Agenda item

Report of the Executive Director Corporate Services.

This report presents an update to the risk register for the Pension Fund, with an action plan stating how risks will be managed.

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

The Committee noted an update to the risk register for the Pension Fund, with an action plan stating how risks would be managed. The Risk Register identified key risks that the Pension Fund faced in achieving its objectives. By considering risks and assessing their likelihood and impact the Fund could focus on what action was needed to manage them. The Fund’s Independent Investment Adviser and Actuary had been consulted and had fed into the register.

The risks were categorised under the following headings: Financial, Demographic, Regulatory, Governance and Administration. The updated Risk Register was presented in Appendix 1. Changes had been ‘tracked’ so new text or risks were shown underlined. Scores that had changed were also shown with tracked changes to help to identify new changes and show old text crossed through.

It was noted that if risks changed from quarter to quarter then this would be reported at the next quarterly meeting, if significant.

Committee Members also noted that one risk, “18. Fraud risk” was judged to have increased, whereas several risks had reduced risk scores this year, namely:

41. Pool strategy deferral

1. Fund assets underperform

7. Market failure

6. Investment vehicle not understood

13. Employer Contribution increases

Douglas Green, Hyman Robertson, the Fund Actuary, was in attendance at the meeting. He explained that the Pension Fund did three main things

- it collected money in the form of pension contributions from its members and the Council and other employers;

- it invested that money; and

- paid those assets to the benefit of its members when they retired or paid their dependents when they died.

When the Actuary carried out an evaluation they would take all of those aspects into consideration and look at any risks. The Actuary would

-       Carry out modelling based on markets and the likelihood of certain things happening

-       Look at who the individual employers were, the employer register was a key part of discussion

-       Look at the detail of the pension scheme members, working very closely with officers and the shared pension service

-       Ensure that concrete decisions were taken with regard to employee contributions

-       Keeping investment strategy up to date and in line with current legislation

-       Consider key assumptions, for instance was how long a pensioner would live in retirement

He added that training was important to ensure that the Committee understood all aspects of the LGPS. There was a suite of training material, videos, questions and quizzes on the LGPS On line Learning Academy. He suggested that this should form part of the rolling training for Committee Members on LGPS matters.

Risks, however, could not be mitigated 100%. For instance, inflation and interest rates would affect the Fund, as did longevity. The Independent Advisor added that the Pension Fund was an open scheme, members were constantly joining and leaving. This register allowed Committee Members to assess the risks. She stressed, however, that there were no risks that were likely to happen.

It was recognised that currently interest rates were very low which was unprecedented. There was protection in the portfolio. Officers suggested that high inflation and interest rates would result in the value of liabilities going down because they would be discounted at a higher rate. High rates did not always have a detrimental effect on the deficit.

The Chair suggested that for the November meeting, officers should ask each fund manager what the impact would be around the evolving interest rate environment and the associated risks. This information should then be included as part of the Market Summary section of the Performance Report. It was important to have a snapshot of the risk implications of interest rates across the portfolio and get a steer on the implication of that on our liabilities.

            ACTION BY: Executive Director Corporate Services

It was noted that Risk 27 “Forced Merger of LGPS funds” seemed to have gone down and was amber. It was noted that that had not been changed as pools across the country were still keen to demonstrate that they were pooling. Central Government had gone quiet on this. The LCIV pooling percentage was currently around 50% but they were looking at increasing this to 75% by 2025. It was still important that the Fund demonstrated Camden was still committed to pooling.

RESOLVED –

THAT the Risk Register be agreed as set out in Appendix 1.

            ACTION BY: Executive Director Corporate Services.