Agenda and minutes

There were no apologies for absence to note.

Councillors Corthorne, Duncan, Harmsworth, Lewis and Simmonds, and advisory members Andrew Scott and John Holroyd, declared a personal interest in all Agenda Items, in that they were all members of the Local Government Pension Scheme, and remained in the room.

RESOLVED:  That the minutes of the Pensions Committee meeting on 14 December 2010 be agreed as a correct record.

RESOLVED: That:

1. Agenda Items 1 to 12 be considered in public; and

2. Agenda Items 13 to 16 be considered in private for the reasons stated on the agenda.  Members of the press and public would be excluded from the meeting during the consideration of these items.

The Chairman introduced the report which reviewed the fund management performance of the London Borough of Hillingdon Pension Fund for the quarter to 31 December 2010.  Members noted that the last quarter saw an improvement in performance but still marked a further period of underperformance against the benchmark.

As discussed at the last Pensions Committee meeting the report followed a new format to include more background information on each mandate relating to market conditions which could have impacted on performance.

Members discussed the performance of the fund managers in the last quarter and how the benchmark was set for fund managers. Officers advised Members that the benchmark was set against the most appropriate index, whether FTSE, MSCI or otherwise.  Advisors explained to Members that they were having discussions with Bond managers about adapting the benchmark so that the information shared was more relevant. This decision on the benchmark information provided and how performance was judged could be one the Investment Strategy Sub-Committee could determine.

Members noted that for the quarter ending 31 December 2010, Hillingdon returned 5.13%, underperformance against the WM average by 0.57%. The one year figure showed an underperformance of 2.58% against average return of 13.40%

RESOLVED:  That the content of the report and the performance of the Fund Managers be noted.

Bryan Chalmers, of Hymans Robertson, the Pension Fund’s Actuary, presented the report on Lord Hutton’s review of public sector pensions. The final report on the review was published on 10 March 2011. The report made 27 recommendations for changes on all public sector pension schemes.

Central government will be responsible for taking the recommendations forward. It was expected that the changes would come into effect before the end of the current parliament in 2015. The Government had in the Budget on 23 March 2011 endorsed the findings of the report. There were still some concerns to be addressed before the recommendations were implemented.

The review by Lord Hutton recommended that the final salary scheme should be closed and all members be moved to a new career average scheme; that accrued rights in the current scheme should be fully protected; that normal retirement age should be linked to state pension age; that the different financing arrangements for the LGPS should continue; and that pension boards to be created for every fund in the LGPS to include member nominees.

It was noted that there would not be an impact on the 2010 valuation as draft regulations were yet to be drawn up.  Following Lord Hutton’s report proposals were drafted for an early increase to members’ contributions, potentially from 2012. This had the potential to cause a number of opt-outs in the LGPS, which would in turn have an impact.

There were concerns on what the future employee contributions would look like and the suggested increase may face challenges.

The report also suggested that non public sector employees should not be a part for LGPS, for example charities, and those out-sourced to the Council.

It was expected that the Government would make further announcements in June of this year.

Members discussed the possible implications of the pension fund if the workforce reduced by a considerable percentage over the next few years and questioned what guidance could be provided in relation to this. Mr Chalmers stated that Hymans Robertson could provide some modelling work around this.

RESOLVED: That the Committee noted the content of the report and presentation.

Bryan Chalmers, Hymans Robertson, presented the 2010 triennial revaluation results to Committee. This had been a very challenging valuation due to factors such as the CSR 10, demographic trends and impending scheme changes. The next valuation is due at 31 March 2010.

Members were informed that results of the 2010 valuation indicated that the funding level was now 78%, a decrease from 92% at the 2007 valuation.  This has resulted in the deficit increasing from £50m as at 31 March 2007 to £163m as at 31 March 2010.  The deterioration of the funding position is largely due to poorer than anticipated investment returns.

An increase to the London Borough of Hillingdon Employer’s contribution of 1% per year was recommended, as a result of the valuation.   Hillingdon has paid an additional 1% contribution to fund the cost of early retirements over the last 2 valuation periods and it was recommended that this continued.

The recent change from RPI to CPI would come into effect in April of this year. This would affect all pensions including those already accrued.  CPI was roughly 0.8 lower than RPI.

Longevity was one of the biggest risks in the pension fund. Members noted the survival rates in the Hillingdon population. On average every decade people were living 2 years longer. It was estimated that this trend would continue but with factors such as obesity and a gaming society for example, that the rate may be lower.

In terms of measuring Hillingdon’s performance against others Members noted that whilst Hillingdon was still performing slightly better than average it was not performing as good as it previously was.

RESOLVED: That the Committee noted the content of the report and presentation.

The Chairman introduced the report which set out the annual budget for the operation of the Pension Fund and to monitor income and expenditure against the budget.

The report set out a proposal for the budget for 2011/12 to be aligned with the actuals for 2010/11. Officers could not comment on the impact that redundancies would have on income and expenditure. It was therefore difficult to project the budget. When the outturn position for 2010/11 was known the budget for 2011/12 would be realigned with the figures.

Councillor Simmonds requested the a copy of the fund manager fee schedule.

RESOLVED: 

(1)   That the Committee noted the forecast budget outturn position at 31 December 2010; and

(2)   That the Committee approved the budget for 2011-2012 attached to the report.

The Senior Service Manager – Corporate Finance presented the report which set out the initial plans for the audit of the Pension Fund Annual Report 2010/11 by Deloitte, the Council’s external auditors. The Annual Report will be brought to Committee in September, following the completion of the audit, for approval and sign off, prior to going to the  Audit Committee for approval.

The plan set out in the report showed the approach that would be followed for the audit. It was noted that in previous years the audit report found very few faults and it was anticipated that this year would follow suit.

RESOLVED: That the Committee noted the contents of the report.

The Chairman introduced the report which summarised the number of early retirements in the third quarter of 2011/12.  The report also gave an update on the current situation on the cost to the fund of early retirements.

It was noted that any further potential redundancies were not shown on the report for this quarter.

RESOLVED:  That the content of the report be noted.

The Senior Service Manager – Corporate Finance introduced the report which summarised the key work areas of the pensions administration section. The report highlighted nationally agreed targets for England and Wales.

The dip in performance of deferred benefits was noted, this was due to prioritising workload in a stretched team. Estimate of retirement benefits was a priority.

Members noted that 1 letter notifying dependant’s benefits was not completed within the target of 5 days, and stressed the importance of achieving a 100% target rate for this area of work.

RESOLVED:  That the content of the report be noted.

The Chairman introduced the report which provided an update on the Pension Fund Governance issues. The main issues in the report related to an update to the Communications Policy and some minor updates to the Statement of Investment Principles.

Members discussed the revised Statement of Investment Principles which included the insertion of the investment responsibilities of the Investment Sub Committee.

Members also discussed the revised Communications Policy. It was noted that the pensions information provided on the Council website was out of date, and that this needed to be looked at as a matter of urgency. Officers informed Members that they had already started work on improving and updating the website.

Members requested the Officers provide a further report to the next committee on communications.

RESOLVED: 

1. That the Committee agreed to approved the revised Statement of Investment Principles;
2. That Committee agreed to approve the revised Communications Policy;
3. That Committee noted the contents of the report; and
4. That Officers provide Committee with an update on improvements made regarding communications at the next committee meeting.

This item was discussed as a Part 2 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).

This item was discussed as a Part 2 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).

This item was discussed as a Part 2 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).

This item was discussed as a Part 2 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).