Agenda item

Pensions Business Plan 2016/17 Outturn

Report of the Director of Finance and Resources

Minutes:

The Director of Finance and Resources presented the Pensions Business Plan outturn for 2016/17 and indicated that the final position against the plan showed that the majority of planned activities had been achieved or were in progress. (Those in progress would be carried forward into the 2017/18 Business Plan.)  Key achievements during 2016/17 included:

 

·         Completion of the Triennial Valuation;

·         Full Health Check against the Pension Regulators Code of Practice 14; and

·         Issue of the Annual Benefit Statements by 31 August 2016.

 

90% of performance targets had been achieved in 4 of the published 15 standards and:

 

·         9 out of the 15 published standards had either maintained performance levels or improved compared to 2015/16 levels.

·         If the target measure was set at 80% then this would mean that 8 of the published 15 standards would have been met.

·         The outturn report providing monthly volumes showed that the average monthly volumes had increased in 11 areas.

 

It was however noted that the Committee had previously received reports predicting that performance standards would reduce for 3 key reasons:

 

·         The introduction of a more complex Pension Scheme on 1 April 2014;

·         An increased number of Scheme employers; and

·         Difficulty in recruiting experienced employees.

 

The fragmentation of the County Council’s payroll provision had also had a significant impact on the performance of the administration team.

 

With regard to staffing, it was noted that the number of full-time equivalent staff in the pension’s team had increased from 37.50 in 2014/15 to 40.58 in 2015/16 and to 44.8 in 2016/17. However, the new members of the team had been transferred from the Shared Service Centre and had no previous pension’s administration experience.  Once these new members of staff were fully trained, the increase in staff numbers should start to show a gradual improvement in the performance figures from next year.

 

In response to a question from Mr Adams, the Director of Finance and Resources confirmed that the employment of staff with no previous pension’s administration experience had resulted in savings being made in staffing costs.  Mr Greatorex expressed his disappointment that the 90% of performance targets had been achieved in only 4 of the published 15 standards and added that the Team needed to be “staffed-up” in order to meet changes in demand.  He also suggested that a 100% performance target should be the ultimate aim. In response, the Director referred to the difficulties in recruiting experienced staff as the West Midlands Pensions Fund tended to pay higher rates than Staffordshire.  The Director also indicated that increasing staffing numbers would have an impact on costs; and that a lot of Funds had performance targets which were less demanding than those for Staffordshire.

 

The Committee were informed that as well as undertaking their day to day accounting and contract monitoring activities, the investment team were kept busy during the year with several time consuming projects:

 

·         Work on the creation of LGPS Central had increased significantly over the last 12 months, following the approval of the July 2016 business case, by DCLG. Several members of the team had been involved in the design and set up of the LGPS Central pool and it was envisaged that this work would continue to take up considerable time and resource until well after the pool came into operation on 1 April 2018.

 

·         A decision taken in 2015/16 to disinvest from the Fund’s Diversified Growth Funds and invest into an alternative asset class known as Private Debt, saw implementation work continue well into 2016/17, when commitments to several Private Debt funds were made.

 

·         Later in the year, contracts were terminated with two of the Fund’s active global equity managers, due to persistent underperformance of the benchmark. With pooling on the horizon, rather than undertake a search for new active equity managers, the Fund transitioned the assets to passive equity management. This was with a view to returning to active equity management once the LGPS Central Limited active global equity sub-fund was set up; currently planned for April 2019.

 

The Committee also received detailed comparisons of the following costs for 2014/15, 2015/16 and 2016/17

 

  • Administration costs
  • Oversight and Governance costs
  • Investment Management costs

 

It was noted that:

 

·         Total Oversight and Governance costs had increased in 2016/17. The cost of actuarial advice had increased relative to 2015/16 due to the Triennial Valuation undertaken by the actuary.  Governance expenses in 2016/17 were in line with those for 2015/16. ‘Other’ costs had increased due to the Fund’s share of LGPS Central set up costs; albeit a large proportion of these would be recharged back to the business in 2018/19.

·         Investment management costs reduced in 2016/17. This was mainly due to the following: (i) the full year effect of reduced passive equity management fees, as negotiated in the 7 Shires agreement of December 2015; and (ii) negotiated fee holidays and subsequent termination of contracts with two global active equity managers, with re-investment in passive equity management at a reduced cost.

·         The market value of the Fund’s assets had increased over the last 12 months by over 20%; and despite the majority of the Fund’s investment management fees being based on the value of the assets under management (AUM), the overall level of fees paid had reduced. Furthermore, very few managers outperformed their benchmark in 2016/17 and as a result performance fees paid to managers had remained fairly stable.

 

RESOLVED – That the 2016/17 outturn position be approved.

Supporting documents: