Agenda and minutes

Pensions Committee
Wednesday, 28th October, 2020 5.00 pm

Venue: VIRTUAL - Live on the Council's YouTube channel: Hillingdon London. View directions

Contact: Liz Penny  01895 250185

Items
No. Item

65.

Apologies for Absence

Minutes:

There were no apologies for absence.

 

66.

Declarations of Interest in matters coming before this meeting

Minutes:

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 virtual meeting 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 virtual meeting during discussion of the items.

 

67.

Minutes of the meetings dated 28 July 2020 and 30 September 2020 pdf icon PDF 168 KB

Additional documents:

Minutes:

RESOLVED: That the minutes of the meetings dated 28 July and 30 September 2020 be approved as an accurate record.

68.

To confirm that items marked Part I will be considered in public and those marked Part II will be considered in private

Minutes:

It was confirmed that items 1 – 14 were marked Part I and would be considered in public. Items 15 – 19 were marked Part II and would be considered in private.

69.

External Audit Report for the Pension Fund pdf icon PDF 58 KB

Additional documents:

Minutes:

Members were informed that the Pensions Fund Annual report had been completed and would be handed to EY the following week for their audit. It had been demonstrated in the report that there had been a collaborative approach between EY and Hillingdon regarding the level 2 and level 3 adjustments. It was noted that, on page 26 of the EY report there had been some tidying up in relation to pricing.

 

Suresh Patel and Larissa Midoni of EY presented the report. Key points included:

 

·         The Pensions Fund audit had nearly been completed. Membership data testing was the principal area of outstanding work;

·         Re. pooled property investments, valuers of property had been required to insert a caveat in their valuation reports re. the impact of Covid-19; an emphasis and matter paragraph had been inserted in EY’s auditing report to reflect this;

·         The auditors were happy with the Pensions Fund disclosures in the accounts, including the cash flow forecast of the Fund and were satisfied with the position of the Pension Fund for the next 12 months;

·         It had been agreed that pooled property assets be classified as level 3 due to increased concern regarding valuation of property due to the impact of Covid-19;

·         Membership data quality was currently being tested – this data test was undertaken every 3 years;

·         Work was being undertaken with managers to obtain supporting documents to support numbers for pensioners;

·         Some of the outstanding matters set out in Appendix B of the report had now been progressed. It was estimated that the Annual Report would be ready in early November in time for sign off.

 

Members requested further clarification regarding issues with the membership data. It was confirmed that other Local Government Pensions Fund schemes were having similar issues. In Hillingdon, there were some concerns regarding the quality of the data / the data itself. In some cases there were missing documents relating to older members of the Fund. Furthermore, some data had been stored in an old system and management had been unable to retrieve the information. The Committee was advised that there had been some data gaps when the information was transferred from Capital to Surrey. Officers had been running projects throughout the year to improve the data quality – there had been significant improvements but gaps still existed. This was an ongoing process in terms of data cleansing and keeping the data up-to-date. EY had requested copy payslips but Surrey could not provide these as soft copies were not held in their systems.

 

In response to enquiries from the Committee, it was confirmed that the data set was generally good for actual and pensioner members and the gap related mainly to deferred members. Councillors requested clarification as to the percentage of the overall fund that fell within the category of problematic data. Officers agreed to explore this further and report back to the Committee.

 

It was further confirmed that a recent address tracing exercise had been quite successful and the quality of the information  ...  view the full minutes text for item 69.

70.

Investment Strategy and Fund Manager Performance - Part I pdf icon PDF 83 KB

Additional documents:

Minutes:

James Lake, Chief Accountant, presented the report.

 

Members were informed that, between March and June, the Fund had increased by £80m to £1,069m. As at 28 October 2020, the unaudited value of the Fund was £1,075m. In terms of performance 8.04% had been returned over the quarter – this was behind benchmark. The main impact on performance had related to the two active equity managers UBS and Epoch who were behind benchmark by 14% year to date and 10% year to date respectively.

 

The officer’s recommendation was moved, seconded and, when put to a vote, unanimously agreed.

 

RESOLVED: That the Pensions Committee noted the Fund performance update.

71.

Stewardship Code 2020 Draft report pdf icon PDF 67 KB

Additional documents:

Minutes:

James Lake, Chief Accountant, presented the report.

 

It was confirmed that the aim of the Stewardship Code was to set out principles for asset owners and managers. The Fund was currently signed up to the 2012 Code and it was noted that the new 2020 Code was far more onerous. 12 principles had to be applied and explained to the required standard and the Pensions Fund had to submit an annual Stewardship report demonstrating how the principles had been met over the previous 12 months. The deadline for submission of the final report was 30 April 2021. If the report met the criteria, Hillingdon Pension Fund would be included in the list of signatories to the Code. If approved, Hillingdon would work with Isio to prepare the annual report in the future.

