Agenda item

The purpose of this report is to update the Committee with progress on appointing a new provider for Additional Voluntary Contributions (AVCs).

The Pensions Manager introduced the report to the Committee and highlighted the following points from within it.

The Fund’s existing AVC provider, Aviva, gave notice in January 2022 that they would not accept any new employer applications to their existing AVC scheme. In practice this meant that any member, with an employer not already in the scheme, would not be able to start an AVC contract. This situation left the Fund in breach of LGPS regulations which state that members must be provided with access to an AVC scheme. The Fund negotiated a six-month extension with Aviva (which expired in August) and in February appointed Hymans Robertson to assist with the procurement of a new provider. Hymans were appointed via the LGPS National Framework.

Hymans carried out a review of the AVC market on behalf of the Fund and six other LGPS Funds. The LGPS AVC market is not lucrative for providers (as most members take the AVC as a cash lump sum) and a number have now withdrawn from the market. The conclusion from their review was that there was only one provider who would be prepared to offer an AVC scheme which was Legal & General (L&G).

Advised by Hymans’ the Fund has engaged with L&G to agree specific terms for an AVC contract which will in most cases be more favourable to scheme members in terms of management fees (including critically for the default fund) and the range of funds offered. For the Fund it will be more operationally efficient with all the employers set up as one scheme.

All new contributions currently paid by members to Aviva will transfer to L&G in January 2023. L&G and the Employer Services Team are working with employers to ensure they are set up to submit contributions from January 2023 via the L&G portal. Most members’ AVC pots will transfer from Aviva and Utmost to L&G in March 2023. A series of communications are being sent to members to explain the changes and timescales involved.

William Liew asked what level of costs would be incurred as part of the transfer and what is the value that will be transferred across to L&G.

The Pensions Manager replied that costs involved in the transfer should not be material. Members will not bear any ‘out of market’ risk as L&G has agreed to pre-fund unit purchases on the same day as Aviva sells fund units. Members will however incur modest transition costs owing to the bid-offer spread of selling and buying units. Such costs are typically in the region of 0.4% to 0.7% in total for typical members. These costs would be gradually recouped by the lower charges with Legal & General going forwards. He said that the value to be transferred was around £5m.

Councillor Steve Pearce asked if it was known what L&G’s ESG approach was to AVC pots.

The Group Manager for Funding, Investment & Risk replied that they have a strong ESG approach to their work and support the Fund’s stance on transition to net zero. She added that two messages have been sent to all members on this matter.

Charles Gerrish commented that he was uncomfortable on hearing that there is only one provider of this service available for the Fund. He asked if any contingency measures could be put in place should L&G decide to cease this provision.

The Pensions Manager replied that the Scheme Advisory Board and the Local Government Association are aware of the situation. He added that a good relationship has been established with L&G as part of this process and that he believed that they are looking to support other Funds in a similar way.

John Finch suggested that as only one provider now exists the issue should be added to the risk register.

The Pensions Manager replied that they would make this addition.

Councillor John Cato asked how the Fund would monitor the statement in the report that L&G’s default fund and all their ‘Future World’ funds has a strong emphasis on responsible and sustainable investment.

The Group Manager for Funding, Investment & Risk replied that an investment brochure exists and that they will periodically carry out reviews with them on their work.

The Committee RESOLVED to note:

i)  The selection of the AVC provider which is a decision delegated to the Head of Pensions

ii)  That the AVC arrangements including fund selection will be reviewed every 2 years.