Agenda and minutes

Venue: Brunswick Room - Guildhall, Bath. View directions

Contact: Sean O'Neill  01225 395090

Items
No. Item

39.

EMERGENCY EVACUATION PROCEDURE

The Chair will ask the Committee Administrator to draw attention to the emergency evacuation procedure as set out under Note 8.

Minutes:

The Democratic Services Officer read out the procedure.

40.

APOLOGIES FOR ABSENCE AND SUBSTITUTIONS

Minutes:

Apologies were received from Carolan Dobson and Councillor Clive Fricker.

41.

DECLARATIONS OF INTEREST

Members who have an interest to declare are asked to state:

 

(a) the Item No in which they have an interest;

(b) the nature of the interest; and

(c) whether the interest is personal or personal and prejudicial.

 

Any Member who is unsure about the above should seek the advice of the Monitoring Officer prior to the meeting in order to expedite matters at the meeting itself.

 

Minutes:

There were none.

42.

TO ANNOUNCE ANY URGENT BUSINESS AGREED BY THE CHAIR

Minutes:

There was none.

43.

ITEMS FROM THE PUBLIC - TO RECEIVE DEPUTATIONS, STATEMENTS, PETITIONS OR QUESTIONS

Minutes:

A statement and two questions were received from Councillor David Willingham of Bristol City Council. A copy of these together with the Chair’s replies is attached as an Appendix to these minutes.

 

A Member thought that it was not acceptable for the Fund to delegate voting decisions to its external investment managers and that it should have a policy on executive pay. Another agreed. The Chair commented that the Fund had two managers who voted on the Xstrata remuneration package, one of whom had abstained.  He said that the issue of delegation of voting would be picked up in the Committee’s review of Socially Responsible Investment.

Statement and questions from Cllr David Willingham, Bristol City Council pdf icon PDF 32 KB

44.

ITEMS FROM COUNCILLORS AND CO-OPTED AND ADDED MEMBERS

To deal with any petitions or questions from Councillors and where appropriate co-opted and added members.

 

Minutes:

There were none.

45.

MINUTES: 23 SEPTEMBER 2011 pdf icon PDF 62 KB

Additional documents:

Minutes:

The public and exempt minutes were approved as a correct record and signed by the Chair.

46.

INTERIM ACTUARIAL VALUATION pdf icon PDF 40 KB

The Actuary will attend the meeting.

 

Before discussing Exempt Appendix 1, the Committee is invited to pass the following resolution:

 

Before discussing Exempt Appendix 3, the Committee is invited to pass the following resolution:

 

“Having been satisfied that the public interest would be better served by not disclosing relevant information, the Committee resolves, in accordance with the provisions of Section 100(A)(4) of the Local Government Act 1972, that the public be excluded from the meeting 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.”

Additional documents:

Minutes:

Members had considered this item at the workshop that had immediately preceding the meeting.

 

A Member asked why gilt yields were used in the valuation process, as it was hardly likely that the whole fund would be sold in order to buy gilts. Mr Middleman replied that gilts were used as the basis to assess the value of the Fund in case of insolvency. At present gilt yields were driving up liabilities.

 

RESOLVED to note the information set out in the report.

47.

RESPONSE TO CLG CONSULTATION ON SCHEME CHARGES pdf icon PDF 44 KB

Additional documents:

Minutes:

The Technical Development Manager presented the report.

 

The Department of Communities and Local Government had published a consultation paper on 7 October 2011 on achieving the savings required by the Comprehensive Spending Review of October 2010. The document covered scheme changes covering the period 1 April 2012 to 31 March 2015. In November 2011 the Treasury had released to Trade Unions basic proposals arising from the recommendations of the Hutton Review. Appendix 1 to the report contained a draft response to the DCLG consultation. It was also proposed that a letter be sent in response to the Treasury proposals highlighting a number of issues.

 

The Strategic Director of Resources and Support Services said that the DCLG consultation gave an opportunity to make a number of points clearly to the Government, namely that that public sector pensions should be sustainable and affordable and that the Local Government Pension Scheme was a funded scheme and so different from other public sector pension schemes.

 

A Member suggested that the Committee’s response should accept an increase in the retirement age; this would be better than a rise in contributions or a decrease in benefits. Another Member, however, pointed out that if people worked longer, there would be fewer opportunities for young people to enter the work force and become Fund members. Another  Member commented that while it was true that on average that people were living and remaining fit and healthy longer, it was difficult for pension schemes to cope with those who were below average.

 

A Member expressed concern that the changes in employees’ contributions were being made to boost the revenue of the Treasury. The Chair pointed out that employers’ contributions were being increased as well, and that in fact all contributions would be retained within the Fund. The Director of Resources and Support Services pointed out that while contribution levels were set by Government regulations, the LGPS was managed by the local government employers. There was no way the Treasury could take money out of the Fund.