 

Members requested further clarification regarding the likely impact in terms of resources and the achievability. It was confirmed that officers would work with Isio to manage this. It was hoped that the April deadline would be achievable.

 

Members noted that reporting under the new Code was extremely onerous and would be challenging. It was noted that 3 Fund managers were not signed up to the Code themselves. However, the new Code represented best practice and it was essential that Hillingdon signed up to it.

 

The officer’s recommendation was moved, seconded and, when put to a vote, unanimously agreed.

 

RESOLVED: That the Pensions Committee agreed to sign up to the UK 2020 Stewardship Code.

72.

Governance Policy Update pdf icon PDF 63 KB

Additional documents:

Minutes:

Yvonne Thompson-Hoyte, Interim Pensions Fund Manager, presented the report.

 

The Committee was advised that Hillingdon Council was required by regulation to publish a Governance policy which was renewed every three years. The policy had been reviewed and updated and presented to the Pensions Board in September 2020 for comment. Comments had also been sought from AON, the governance advisors to the Board.

 

The key modification was the major change in the governance structure of the London CIV. All other changes were minor. The Committee was being asked to approve the draft review for publication. Key changes were set out on page 149 of the agenda pack.

 

The Committee noted that this was an important document and the Pensions Board had spent a lot of time considering the Policy. The number of emerging new governance policies coming from the London CIV was noteworthy.

 

The officer’s recommendation was moved, seconded and, when put to a vote, unanimously agreed.

 

RESOLVED: That the Pensions Committee approved the draft Governance Policy and Compliance Statement for publication.

73.

Administration Report pdf icon PDF 96 KB

Additional documents:

Minutes:

Yvonne Thompson-Hoyte, Interim Pensions Fund Manager, presented the administation report.

 

Members were informed that self-service registration numbers continued to increase and now stood at 42% of members. Annual benefit statements had all been issued to meet the deadline of 31 August and annual allowance letters had been issued on time. The data score report had now been received which showed that the data specific to the scheme was up from 86% to 94.7%. The common data store had improved from 80% in 2019 to 88% in 2020.

 

The Committee was advised that KPIs continued to decline. This had been raised with Surrey and a meeting had been requested to discuss ongoing concerns. The September report had now been received and the figures showed further decline. The information had been sent to a senior member of staff at Surrey requesting a meeting and an explanation.

 

It was confirmed that the reduced service desk hours and home working at Surrey continued to be in place due to the pandemic. Surrey planned to move offices in the future. Members noted that the Council would need to continue to work with Surrey for another year therefore it was important that these concerns be addressed going forward.

 

The officer’s recommendation was moved, seconded and, when put to a vote, unanimously agreed.

 

RESOLVED: That the Pensions Committee noted the report.

74.

Regulatory Updates pdf icon PDF 53 KB

Additional documents:

Minutes:

It was agreed that this was a complex area therefore a separate detailed training session was required.

 

Craig Alexander of Hyman Robertson LLP presented the report. Members were informed that current world events were significantly impacting LGPS and other pensions. In terms of regulatory changes, two key areas of note were the McCloud Ruling and the Exit Payment Reform (£95k cap).

 

It was explained that McCloud was a court case brought by a judge against the Government. It was a discriminatory case in relation to age and related to the time when public service schemes changed from final salary schemes to average earnings schemes (around 2014). The new schemes stipulated that those within 10 years of retirement at 2012 received a certain benefit and those who were not got a different benefit. This was clearly discriminatory and the Government lost the case. The only solution was to level everyone up to receive the better benefit which was what had happened. Administratively this was challenging as some members received the best of two benefits between 2012 and 2022 therefore extra calculations were required – it was estimated that approximately 25% of members fell into this category. Certain data had not been gathered for these members and it was difficult to obtain said data many years later. Members were informed that data would also need to be held for a long time into the future.  From a funding point of view the impact was relatively small but the calculations had to be carried out for all the affected members. This would only apply for those who had received salary increase significantly above inflation which was a relatively small number; however, this was being projected into the future and an individual’s future pay at retirement was an unknown quantity.

 

A key project plan needed to be put in place – data would have to be gathered from employers – including historic data. The Government would probably allow about two years to resolve this and planning was essential. The Committee needed to ensure the required resource and expertise were available to get the project off the ground and ensure members’ benefits were not affected. A wide-reaching communication exercise would be required to ensure employers and members were kept in the loop.

 

In response to Members’ requests for clarification, it was confirmed that this was the final ruling and no further changes in legislation were expected.

 

Members were also informed of the Goodwin Impact Ruling – another discriminatory case which the Government had lost. It was confirmed that far less members were affected by this but some administration and tracing would be required.

