Agenda item

Review of Funding Strategy Statement (FSS) and Investment Strategy Statement (ISS)

Report of the Director of Finance and Resources

Minutes:

The Director of Finance and Resources informed the Committee that all Local Government Pension Scheme (LGPS) Funds were required to prepare, maintain and publishFunding Strategy Statement (FSS) and Investment Strategy Statement (ISS) documents. The FSS must be formulated, maintained and published in accordance with the Public Service Pension Act 2013, whilst the ISS must be formulated, maintained and published in accordance with the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016.  Both documents must be reviewed annually and issued for consultation during each triennial valuation. In addition, the Pensions Committee must formally approve the FSS and ISS as part of the triennial valuation.

 

A full review of the FSS had been undertaken as part of the current valuation and the ISS had been produced in accordance with the new regulations, taking into account the findings of the valuation process.

 

The Committee noted that the FSS governed how employer liabilities were measured, the pace at which those liabilities were funded and how employers, or pools of employers, paid for their own liabilities.  The changes to the CIPFA guidance meant that the Fund’s FSS required major alterations to maintain compliance with the new guidance and the current LGPS and Fund environment. The draft FSS was considered by the Committee at its October meeting, as an integral part of the valuation process.  It was also noted that, following a consultation with interested parties, there were no material responses to return to the Committee meeting on 9 December 2016 although, during February, after the closure of the consultation, an employer from the education group, challenged the change to the way they were now regarded by the Fund due to their lack of covenant. No further communication had been received and it was therefore assumed that the response providing the rationale for the changes had been accepted.

 

The Committee agreed at its meeting on 21 October 2016, that the FSS would be finalised by officers in consultation with the Chairman.   As this had not yet happened the Committee was requested to approve the final document.

 

The Director of Finance and Resources also explained that the ISS replaced and largely replicated, the previous Statement of Investment Principles (SIP). Authorities were required to prepare and maintain an ISS which documented how the investment strategy for the Fund was determined and implemented. The ISS was required to cover a number of areas, specifically:

 

·         The requirement to invest money across a wide range of investments.

·         An assessment of the suitability of particular investments and investment types.

·         The maximum percentage authorities deemed should be allocated to different asset classes or types of investment, although limits on allocations to any asset class were not prescribed as was currently the case under the 2009 Regulations.

·         The authority’s attitude to risk, including the measurement and management of risk.

·         The authority’s approach to investment pooling;

·         The authority’s policy on social, environmental and corporate governance considerations.

·         The authority’s policy with regard to stewardship of assets, including the exercise of voting rights.

 

It was noted that under Regulation 7(5), the authority must consult such persons as it considered appropriate as to the proposed contents of its investment strategy. In the formulation of the ISS, the Fund had initially consulted with its investment advisors and the Pensions Panel. There was also a consultation open with employers and other interested parties via the Fund’s website. As this consultation did not close until 24 March 2017, the Committee were requested to delegate approval of the final version of the ISS to the Director of Finance and Resources in consultation with the Chairman of the Committee, in order that the 1 April 2017 deadline for publishing the document could be met.

 

The Committee were also informed that during 2017, it was the Fund’s intention to become a signatory of the Financial Reporting Council’s UK Stewardship Code. This would involve producing a statement of compliance against 7 key principles and whilst it was believed that the Fund’s current approach to stewardship was fully compliant with the code, there was a need to document and develop the way this could be demonstrated. It was noted that the Fund’s equity investment managers were all current signatories to the Code.  In response to a question from Mr. Jenkinson concerning how the exercising of voting rights would be reported back to the Pool, the Director explained that the exercise of voting rights would be reported to the Pool’s Joint Committee.

 

In response to questions from Members relating to some of the complex terminology used in the ISS, the Director undertook to look into the possibility of simplifying the terminology where possible.

 

RESOLVED – (a) That the Funding Strategy Statement (FSS) (Appendix A to the report) be approved. 

 

(b) That the Investment Strategy Statement (ISS) (Appendix B to the report) be provisionally approved, subject to any amendments required following consultation with interested parties; and that the approval of the final version of the document be delegated to the Director of Finance and Resources in consultation with the Chair of the Pensions Committee, in order that the 1 April 2017 deadline for publishing the ISS can be met.

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