 

The Director of Resources and Support Services suggested that access to pensions was an issue that should be emphasised in the response.

 

The Chair proposed that authority be delegated to him in consultation with officers to allow him to make presentational changes to the draft response and to incorporate points made by Members during the discussion. He also proposed that the words in paragraph 2.2 of the recommendation be deleted and replaced by

 

“To copy the letter to the Fund employers and to invite them to consider whether they wished to respond to the consultation.”

 

RESOLVED

 

1.  To delegate to the Chair authority to amend the draft response letter to the DCLG consultation to include a summary of points made by Members during discussion and to incorporate presentational changes.

 

2.  To copy the letter to the Fund employers and to invite them to consider whether they wished to respond to the consultation.

48.

COMMUNITY ADMISSION BODIES pdf icon PDF 41 KB

Before discussing Exempt Appendix 1, the Committee is invited to pass the following resolution:

 

“Having been satisfied that the public interest would be better served by not disclosing relevant information, the Committee resolves, in accordance with the provisions of Section 100(A)(4) of the Local Government Act 1972, that the public be excluded from the meeting 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.”

Additional documents:

Minutes:

The Investments Manager presented the report. She pointed out that the Committee would need to go into exempt session before discussing Appendix 1.

 

It was noted that unguaranteed liabilities of Community Admission Bodies (CABs) is a legacy issue, because since December 2005 the Fund’s policy has been only to admit a CAB if a guarantee has been put in place by a scheme employer.

 

A Member commented that it was reassuring that the liabilities of the CABs without guarantees and the consequent risk to the Fund were relatively low.

 

RESOLVED to note the information set out in the report.

49.

INVESTMENT PANEL DRAFT MINUTES pdf icon PDF 31 KB

Additional documents:

Minutes:

RESOLVED to note the draft minutes of the Investment Panel meeting held on 22 November 2011.

50.

REVIEW OF INVESTMENT STRATEGY pdf icon PDF 40 KB

Additional documents:

Minutes:

The Investments Manager presented the report. She said that the Investment Panel at their meeting on 22 November 2011 had received an update on the Eurozone situation from John Finch (contained in Appendix 2 of the report) and felt that Mr Finch’s recommendation of a tactical switch from gilts to corporate bonds as a means of mitigating risk should be considered by the Committee at the earliest opportunity, as they felt they did not have sufficient information to make a substantive recommendation.

 

Mr Finch said that the situation in the Eurozone was changing by the day, if not by the minute. 18 months ago there had been talk of a downgrading of the UK’s credit rating now the UK was the only major country whose AAA rating was not questioned. Gilt yields had fallen over the last 2-3 months, and could go lower. However, good companies had strong balance sheets. Though corporate bond yields had fallen, gilts had fallen even more and the gap between them had increased. A switch of 3.2% of the Fund’s assets could be implemented quickly, giving flexibility in a volatile market.

 

Several Members spoke in favour of the proposal, but one Member expressed concerns about the desirability of switching in a highly volatile market.

 

[Councillor Batt left the meeting at this point.]

 

It was moved by Councillor Coombes and seconded by Councillor Gerrish and RESOLVED by 9 votes, with 1 abstention that having considered the proposal from JLT the Committee agrees:

 

  i.  the recommendation from JLT to tactically switch from UK government bonds (gilts) to sterling corporate bonds;

  ii.  the value to be switched is £80million (c. 3.2%) of the Fund’s assets;

  iii.  the trigger point to reverse the tactical switch is when the corporate bond yield spread over the gilt yield falls to 1.2%.

  iv.  to delegate implementation to officers, subject to current conditions prevailing.

51.

RECOMMENDATIONS FROM THE INVESTMENT PANEL pdf icon PDF 34 KB

Minutes:

RESOLVED to agree the recommendation from the Investment Panel.

52.

REVIEW OF INVESTMENT PERFORMANCE FOR QUARTER ENDING 30 SEPTEMBER 2011 pdf icon PDF 90 KB

Before discussing Exempt Appendix 3, the Committee is invited to pass the following resolution:

 

“Having been satisfied that the public interest would be better served by not disclosing relevant information, the Committee resolves, in accordance with the provisions of Section 100(A)(4) of the Local Government Act 1972, that the public be excluded from the meeting 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.”

Additional documents:

Minutes:

The Assistant Investments Manager presented the report. He drew attention the information about cash management contained in paragraphs 7.5 and 7.6.

