Agenda item

The purpose of this report is to present to Committee the 3-year Service Plan and Budget for the period 2023-26. 

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

·  The Ukraine conflict and other global challenges have adversely impacted the Fund in 2022. Markets have experienced elevated volatility, with UK government bonds for example declining in value by c.30%.

·  Even though the Fund’s portfolio declined by 11% during 2022 to £5,231m, we enter 2023 in a robust financial position with a c.97% funding level.

·  Operationally the Fund has had more mixed success during 2022-23. Service performance in aggregate is below required levels, with only 5 of 19 service measures completed within target timescales. This is a result of high staff vacancy rates of c.13%, churn of leavers and joiners, regulatory change, and slow progress in digitising administration.

·  Administration Strategy - At its heart is a strategic change programme of projects to meet regulatory needs, raise operational efficiency, and improve member experience. To be implemented over 2023-26, this will raise our capacity and enable us to serve members and employers more effectively over time. The plan is being developed and will be shared in detail with the Committee in June 2023.

·  Funding Strategy - The Fund already has captive group-wide insurance for Ill-health retirement given that this can result in significantly liabilities. The main new funding project in 2023 is to explore similar groupwide captive insurance options for Death in Service, at minimal extra cost to employers. Officers will come back to the Committee with a proposal for their approval later in 2023.

·  Communications Strategy - Stakeholder engagement: the Fund needs to clearly communicate with key stakeholder groups, e.g. councillors, scheme members, trades unions, etc. on investments and climate change. This will encourage broad feedback and input to influence the Committee’s decisions on revised climate targets in September 2023.

·  The Fund’s overall budget for 2023-24 of £31.9m is £2.1m lower than in the previous year’s budget of £34.0m. There are two core budget components:

o  The administration budget of £7.0m for 2023-24 is £1.1m higher than 2022-23.

o  2023-24 investment fees of £24.9m are £3.2m (11%) lower than the £28.1m of 2022-23. The difference is driven by: asset values lower than 2022-23 budget, raising the proportion of passive equities from 39% to 50%, and changes in portfolio allocations.

Wendy Weston referred to page 139 and asked what sectors were increasing their active membership.

The Pensions Manager replied that there had been quite an increase in part-time workers and these were mainly within Academies / Multi Academy Trusts.

Pauline Gordon asked how our costs relate to other Funds in terms of benchmarking.

The Head of Pensions replied that there is an annual benchmarking report produced and he believed that the Fund was broadly in the middle of the pack in terms of cost per member and cost per asset. He added that most importantly they are looking to improve service levels and then seek to bring down unit costs.

Councillor Paul May asked how the review of pay scales for the Fund is dealt with by B&NES as an overall organisation in terms of its employees.

The Head of Pensions replied that a report would be submitted to the Council’s HR and Finance departments for them to advise / approve on how any changes can be implemented alongside other salaries across the Council.

The Director, One West added that the Fund has to work within the same processes as all other areas of the Council. He said that a Hay evaluation and grading scheme will take place as part of this exercise and assured the Committee that all governance procedures will also be followed.

Jackie Peel asked if there is a ‘Plan B’ if the recruitment of additional staff does not come to fruition as is hoped.

The Head of Pensions replied the Fund is open minded about the option to outsource any functions to consultants / partners as it already does so in some cases. He added though that they were not anticipating the need to do so with regard to the administration of the service.

Richard Orton asked if the figure of £0.4m would be enough to address the salary reviews.

The Head of Pensions replied that they do believe that this figure will be sufficient.

Richard Orton commented that the number of participating employers had decreased from 484 in 2021 to 331 in 2022 and asked if it was known why this had occurred.

The Group Manager for Funding, Investment and Risk replied that it was because many of the Admission Bodies have short term contracts for elements of their outsourcing, catering etc. She added though as Multi Academy Trusts have begun to pool more resources this will have seen a decline in those overall numbers.

Charles Gerrish asked for clarification if the Hay evaluation would cover all market parameters or just the public sector.

The Head of Pensions replied that they will be looking across both the private and the public sectors.

The Director, One West said that this had so far been one of the most extensive analysis that he had seen. He added that Aon were acting on behalf of the Fund and were gathering a deep level of evidence for every role within the Fund.

Charles Gerrish asked if there was to be any regional pay influence.

The Head of Pensions replied that other LGPS such as Somerset, Wiltshire and Gloucestershire have been included in their benchmarking and some of the private sector evidence has been from companies in and around the Bristol area. He added that the competitive dynamics have become more complex now that the majority of employees can work from home.

Wendy Weston referred to Appendix 4 and asked if the reduction in forecast budget for the Pension Board in 2022/23 could be explained.

The Governance & Risk Advisor replied that it had been because a number of meetings and training had taken place remotely over the past year. She added that in the coming years some of these elements would return to being in person and a recruitment exercise was also expected for roles within the Board.

Councillor John Cato referred to Appendix 2a and asked if there was a known completion date target for the ‘Review disaster recovery / business continuity plan’ and ‘Review of Committee Reports’.

The Governance & Risk Advisor replied that officers were in the process of re-prioritising projects and it was anticipated that this programme would be revised by June.

The Committee RESOLVED to approve the 3 Year Service Plan and Budget for 2023-26 for the Avon Pension Fund.