 

With regards to the Exit Payment Cap (£95k cap), it was reported that this was very complex and could potentially affect all members of the scheme. Members were informed that, in 2015, the Government had stipulated that all public service workers should have a 95k cap on their benefits at retirement. Initially it had been thought that pensions would not be included  ...  view the full minutes text for item 74.

75.

Voluntary Scheme Pays Policy pdf icon PDF 63 KB

Additional documents:

Minutes:

Yvonne Thompson-Hoyte, Interim Pensions Fund Manager, presented the report. Members were informed that the policy arose from an HMRC regulation which stated that a member’s pension benefit was allowed to grow by approximately £40,000 without attracting a tax charge; thereafter a tax charge was payable. If the tax charge was £2,000 or more, the member had the right to ask the scheme to pay it to the HMRC on their behalf in return for a reduction in their benefit – this was the Mandatory Scheme Pays (MSP). If members incurred a tax charge less than £2,000, the scheme was not obliged to pay this. However, many authorities had used their discretion to set out the conditions under which members who did not meet the MSP criteria could ask the scheme to pay that money on their behalf for a similar reduction in their benefit. The approval of the Pensions Committee was sought in relation to Hillingdon’s draft policy on voluntary scheme pays.

 

In response to questions from the Committee, it was confirmed that the policy was not entirely new in terms of the mandatory side. It was noted that, increasingly, members who did not meet the criteria had been requesting this service and each case had been considered individually. It was felt that a clear and transparent policy on this matter was now required.

 

Members queried some of the dates in the report – 31 July 2022 on page 195 and 31 July 2021 on page 199 of the report. It was agreed that these dates would be double-checked and the Committee would be kept informed. 

 

The officer’s recommendation was moved, seconded and, when put to a vote, unanimously agreed.

 

RESOLVED:

 

1)    That the Pensions Committee approved the Scheme Pays Policy for implementation subject to confirmation of dates on pages 195 and 199 of the report.

76.

Pension Fund Annual Report pdf icon PDF 47 KB

Additional documents:

Minutes:

James Lake, Chief Accountant, introduced the Pension Fund Annual Report. Members were advised that the Pension Fund was required to produce an Annual Report and publish it by 1 December each year. EY would commence their audit of the report on 5 November to ensure its compliance against the guidance and consistency with the annual audited accounts. The final audit consistency statement would be brought to Audit Committee on 24 November for approval. The Pensions Committee was asked to approve the draft.

 

Members raised no objections.

 

The officer’s recommendation was moved, seconded and, when put to a vote, unanimously agreed.

 

RESOLVED: That the Pensions Committee approved the Fund Annual Report for publication, subject to external audit sign off on consistency.

77.

Risk Register Report pdf icon PDF 50 KB

Additional documents:

Minutes:

James Lake, Chief Accountant, introduced the Pension Fund Risk Register report. Members were informed that the Risk Register had been updated in consultation with Councillor Goddard and two amendments had been made from the previous quarter. A new risk had been added - PEN 08 - which related to the transfer of administration services from Surrey to Hampshire. This risk had been given a rating of E1. In addition to this, PEN 14 had been updated which covered the change of ownership between KPMG to Isio – the risk rating had been reduced to the lowest level as Isio were now completely self-sufficient.

 

Members were satisfied with the report and raised no concerns.

 

The officer’s recommendation was moved, seconded and, when put to a vote, unanimously agreed.

 

RESOLVED: That the Pensions Committee considered the Risk Register in terms of the approach, the specific risks identified and the measures being taken to mitigate those current risks.

78.

Draft Work Programme pdf icon PDF 54 KB

Minutes:

James Lake, Chief Accountant, introduced the Work Programme 2020/21.

 

Members were requested to contact officers with any suggestions or requests in relation to the Work Programme. The requirement for regulatory training had been noted; a date would be agreed with Members and Hymans Robertson. Democratic Services would provide officers with Committee dates for the 2021/2022 municipal year.

 

The officer’s recommendation was moved, seconded and, when put to a vote, unanimously agreed.

 

RESOLVED That the Pensions Committee:

 

1.    Noted the dates for Pensions Committee meetings and;

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

79.

Part II Minutes of the meeting held on 30 September 2020

Minutes:

RESOLVED: That the Part II minutes of the meeting dated 30 September 2020 be approved as an accurate record.

80.

Investment Part II - Strategy review and Manager Updates

Minutes:

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 of the current market climate and performance of various investment vehicles and updates on Managers' reports.

 

81.

LCIV Governance Update

Minutes:

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).

 

 

82.

Responsible Investment Update

Minutes:

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).

 

83.

Administration Part II - Pensions Administration Update

Minutes:

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).