Agenda item

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% (75% as at 31 December 2018). 

Members were informed that the fund had started to disinvest from the Ruffer portfolio. However, there was still some investment in Ruffer which was performing quite well currently. It was expected that the London CIV Infrastructure Fund would receive FCA approval by October 2019.

The Committee was advised that oversight of monitoring managers was important. Greater visibility and access to information was desirable from the LCIV.

With regards to UBS Equity, Members were informed that there were a number of staff changes at present but advisors would watch closely. It was confirmed that property was expensive to transact. It was suggested that UBS be put on an advisory mandate whereby they would have to approach the Fund for a decision rather than trading independently to aid reduced transaction costs with pooling on the horizon.

Councillors commented that the Fund appeared to be heavily weighted to passive investment at present. Members enquired whether, in view of the current climate of political uncertainty, more active investment and contingency plans should be considered. It was confirmed that the Fund was largely invested globally therefore matters such as Brexit did not present a significant risk. Members were advised that larger companies were holding up well and it was difficult to find active managers who consistently outperformed. It was reported that the Fund had some active management in infrastructure and private credit. The preference was to have limited active management as it required more managing and more expense; passive fees were lower.

RESOLVED That, following consideration of the Part II papers, Pensions Committee:

1.    Considered and discussed issues raised in the training item;

2.    Discussed the Fund performance update and agreed any required decisions in respect of mandates or Fund Managers;

3.    Delegated the implementation of any decisions to the Officer and Advisor - Investment Strategy Group;

4.    Agreed to suspend the UBS Property Fund performance target and change to an advisory mandate.