Agenda and minutes

Apologies for absence were received from Liz Barclay.

There were no declarations.

There were no announcements.

There was no urgent business.

To approve and sign the minutes of the meeting held on 20^th October 2016.

RESOLVED –

THAT the minutes of the meeting held on 20^th October 2016 be approved and signed as a correct record.

Report of the Executive Director Corporate Services

The Pension Board has responsibility for assisting the Pension Committee in ensuring compliance with the Scheme Regulations, other legislation relating to governance and administration, and the requirements of the Pension Regulator. The Pension Board must also ensure the effective and efficient governance and administration of the scheme. This report considers the contribution strategy for the Council as the major employer in the Pension Fund, amongst 31 other much smaller employers. It considers the current stabilisation strategy that is applied to the Council and presents analysis from the Fund’s actuary including five alternate contribution strategies.

This report has appendices which contain exempt information within the meaning of Schedule 12A to the Local Government Act 1972 (as amended) and are not for publication.  The appendices have therefore been circulated to Board Members only.

If the Board wishes to discuss the contents of an exempt appendix it may pass the proposed resolution set out at the end of these agenda pages to exclude members of the press and public from the proceedings for that discussion.

Consideration was given to a report of the Executive Director Corporate Services.

It was noted that the full report from Hymans Robertson, the Fund’s Actuary was attached as a confidential appendix to this report and contained confidential information relating to this item, which Board Members had read and would take into account when making the decision.

The Head of Treasury and Financial Transactions presented the report and outlined the key aspects. The report considered the contribution strategy for the Council as the major employer in the Pension Fund, amongst 31 other much smaller employers. It showed the current stabilisation strategy that was applied to the Council and presented analysis from Hymans Robertson including five alternate contribution strategies.

The Board noted that Hymans Robertson approached measurement of contribution rates for different employers by considering three constituent parts: the funding target, the time horizon and the probability. They had modelled six contribution rate scenarios for the Council, which were projections of how Council contributions might increase or decrease over time. The scenarios were:

·                Unconstrained – this is the theoretical unstabilised rate that the Actuary would normally calculate without stabilisation and is how other employers in the Fund have their rates calculated

·                The current stabilisation policy (maximum changes of +/-1% of pay per annum)

·                A reducing deficit recovery period by reducing the deficit recovery period by 3 years at each valuation cycle, i.e. explicitly targeting full funding by the year 2034

·                A ‘reduced risk’ investment strategy (assuming 20% risk seeking equities are instead invested in lower risk bonds)

·                Current cap – uses the current stabilisation policy of +/- 1% but limits employer contributions to 30% of pay

·                Current with 3 year freeze – uses the current contribution rate for 3 years (to 2020) and then reverts to the current stabilisation of +/-1%

Councillor Jones referred to page 38 of the report which showed the 6 contribution scenarios and the probability of being 100% funded. He said that given the time horizon and variables, it appeared that strategy choice did not really make a difference, however, it was noted that the strategies should enable the Fund to get where it wanted to be although they were likely to deliver different outcomes.

The Board noted that the analysis concluded that the current stabilisation approach (requiring Council contribution rate increases each year in the next 3 years of 1% of pay each year) remained appropriate and would achieve the expected probability of success over 17.5 years. The Pension Committee had agreed the current strategy.

Page 53 showed that the Council’s experience of contributions would be much smoother with the current strategy and prudence for the Fund needed to be balanced with affordability for the Council.  As the Council paid off the deficit it would catch up with funding. Contributions would be less in later years and there was no change in assumptions in terms of inflation, longevity, retirement, asset growth etc.

Board Members assumed that the Council was only receiving advice from the Actuary and  ...  view the full minutes text for item 6.

Report of the Executive Director Corporate Services

The Pension Board has responsibility for assisting the Pension Committee in ensuring compliance with the Scheme Regulations, other legislation relating to governance and administration, and the requirements of the Pension Regulator. The Pension Board must also ensure the effective and efficient governance and administration of the scheme. This report presents the results of an exercise to estimate the Fund’s maturity (when benefits payments will exceed contributions).

