Agenda item

The Head of Business, Finance and Pensions presented this item and commented on the list of consultations, surveys and issues contained in Appendix 1 to the report.

He said that the Government had promised legislation to implement the Public Sector Exit Payments Cap by October, but he doubted about whether they could achieve this.

The Fund would respond to the Best value and Fair Deal consultation. The proposals were good news for employees, who would no longer have to leave the Fund when their jobs were outsourced. At the same time it would be more difficult for local authorities to make outsourcing contracts attractive to potential bidders.

There was an ongoing consultation on the insolvency regime for the further education and sixth form sector. The Fund had been speaking to all colleges about this, and encouraging them to respond to the consultation. Colleges, unlike Academies, do not have guarantees and represent a risk to the Fund. If colleges did have guarantees, their contribution rates could be more affordable.

GAD had consulted about information needed to manage the cost cap regulation. The Fund had responded that this was not deliverable.

A response had been received from DfE about failed Academies. This stated that DfE expected to pick up the first tranche of liabilities. The Chair noted that the National Scheme Advisory Board had issued a tender for a review of the funding and status of Academies; there is a suggestion that all new Academies should be allocated to a single LGPS fund. The Head of Business, Finance and Pensions said that the future of Academies needs to be debated; individual Academies differ in their liabilities. Responding to a Member he clarified that it was only the non-teaching staff in Academies who could be members of the LGPS.

Pooling

The Chair reminded Members that the Board did not have a specific remit in relation to pooling yet, because the revised Investment Regulations had not been issued and there were no TPR requirements relating to it. It was, however, covered by the Board’s general duty to monitor the Fund’s processes and procedures. A Member noted that pooling was included in the Risk Register.

The Head of Business, Finance and Pensions said that the Government’s response to the Project Brunel proposal was awaited. The proposal to establish an investment company would have to be approved by each of the Councils in Project Brunel and by their pensions committees. It was expected that the APF Committee would be invited to approve business case before the the proposal before it was submitted to B&NES Council on 17^th November. It was hoped that sign-off by all the Councils would be achieved by the end of the year before annual budget setting and county elections. Developments after that would depend on the Government issuing the revised Investment Regulations.

A Member wondered whether transition costs would be likely to pressure on contribution rates, and whether the Committee and Panel should be alerted to this risk. The Head of Business, Finance and Pensions said that there were significant transition costs. There would also be ongoing additional operating costs, because the Government had insisted that the company must be FCA regulated. There was some concern among officers of the funds in Project Brunel about the savings that might be achieved. At the moment the break-even point was estimated to be in 2020/22. There would be pressure on pay grades because the staff working for the investment company would have to be FCA-accredited; the savings that could be made on investment managers’ fees were hard to estimate. The Committee was fully aware of the uncertainties. However, the important point was that the Government was insisting on pooling. The Strategic Director of Resources asked whether this initiative might have a lower priority with the new Prime Minister and Cabinet. The Head of Business, Finance and Pensions replied that DCLG seemed to be keen to maintain momentum. In reply to a question from the Chair he said that the business case prepared by PwC would be subject to independent scrutiny.

Members asked whether there was scope for savings on the administration of the payment of benefits and whether there were any plans to merge funds. The Head of Business, Finance and Pensions replied that there were no plans to pool the administration of funds. Members’ benefits were guaranteed by statute so the risk of a shortfall arising from pooling would be borne by employers. The cost structure of the LGPS was being reviewed by GAD. The merging of funds had been discussed a few years ago, and the Government had concluded that there were greater savings to be made on investment costs than on administration. If pooling was a success, the idea of merging funds might well be revived.

In reply to a question from a Member about the Oversight Board, he said that it had already been established in shadow form and comprised an independent Chair and the Chairs of each of the pension committees in Project Brunel. Its role would be to manage the contracts with the investment managers. In time it might have delegated to it some of the powers of the administering authorities as shareholders.

It was noted that Tom Renhard would be attending an LGA training event on 10th August; he agreed to circulate a note about this to Members.

The Head of Business, Finance and Pensions said that it was hoped to have a joint workshop in October on the structure of Project Brunel to which Pension Board Members would be invited.

RESOLVED to note the report and latest LGPS developments.