Agenda item

The Head of Business, Finance and Pensions presented the report.

He said that a number of things had impacted on resources and workload, including the Brunel project on the investment side, the large number of schools converting to academies and the increase in the number of employers. The range of work is huge, and the Pension Board had quite rightly said that we should be putting more resources in to deal with it. However, it is important that resources are properly targeted, so resources have been allocated to undertake a number of specific projects. These would come from a mix of allocating existing and employing additional resources, together with some reorganisation of functions. It was proposed that the budget should be increased from £2.7m to £2.9m. Additional resources would be allocated to the actuarial team, particularly for the covenant assessment work, and to the investment team. There was a two-year transition period for pooling, and given their already high work load it would be prudent to add additional resource to the investment team now, rather than wait for a full review. On the administration side there were a number of specific projects, as detailed in Appendix 5. IConnect would be rolled out to all employers to help them provide the Fund the information it required. Software suppliers have been improving products, and with telephone, online and Skype training it would no longer be necessary to visit all employers to give on-site training. This would require some investment. 55% of data is now provided electronically. The revised Administration Strategy, which would be presented to the Committee in September, would play an important part in promoting more effective working.

The Vice-Chair asked whether there was adequate support for the Fund’s IT systems. The Head of Business, Finance and Pensions replied that there were very few suppliers providing software for LGPS funds. The Fund probably used more products from Heywood than other LGPS funds. Heywood supplies the member portal and the employer portal. He was quite confident that a system could be built that would efficiently and economically serve members and employers. The alternative would be to invest significantly in an alternative system, as one fund had unsuccessfully tried to do before reverting to their previous supplier.

A Member commented that the academies issue was not going to get any easier, and wondered whether a dedicated person or other resource might be provided to deal with them. The Head of Business, Finance and Pensions responded that one way forward might be to acknowledge that the academies would not be able to cope with pensions work and for the Fund to do it for them and charge them for it. However, this raised issues about the Fund’s independence and how it could avoid conflicts of interest.

A Member noted that the member address rectification project had been outsourced and asked whether there was potential for outsourcing other work. The Head of Business, Finance and Pensions replied that the member address project was a small discrete piece of work; outsourcing major functions was more problematic. In the first place there were few suppliers in the market place, so there was limited scope for major outsourcing. Some funds had shared services, like Devon and Somerset, and on the whole he thought this would be a better option. A Member said that he believed outsourcing would be a serious error in the light of the recent problems experienced by major providers of outsourced services. In addition, outsourcing would lead to a loss of control of administration by the Fund. There was sufficient turbulence to the Fund caused by the establishment of Brunel, so it would be very unwise to add to it by outsourcing any administrative functions.

The Investments Manager said that because of the costs of Brunel, there would be no savings on the investment side this year, but work was being done nationally on how to analyse and disclose the costs of pooling. The Head of Business, Finance and Pensions said that an increase in investment managers’ fees had to be expected in a buoyant market.

A Member referred to the Budget and Cash Flow Forecast on agenda page 61, and noted that the table had a line for investment income received as cash and one for divestments, and a statement that one of the sources for net cash requirements would be divestments. This made him wonder how the gap between the Fund’s income and the amount paid out in pensions would ever be closed. The Investments Manager pointed out that deficit recovery was another source of income. A significant portion of deficit contributions from employers were received as lump sums in year 1 and were invested. The deficit contributions would make the Fund cash neutral over the valuation period. Cash income could be received from the low-carbon portfolio. Income is also received from other investment manager mandates, but this is reinvested by the managers. Marginal divestment would be required from time to time to maintain cash flow.

A Member asked about the impact of the General Data Protection Regulation. The Head of Business, Finance and Pensions said that there was a cross-Council project on this. It was a requirement that there should be a central register recording all information transfers and how they are controlled. Arrangements were supposed to be in place by 25^th May, but few organisations will achieve this deadline. The important thing is that there should be a project plan; this will be presented to the Pension Board in May or July and will come to the Committee thereafter. 

RESOLVED to approve the 3-Year Service Plan and Budget for 2018-21 for the Avon Pension Fund.