Agenda and minutes

Pensions Committee - Friday 19th June 2015 10:00am

Venue: Oak Room, County Buildings, Stafford

Contact: Mike Bradbury  Email: michael.bradbury@staffordshire.gov.uk

Items
No. Item

59.

Declarations of Interest

Minutes:

The following Member declared an interest in accordance with Standing Order 16.5:-

 

Member

Minute Nos.

Interest

Reason

Alan Dudson

All

Personal

Membership of the UNITE and GMB Trades Unions’ Pensions Committee

 

60.

Appointment of Pensions Panel 2015-16

To consider the appointment of the following members to serve on the

Pensions Panel for the 2015/16 municipal year:

 

PEB Atkins, D Davis OBE, R Marshall, S McKiernan, S Sweeney.

Minutes:

RESOLVED- That the following members be appointed to serve on the Pensions Panel for the 2015/16 municipal year:

 

P.E.B Atkins, D. Davis OBE, R. Marshall, S. McKiernan and S. Sweeney.

61.

Minutes of the meeting held on 20 March 2015 pdf icon PDF 180 KB

Minutes:

RESOLVED – That the minutes of the meeting held on 20 March 2015 be confirmed and signed by the Chairman.

 

Clarification was given on page two of the previous minutes to the response to an  original question from Ms. Mckiernan that following changes in legislation it was no longer legally possible to lend money from the Pension Fund. 

In terms of the risk register this had formed part of a larger more comprehensive piece of work linking objectives and risks and hence would be brought to the next meeting rather than the June meeting as highlighted in the minutes.

62.

Minutes of the meeting of the Pensions Panel held on 16 March 2015 pdf icon PDF 22 KB

Minutes:

RESOLVED – That the minutes of the meeting of the Pensions Panel held on 16 March 2015 be noted.

63.

Pension Fund Investment 2014/15

Presentation by Nick Kent of Portfolio Evaluation

Minutes:

The Committee received a presentation from Mr Nick Kent, Portfolio Evaluation Ltd, on the Staffordshire Pension Fund investment performance for 2014/15.

The Committee noted the following:

 

For the year ended 31 March 2015 -

·         The Fund achieved a return of 13.6%.

·         2014 / 2015 saw equities continue to generate positive returns

·         The year was dominated by central bank intervention (reducing bond yields) and regional economic divergence.

 

For the quarter ended 31 March 2015 –

·         The Fund achieved a return of 5.2%.

·         Many managers were forecasting a quieter year in respect of returns as markets are considered to be at fair value by many.

·         There were concerns about geo political risk and the end of quantitative easing.

·         Commentators were discussing the divergence of economic growth between regions.

 

For Three Years Ended March 2015 -

·         The Fund achieved a return of 11.8% per annum.

·         There was strong performance from the majority of markets.

·         The period continued to be dominated by central bank intervention.

 

 

In terms of performance evaluation of fund managers this would be measured by a combination of efficiency by return and the value for money of the managers.  It was important to reflect on whether the managers had delivered on what the Fund had tasked them to do and importantly how the managers work collectively in terms of realising investment returns.

 

A question was asked over who set the benchmarks.  In response it was outlined that benchmarks were set against the overall strategy and would reflect the level of return versus risk with a range of market indices being used.  Ms McKiernan stated that the committee had robust discussions about the risk it was willing to take.  In terms of the Fund there was generally a 1% working capital allocation to cash with the Fund currently overweight cash.

 

One Fund Manager was underperforming during the year ending March 2015.  The Investment Panel met regularly to interrogate the data around fund performance and have had discussions with this particular manager.  There were particular issues around the exposure that that Fund Manager had to the US market.  It was reiterated that the Committee needed to look at returns overall and ensure a balance of returns across the portfolio rather than have risks concentrated in too small a range of investments.  Over the past 3 years all other investments were performing well.  This prompted a question as to whether the Fund was taking enough risks.  Given the levels of return was above average then it was felt that the level of risk was appropriate.

 

Mr Lawrence queried what impact the financial events in Greece may have upon the markets and in turn the Fund.  Nick Kent responded by saying that there may be some turbulence in the market but that this was likely to be short term.  There was a likelihood that the market could shrug off such events quite quickly.  There was a possibility of added nervousness in the markets as the UK European Union referendum in the UK drew closer.

