Agenda and minutes

Apologies were received from Hayley Seabrook, Pensions Board Member.

Councillor Philip Corthorne declared a Non-Pecuniary interest in all agenda items because he was a deferred member of the Local Government Pension Scheme. He remained in the room during discussion of the items.

Councillor Teji Barnes declared a Non-Pecuniary interest in all agenda items because she was a deferred member of the Local Government Pension Scheme. She remained in the room during discussion of the items.

Councillor Tony Eginton declared a Non-Pecuniary interest in all agenda items as he was a retired member of the Local Government Pension Scheme. He remained in the room during discussion of the items.

RESOLVED That: the minutes of the meetings dated 20 March 2019 and 9 May 2019 be agreed as an accurate record.

Roger Hackett, Pensions Board Member, requested an update regarding the breach reported within the Administration Report item in the minutes of the meeting dated 9 May 2019. Members were informed that letters were to be sent out to all those who could potentially have been affected by said breach. No comments had been received from the regulator.

Councillor Goddard extended his thanks to Councillor Corthorne for his invaluable contribution to the Pensions Committee which he had chaired for 21 years. Councillor Corthorne welcomed Councillor Goddard to his new role.

It was confirmed that the items marked Part I (items 1 -13) would be considered in public and the item marked Part II (item 14) would be considered in private.

The Draft Pension Fund Accounts for 2018/19 as taken from the Council's financial statements were attached to the agenda for Committee review, prior to the Council's financial statements sign off at the forthcoming Audit Committee. The draft report provided to Members in the pack detailed the work of the External Auditor - EY - on the audit of the 2018/19 Pensions Fund Accounts. The audit was due to be completed by the end of July deadline. It was reported that, since the report had been prepared, an adjustment of £7m had been identified; this was based on information that had not been available at the time. Outstanding matters were listed in Appendix B of the report on page 45 of the agenda pack. Members were informed that all outstanding matters had now been completed with the exception of the annual report and accounts which had a later statutory deadline.  

In response to questions from the Committee, it was confirmed that the £7m adjustment was positive rather than negative. The accounts would be adjusted by a maximum of £7m to reflect this increase in asset value.  Whilst it was confirmed that the level of investment in level 3 assets was consistent year on year; it was acknowledged that the risk profile could potentially increase - the situation would be monitored.

Members suggested that liquidity be added to the register as an additional risk factor.

It was noted that, compared with the previous year's figures, the latest accounts indicated a cash neutral position. Councillors requested further clarification regarding prospects for the future and were advised that it was likely that there would be a slight negative position in future years in terms of cash flow. It was noted that, following the 2016 valuation, Hillingdon Council had not seen an increase in contribution rates for the first two years but an increase had been applied in 2019/20 so income would be higher.

Councillors commented that, given the current value of liabilities (1.695m), it seemed the Pensions Fund deficit position had increased. The Hymans Robertson representative advised Members that the March 2016 and March 2019 figures were not dissimilar. Liabilities had grown but assets had grown strongly too. The deficit would have increased slightly but funding levels were broadly similar. The long term outlook was stable.

RESOLVED That Pensions Committee:

1.    noted EY's findings on the audit of the Pension Fund accounts for 2018/19.

This item was preceded by a training item from Hymans on The Trienniel Valuation. Key points highlighted included:

Pensions Landscape

·         The Committee was informed that the LGPS (of which Hillingdon was a member) was a good scheme which differed from other public sector schemes as it was funded - investments helped to pay for the benefits;

·         Investment returns, Member contributions and Employer contributions were paid into the Hillingdon Pension Fund and benefits to members and dependants were drawn from it. The Fund had to meet balance of cost over the longer term;

·         The key decision was the balance between contributions and investment returns.

The Valuation

·         An Actuarial valuation was required to comply with legislation and as part of a continual 'health check' on fund solvency - it was essential to ensure members benefits were paid;

·         A valuation was completed for each individual member of the Pension Fund - this was a complex piece of work;

·         Future cashflows were projected for every member to build up the picture for the whole fund. The valuation was based on financial and demographic assumptions - amounts paid and probability of payment;

·         Postcode was a key indicator of longevity - there was no such thing as a 'typical' member;

Employer Funding Strategies

·         A three-step approach was taken in terms of the Funding Strategy - this approach determined the parameters for the risk-based method;

·         The end result was a balance between costs and returns.

The Road Ahead

·         A lot of work was already underway and the final sign off would be in March 2020;

·         Post 2020, LGPS funding valuations would be brought in line with other public sector cost sharing valuations and would be quadrennial - conducted every four years - rather than every three years. The next valuation would be due in 2024 but it was possible that an interim valuation would be undertaken in 2022;

·         The outlook for 2019 was similar to 2016 - investment was strong.

In response to questions from the Committee, it was confirmed that Hymans Robertson's reporting was typically more prudent than that of some other actuaries. The Government's rationale for opting to extend the period of valuation from three to four years was unclear. It was hoped that the interim valuations would be helpful. Members were advised that, if an employer were to become insolvent, the deficit would be low and would be shared between the other employers in the scheme. Members were reassured that such an occurrence was a rarity.