This report has appendices which contain exempt information within the meaning of Schedule 12A to the Local Government Act 1972 (as amended) and are not for publication.  The appendices have therefore been circulated to Board Members only.

If the Board wishes to discuss the contents of an exempt appendix it may pass the proposed resolution set out at the end of these agenda pages to exclude members of the press and public from the proceedings for that discussion.

Consideration was given to a report of the Executive Director Corporate Services.

It was noted that the full report from Hymans Robertson was attached as a confidential appendix to this report and contained confidential information relating to this item, which Board Members had read and would take into account when making the decision.

The Head of Treasury and Financial Transactions presented the report and outlined the key aspects regarding the results of an exercise to estimate the Fund’s maturity (when benefits payments will exceed contributions).

The Board noted that Hymans Robertson had been asked to undertake analysis on maturity and estimate when the Fund would become mature. Maturity was reached when contributions from employers and employees were less than expenditure on benefits paid out to members of the Fund. When the Fund was cash flow negative it would then become dependent on the Fund’s assets and investment returns to finance benefit expenditure (as contributions will no longer cover benefit spend in any one year).

The Pension Committee had previously received reports from Hymans Robertson which modelled assumed cash flows based on data held from the 2013 triennial valuation. The modelling this time took account of the 2016 valuation data and so gave the very latest information on cash flow and maturity. It concluded that:

·         The Fund was expected to become and remain cashflow negative (ignoring investment income) as a result of the growth in pensioner membership since 2013;

·         The cashflow negative position would be on average around £5m each year until the early part of the next decade, when it would quickly increase to something like £20m per year.

·         The cashflow negativity position had changed since the projections performed in the May 2015 report, which was most likely due to the changed membership profile, where significant increases in the pensioner population had accelerated the negative position in the short term, with this being reversed after a few years as the increased active membership “catches up”. Nevertheless, the Fund was expected to remain firmly in a cashflow negative position throughout.

In response to questions the Head of Treasury and Transactions said that

-          The reason for the big jump in 2031 was because that was the point in the 2016 plan where deficit recovery stopped (17 years), compared to 2013 plan. The Fund should not therefore be over constrained with illiquid assets. At the moment 5% were held in PE and 5% in global property so 10% of Fund was in illiquid assets.

-          Referring to page 77, he agreed to write to Board Members regarding the figure of 2663 listed as the entry for 2016 for the average pay for deferred pensioners.

ACTION BY: Executive Director Corporate Services (Head of Treasury and Transactions)

RESOLVED –

THAT the contents of the report be noted.

Report of the Borough Solicitor

The Pension Board has responsibility for assisting the Pension Committee in ensuring compliance with the Scheme Regulations, other legislation relating to governance and administration, and the requirements of the Pension Regulator. The Pension Board must also ensure the effective and efficient governance and administration of the scheme.

On 14 September 2010 the Audit and Corporate Governance (Pensions) Sub-Committee received a report on ethical funds and in particular the legality of adopting an ethical approach to investments to the exclusion of non-ethical companies. This report provides members of the Pension Board with updated information and advice on the Pension Committee’s legal duties.

Consideration was given to a report of the Executive Director Corporate Services.

The Head of Treasury and Financial Transactions presented the report and outlined the key aspects regarding updated information and advice on the Pension Committee’s legal duties in respect of ethical funds and in particular the legality of adopting an ethical approach to investments to the exclusion of non-ethical companies.

The Pension Board noted that

·      The administering authority had both fiduciary duties and public law duties (which were of like effect) to both scheme employers and scheme members.

·     When making investment decisions, it must take proper advice and act prudently. A prudent approach to investment could be described as a duty to discharge statutory responsibilities with care, skill, prudence and diligence.

·     Decisions must also be taken in accordance with normal public law principles, in particular the requirement for reasonableness.