 

RESOLVED  ...  view the full minutes text for item 63.

64.

Constitution of Staffordshire Pensions Board pdf icon PDF 214 KB

Report of the Director of Finance and Resources

Minutes:

The Pensions Manager informed the Committee that the Government issued draft regulations which provided the framework for the creation of Pension Boards.  The final Regulations “The Local Government Pension Scheme (Amendment) (Governance) Regulations 2015” came into force on 20 February 2015. National Guidance was issued on the creation of Pension Boards in February 2015 by the Shadow Scheme Advisory Board (SSAB).

 

The Staffordshire Pension Board Constitution was approved by the Committee at its meeting of 24 October 2014 based on the draft regulations.  Following the issue of the final regulations and guidance a review had been undertaken to take account of the final regulations and minor drafting amendments. The following key changes had been made -

 

·           New Clauses 4.3 to 4.6 clarify that members of the Pension Board can attend Pension Committee meetings.

 

·           Clauses 5.1.3, 5.2 and 5.10 were removed as the national guidance now clarifies that “other” members should only be independent and not be there to represent members or employers. The ability for the Board to appoint an independent advisor under clause 5.4 was retained.

 

·           Amendment to clauses 5.9 to 5.14 to add in the role of Vice Chair

 

·           Amendment to Part 12 to clarify administration matters.

 

The SSAB and the Pension Regulator’s Code of Practice both included the requirement for there to be a Conflicts of Interest Policy in place for Local Pension Boards. A separate Conflicts of Interest Policy for the Committee and Board i.e. a Fund wide policy would be brought to the Committee at its next meeting for approval.

 

Progress was being been made appointing the Board members.  Having received further advice it was felt that a Board of 4 members would in reality be too small.  The Committee agreed to an increase in membership to 3 Employer Representatives and 3 Member Representatives.

 

All Board members would be invited to attend a 3 day training course in July similar to the Local Government Association “Fundamentals” training course for new committee members.

 

RESOLVED – That the proposed changes to the Constitution of the Staffordshire Pension Board, as set above, be approved including the increase to the membership of the Board to include 3 Employer Representatives and 3 Member Representatives.

65.

Pensions Business Plan 2014/15 Outturn pdf icon PDF 278 KB

Report of the Director of Finance and Resources

Additional documents:

Minutes:

The Pensions Manager presented the Pensions Business Plan outturn for 2014/15 and indicated that the final position against the plan showed that the majority of planned activities had been achieved or were in progress.

 

90% of performance targets had been achieved against 9 of the 15 published standards.  This was a maintaining of performance on the previous year but given the increasing workload this maintenance of performance was becoming more difficult.  The changing nature of employers in the Fund including an increase in Academies meant that the team were in effect now administering 3 separate schemes.  The increase in workloads combined with increased Scheme requirements has led to the appointment of 5 additional members of staff within the team.  These are less senior staff employed to support the administration of the Scheme and additional reporting requirements.

 

Actuarial advice costs had increased in 2013/ 14 given the requirement for an actuarial valuation.  There would be a further increase again in 2 years time when the valuation process was repeated.

 

The Pension Fund had taken part in a benchmarking exercise that encompassed 357 funds.  Fund costs were marginally higher than the overall median average but cheaper when compared to Funds of a similar size to ours.  Given changes to the Scheme then the expectation would be that costs would rise for other Funds, not just ours.

 

It was also noted that:

 

·         There was a higher volume of death grants payable as the regulations increased from a five year to a 10 year guarantee period in respect of pension paid resulting in more death grants being paid to deceased pensioners.

 

·         There had been a change to the way the deferred benefit statistics were recorded. Prior to September 2014 statistics recorded details of cases completed where the member requested a deferred benefit.  The statistics now included all deferred benefits processed therefore a significant increase in volume reported.

 

RESOLVED – That the outturn position for 2014/15 be noted.

66.

Actuarial Update

Presentation by Hymans Robertson

Minutes:

The Committee received a presentation by John Wright and Kathryn Wilson, Hymans Robertson in relation to the change in the whole Fund funding level since the 2013 valuation.

 

In projecting forward benefit payments, even if the Scheme were to close to new members, liabilities for the Scheme would continue for a further 70-80 years.  The Fund is valued every 3 years with the next due in 2016.

 

The actual returns for the period 31 March 2013 to 31 May 2015 sees the Funds investment performance (24%) exceeding the expected return (10%).  Funding levels increased during late 2013 through 2014 but have fallen back to 2013 levels in early 2015.

 

Asset value as at March 2013 was just over £3 billion with contributions paid in higher than those paid out hence cash flow was positive.  Changes to the national pension age would mean people would be paying in for 2 additional years.  There continued to be a substantial increase in the number of employers joining the Fund, in large part due to the increase in Academy Schools.

 

In terms of pension funding levels the Staffordshire Scheme was ranked 66th out of 89 Funds.  It was important to recognise however that different actuaries use different assumptions with some potentially using more optimistic assumptions when making their assessments.  When a like for like comparison was made in line with National Advisory Board criteria then the Staffordshire fund is ranked 34th in terms of funding levels.  

 

RESOLVED That John Wright and Kathryn Wilson be thanked for their presentation.

 

67.

LGPS Regulations Administration - End of Contracting Out 2016 pdf icon PDF 202 KB

Report of the Director of Finance and Resources

Minutes:

The Pensions Manager informed the Committee that the Government is to end contracting out from 6 April 2016 when the new simplified arrangements are introduced for the State Pension. Since the 6 April 1978 the Government state pension has consisted of 2 elements; the basic pension and a second earnings related element currently known as SP2. All employees have an expectation of receiving the basic pension provided that they have a qualifying National Insurance Contribution record. The earnings related element however, will only be paid to those employees who have contributed to SP2. 

 

In 1978 Occupational schemes that could meet certain tests laid down by Government, were permitted to opt out of the second element. The Local Government Pension Scheme (LGPS) is one such scheme.  Where a pension scheme opted out of the SP2 element this was known as contracting out. Employees, who have periods of contracted out employment, will not receive additional SP2 pension from the Government.

 

The end of contracting out 6 April 2016 will have consequences for both employees and employers. There will be no impact on those people already retired and in receipt of their State Pension. There may however be an impact on those employees who have been a member of a contracted out pension scheme for most of their working lives and  who are within 7 to 10 years of retirement. This group of people will not qualify for the new state pension in full but will have a guarantee of being no worse off than under the old state arrangements in relation to their basic state pension.

 

Historically, ensuring that the contracted out position is correct, has been dealt with as each member reaches State Pension Age (SPA). The Government has stated that all HMRC and DWP contracting out services will cease by December 2018, therefore it has imposed a very short window on contracted out occupational schemes to reconcile thousands of pension records.

 

The first phase is to reconcile the deferred and pension records with the second phase during 2016/2017 being to reconcile the active member records. If the reconciliation does not take place the pension fund may potentially overpay the pensions increase for pensions in payment as they become due in the future. 

 

Resourcing this project was raised at the March Pension Committee and at the moment there is 1 full time equivalent member of staff employed to do the detailed investigations.  Nationally it is recognised that the cost of the reconciliation will run into millions of pounds for LGPS funds, this has been roughly estimated as being in the region of £15 million. There is however, a balance between the cost of future incorrectly paid pensions and the cost of administration to be considered.  Of concern is the capacity of HMRC to respond to the level of queries that will arise which will impact on all Pension Funds meeting the timescales that have been set.

 

As there are limited resources available to complete this exercise there will be a need  ...  view the full minutes text for item 67.

68.

Exclusion of the Public

The Chairman to move:

 

‘That the public be excluded from the meeting for the following items of business which involve the likely disclosure of exempt information as defined in the paragraphs of Part 1 of schedule 12A of the Local Government Act 1972 indicated below’

Minutes:

RESOLVED - That the public be excluded from the meeting for the following items of business which involve the likely disclosure of exempt information as defined in the paragraphs of Part 1 of schedule 12A of the Local Government Act 1972 indicated below

 

The Committee then proceeded to consider reports on the following issues:

 

69.

Exempt minutes of the meeting held on 20 March 2015

(Exemption paragraph 3)

70.

Exempt minutes of the meeting of the Pensions Panel held on 16 March 2015

(Exemption paragraph 3)

71.

Pensions Administration - Admitted Bodies

(Exemption paragraph 3)

 

Report of the Director of Finance and Resources