Clare Scott introduced herself to the Committee as the new Independent Investment Advisor. Sian Kunert, Head of Pensions, Treasury and Statutory Accounts,  commented that the fund had performed quite well - the total size of the fund was £1,062m at 31 March 2019 which was an increase of £51m from £1,011m at the end of the previous quarter. There was an overall investment return over the quarter of 5.10%, which was - 0.54% less than the benchmark. The estimated funding position at 31 March 2019 was 74.06%  ...  view the full minutes text for item 8.

Sian Kunert presented the report which outlined the voting and engagement of ESG issues and provided an overview of climate change in the quarter ending 31 March 2019. Members were informed that ESG, in particular climate change, had continued to increase in importance in policy and public interest. The UK government had declared a climate emergency in May 2019 and was committed to net zero emissions by 2050. In October 2018 the Pensions Committee had recognised climate change as a significant risk and requested that it be added to the risk register.

It was noted that Hillingdon did not currently have its own responsible investment policy which was a cause for concern. It was agreed that a specialised training workshop (or series of workshops) on responsible investment be held outside of the Pensions Committee meetings - to be attended by a sub-set of the Committee. Any decisions or recommendations would be brought to the main Pensions Committee for approval.

RESOLVED That:

1.    A specialised training workshop (or series of workshops) to discuss responsible investment be held outside of the Pensions Committee meetings - to be attended by a sub-set of the Committee;

2.    Pensions Committee note the content of the report.

Sian Kunert introduced the report which provided an update of the administration of the London Borough of Hillingdon Fund of the LGPS, both in relation to Surrey County Council (SCC) and internally at Hillingdon.

Members were informed that the sign up to my-pension-online was currently 16%; it was envisaged that this would increase in August when annual benefit statements were dispatched.

It was confirmed that Data Cleansing was taking place across four strands - the finalised data would be passed to Hymans at the end of July.

The Committee was advised that KPIs were becoming more stable and positive; annual benefits statements were on track.

In terms of the Internal Disputes Resolution Policy, it was confirmed that all authorities were required to have a two stage policy to hear appeals against decisions made in respect of benefits. It was requested that the Pensions Committee agree to change the Hillingdon policy to name the Head of Pensions, Treasury and Statutory Accounts as the nominated officer in all Stage 1 appeals and the Corporate Director of Finance or Head of HR as the appointed Officer for Stage 2 appeals.

RESOLVED That Pensions Committee:

1.    Agreed the proposed changes to the Internal Disputes Resolution Policy as detailed in the Administration Report.

Committee Members were informed that this was a new report and was for information purposes only.

RESOLVED That: Pensions Committee noted the report.

The report provided an update on the training and development of Pensions Committee members in line with the Training Policy approved in December 2015. It was confirmed that there was a requirement to review the Policy every three years. In respect of the completion of their training needs analysis, Councillors requested that links to relevant information be provided for the purposes of clarity.

RESOLVED That Pensions Committee:

1.    Approved the revised Training Policy;

2.    Agreed priority training topics for the work plan;

3.    Considered the addition of a separate training item on EGS issues prior to the October Committee.

The Risk Management Policy for the Pension Fund had been approved on 15 June 2016. The Policy had now been revised and reviewed by Pensions Board in advance approval in April 2019. The changes to the Policy were minor.

RESOLVED That Pensions Committee:

1.    Approved the revised Risk Management Policy.

The report aimed to identify to the Pensions Committee the main risks to the Pensions Fund to enable them to monitor and review going forward. There were no risks rated Red.

Members were informed that there were currently 11 risks being reported on. Risk PEN04 on pay and price inflation had been amended to better define the risk as relating to the risk to employers in relation to contribution rates. A new risk PEN05 had been added for the risk of inflation, which was the Fund's greatest investment risk. An additional new risk PEN11 had been added to identify the risk of liquidity and cash flow as pensions funds were increasingly becoming cash flow negative on member activities.

In relation to risk PEN09, Councillors were advised that the Pensions Board had an interest in the matter of cyber security. This topic would be considered at the next meeting of the Board in September at which the Council's IT department would be asked to present to Board Members as to what would happen in case of a breach.

RESOLVED That Pensions Committee:

1.    Considered the Risk Register in terms of the approach, the specific risks identified and the measures being taken to mitigate those current risks.

This report was to enable the Pensions Committee to review planned meeting dates and forward plans.

RESOLVED That the Committee:

1.    Confirmed the dates for Pensions Committee meetings, and;

2.    Made suggestions for future agenda items, working practices and / or reviews.

This item was discussed as a Part II item without the press or public present as the information under discussion contained confidential or exempt information as defined by law in the Local Government (Access to Information) Act 1985.  This was because it discussed ‘information relating to the financial or business affairs of any particular person (including the authority holding that information)’ (paragraph 3 of the schedule to the Act).

The Committee received confidential information on the current market update which covered details on the current market climate and performance of various investment vehicles and updates on Managers' reports

RESOLVED: That the information be noted, together with the performance of Fund Managers.