·      Although schemes should make the pursuit of a financial return their predominant concern, they might also take purely non-financial considerations into account provided that doing so would not involve significant risk of financial detriment to the scheme and where they had good reason to think that scheme members would support their decision. However, the administering authority must disregard its own interests insofar as they conflict or are not in line with those of other parties interested in the fund.

·      Any investment decisions should be made in line with the Administering Authorities Investment Strategy Statement which in turn must be in accordance with the guidance issued by the Secretary of State.

With regard to page 86, it was noted that Nigel Giffin QC’s advice moved on

from previous case law in that where there was a similar return, the administering authority could use more ethical investment, although he did not define "similar".

Councillor Jones suggested that with regard to the role of the Pension Board, if Board Members were suddenly aware of investments changing and decisions were not about finance but something else then they needed to challenge it. He felt that this would come back to the Board as there was a lot of interest in the wider LGPS world around this.

RESOLVED –

THAT the contents of the report be noted

Report of the Executive Director Corporate Services

The Pension Board has responsibility for assisting the Pension Committee in ensuring compliance with the Scheme Regulations, other legislation relating to governance and administration, and the requirements of the Pension Regulator. The Pension Board must also ensure the effective and efficient governance and administration of the scheme. This report presents the inaugural Investment Strategy Statement as required by the new Local Government Pensions Scheme (LGPS) regulations. The draft statement complies with guidance issued by the Department for Communities and Local Government (DCLG) and includes sections on diversification, suitability of investments, risk, pooling, ESG (Environmental, Social and Governance) issues and voting policy.

Consideration was given to a report of the Executive Director Corporate Services.

The Head of Treasury and Financial Transactions presented the report and outlined the key aspects regarding the inaugural Investment Strategy Statement (ISS) as required by the new Local Government Pensions Scheme (LGPS) regulations. The draft statement complied with guidance issued by the Department for Communities and Local Government (DCLG) and included sections on diversification, suitability of investments, risk, pooling, ESG (Environmental, Social and Governance) issues and voting policy.

The Pension Committee considered the report at its meeting on 1^st March 2017 and agreed to delegate authority to the Executive Director Corporate Services to finalise the report, in consultation with the Chair of the Pension Committee, in time for the final date for publication of the ISS on 1st April 2017. This would only allow for minor amendments which were necessary given evolving guidance on these new statements and would not involve wholescale changes.  In future an annual report would be submitted to the Pension Committee at its September meetings.

The Chair said that many issues contained in the report had previously been discussed by the Pension Board and it appeared sensible and straightforward.

RESOLVED –

THAT the contents of the report be noted.

Report of the Executive Director Corporate Services

The Pension Board has responsibility for assisting the Pension Committee in ensuring compliance with the Scheme Regulations, other legislation relating to governance and administration, and the requirements of the Pension Regulator. The Pension Board must also ensure the effective and efficient governance and administration of the scheme. This report summarises the items presented and decisions made at the Pension Committee meetings on 6 December 2016 and 1 March 2017.

Consideration was given to a report of the Executive Director Corporate Services.

The Head of Treasury and Financial Transactions presented the report which summarised the items presented and decisions made at the Pension Committee meetings on 6 December 2016 and 1 March 2017 and outlined the key aspects.

RESOLVED –

THAT the contents of the report be noted

There was no urgent business.

The provisional dates for meetings of the Pension Board due to be held in the 2017-18 Municipal Year are set out below:

Wednesday, 25^th October 2017

Wednesday, 14^th March 2018

Dates for all meetings being held during the 2017-18 Municipal Year will be confirmed at the Statutory Council meeting in May 2017.

The Board noted the provisional dates for meetings of the Pension Board due to be held in the 2017-18 Municipal Year as set out below:

Wednesday, 25^th October 2017

Wednesday, 14^th March 2018

It noted that the October meeting date fell during the half term week and agreed that an alternative date should be found.

            ACTION BY: Executive Director Corporate Services

It also noted that dates for all meetings being held during the 2017-18 Municipal Year would be confirmed at the Statutory Council meeting in May 2017.