 

A Member suggested that the percentage of the Fund invested in emerging markets, which were likely to be the main drivers of world growth over the next five years, was quite low. The Investments Manager responded that the Investment Strategy had been reviewed in 2007 and the allocation to emerging markets had been increased. It was true that emerging markets were growth markets and that thought should be given to how the Fund could reflect this. However, there were issues in relation to emerging markets, such as the depth of the market for investors and how the growth potential translated into investment opportunities. A Member said that she recognised there was growth potential in emerging markets, but felt that because of volatility the Fund should not change any individual allocations without reviewing its whole strategy. Mr Finch suggested that the key was to look at the exposure of the global companies in which the Fund was invested; much depended on how these companies are exposed to emerging markets. A Member said that he had been surprised to learn of some of the countries in which the Fund was involved; what mattered was the quality of the companies invested in, not the countries. The Member who had raised the issue of emerging markets acknowledged that they could be volatile markets, but thought the Fund could benefit from growth in these markets while spreading its exposure. Another Member felt that there was a need to be careful about corporate governance issues in these markets. 

 

RESOLVED to note the information set out in the report.

53.

PENSION FUND ADMINISTRATION - BUDGET MONITORING FOR YEAR TO OCTOBER 2011 AND PERFORMANCE INDICATORS FOR QUARTER ENDING 30 OCTOBER 2011 pdf icon PDF 78 KB

Additional documents:

Minutes:

The Finance & Systems Manager (Pensions) presented the budget report. He asked Members to note the increased forecast underspend for investment managers’ fees, which reflected current market conditions.

 

The Pensions Manager presented the performance reports. He drew attention to the paragraph 5.5 (performance against target), noting that performance was acceptable, although marginally below target in some areas. Customer satisfaction was good. The level of opt-outs from the Fund had been low. Paragraph 8.2 gave information about how administration processes were amended in June 2011 to identify opt-outs in a reportable field; the current annual opt-out rate was only 0.29%, which was reassuring. There had been no complaints about service in the period.

 

Before the discussion of Appendix 7, which summarised the performance of Scheme Employers during the first 2 quarters of 2011, the following resolution was passed by 6 votes with 5 abstentions:

 

Having been satisfied that the public interest would be better served by not disclosing relevant information, the Committee resolves, in accordance with the provisions of Section 100(A)(4) of the Local Government Act 1972, that the public be excluded from the meeting 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.

 

Summarising the discussion on Appendix 7, the Chair said that the Committee’s views should be communicated to underperforming employers when officers next met them, and that they should be told that it might be necessary to discuss their performance in open session if there was no improvement. The Pensions Manager observed that under the Administration Strategy there was a power to charge employers for any disproportionate work they caused for Pensions staff in comparison with other Fund employers.

 

The meeting returned to open session.

 

A Member congratulated Pensions staff for an excellent quarter’s work, with costs significantly below budget. However he was concerned about outstanding workload being so close to target, and wondered whether this was due to failure to fill a staff vacancy. The Pensions Manager said that the post had not been deliberately left unfilled, but there had been recruitment difficulties.

 

Members noted the list of Academies given in Appendix 8. The Investments Manager said that the pensioner and deferred liabilities and sufficient assets to cover these liabilities are retained by the Unitary Authority employers. A Member asked the Investments Manager to report back to the Committee how the “old” Academies were treated on leaving the UAs.

 

RESOLVED to note the expenditure for administration and management expenses incurred for the year to 31 October 2011 and Performance Indicators for the 3 months to 31 October 2011 and Summary Performance report for the first two quarters 2011.

54.

ANNUAL REVIEW OF INTERNAL CONTROL REPORTS OF EXTERNAL SERVICE PROVIDERS pdf icon PDF 37 KB

Minutes:

The Investments Manager presented the report. She said that no issues had been identified and that these reports are also reviewed by the external auditors. The issue identified last year in relation to RLAM had been remedied.

 

RESOLVED to note the report and to request officers to continue to review the internal control reports and report to Committee on at least an annual basis.

55.

WORKPLANS pdf icon PDF 34 KB

Additional documents:

Minutes:

The Pensions Manager drew attention to the strategy for communicating the proposed changes to LGPS benefits resulting from the Hutton review and the increase in contribution rates proposed by the Treasury (Appendix 2). The Chair asked that copies of communication plans be distributed to Members.

 

A Member asked what the timescale was for moving to electronic delivery of information to Fund members (Appendix 2). The Pensions manager said that every Fund member would be given three opportunities to state that they wished to continue to receive paper documents; it would take a couple of years to complete this process.

 

The Investments Manager agreed to include a review of investment strategy in the workplans, to be undertaken once the impact of the new scheme on the investment strategy can be assessed. This review will include infrastructure.

 

RESOLVED to note the workplans.