolio and arrangements for annual rebalancing;

3. the changes to the allocation within the bond portfolio and timescale for the changes.

The Chair of the Investment Panel, Councillor Charles Gerrish, commented that the new system of Red Amber Green reporting on investment manager performance was extremely useful and that the subsequent performance of MAN vindicated the decision to disinvest from them.

A Member asked whether the Panel scrutinised overperforming managers to see if there were lessons that could be learned by other managers. Councillor Gerrish replied that the Fund’s managers had varying mandates, so that direct comparisons between them were often very difficult. However, discussions with those managers who were performing well helped the Panel formulate questions to put to those who were doing less well.

A Member asked whether the Panel was able to respond quickly to events. Councillor Gerrish said that because of the change in delegations it was now possible to respond faster than it had been previously. However, any process inevitably took time. The Investments Manager said that it was important to make any changes at the right time as the costs of hiring and firing managers were quite significant.

RESOLVED:

1. To note the draft minutes of the Investment Panel meetings held on 18 July 2013 and 4 September 2013;

2. To note the decisions made by the Panel at the meeting on 18 July 2013.

The Assistant Investments Manager presented the report. He asked Members to note that the funding level had increased by 5% to 74%, despite a fall in the value of the assets; markets had reacted negatively to the Chairman of the Fed’s comments on the tapering of QE. He drew attention to the progress on implementing the new investment strategy detailed in section 6 of the report. The annual assurance on the control environment of third party suppliers had thrown up no issues to bring to the attention of the Committee.

Mr Sheth commented on the JLT report and the market background.

A Member referred to the repeated fines and compensation payments imposed on the financial services industry, which had totalled many hundreds of millions of pounds, but had not had any discernible impact on behaviour. These penalties had been paid with shareholder funds; he believed that the industry owed this money to shareholders. He suggested that if information about these penalties were presented in a more concrete and personalised way, e.g. if they were quantified in terms of the loss they represented to each pension fund member, there might be more pressure for reform. Mr Sheth responded that regulation of the industry had been strengthened in a number of ways since the financial crisis. There was further discussion about the regulation of the banking sector by members. A member drew attention to the LAPFF Quarterly Engagement Report, which gave information on the issues that LAPFF was pursuing with companies.

RESOLVED to note the information set out in the report.

The Finance & Systems Manager (Pensions) presented the budget report. The directly-controlled administrative budget was forecast to be £20,000 below budget because of late appointments of staff in the Benefits and Data Quality teams. Expenditure not directly controlled was forecast to be £960,000 over budget, because of increased investment management fees, reflecting the rise in the markets since the budget was set.

The Pensions Benefits Manager presented the performance report. He invited Members to note the information about the performance of the Pensions team given in section 6 of the report. He circulated an amended version of Annex 2 to Appendix 7 (deferred performance cases within target for the larger employers in the Fund) and drew attention to the great improvement in performance by Bath and North East Somerset and North Somerset Councils. However, the performance of Bristol City Council had fallen significantly and they had cleared only 5 cases within target. Training had been provided to some staff of BCC, but they had changed their working practices without notifying the Pensions Team. Training had subsequently been provided to another group of staff.  Electronic transactions had increased by 5.37% to 49%. He asked Members to note the very competitive administration costs of £17.34 per member of the Fund, compared with £21.42 for the average fund and £20.45 for the smaller comparator group.

A Member congratulated the Pensions Team on the increase in the proportion of electronic transactions and asked when it was likely to reach 100%. The Head of Business, Finance and Pensions replied that there was a strategy to increase electronic transactions. Employers were being encouraged to send data electronically, and the larger employers were increasingly doing so, though South Gloucestershire was lagging behind the other Unitary Authorities in the implementation of i-Connect. As part of the strategy employers could be charged more if they did not send data electronically. The Pensions Benefits Manager said that BCC previously had only two officers dealing with leavers. He reminded Members that employers who sent data late could now be charged.

A Member noted that the number of deferred members had doubled and asked about the impact on workload. The Head of Business, Finance and Pensions said that BCC had decided to opt all employees into the Fund under Auto-enrolment requirements. It was critically important that all employers recognised the need to invest in technology and provide information in a timely fashion.

A Member commented that the number of active elected members seemed very low. The Pensions Benefits Manager reminded Members that North Somerset members had elected to withdraw the scheme from its elected Members.

A Member commented that deferred members always accounted for most gaps in member data, because they often moved elsewhere. He said that another pension fund with which he was involved used a volunteer welfare officer to keep track of deferred members, paying the officer only their petrol costs. He thought that this worked quite well.

A Member noted the CIPFA benchmark data given in Appendix 8 and wondered  ...  view the full minutes text for item 32.

RESOLVED to note the workplans.