Agenda, decisions and minutes

Clwyd Pension Fund Committee
Wednesday, 4th September, 2019 9.30 am

Venue: Delyn Committee Room, County Hall, Mold CH7 6NA

Contact: Janet Kelly 01352 702301  Email: janet_kelly@flintshire.gov.uk

Items
No. Item

19.

Declarations of Interest (Including Conflicts of Interest)

To receive any Declarations and advise Members accordingly.

Decision:

No declarations of interest

Minutes:

No declarations of interest

20.

Minutes pdf icon PDF 273 KB

To confirm as a correct record the minutes of the last meeting held on the 12th June 2019.

 

Decision:

It was agreed the minutes could be received, approved and signed by the Chairman.

Minutes:

The minutes of the meeting of the Committee held on 12 June 2019 were submitted.

 

RESOLVED:

 

It was agreed the minutes could be received, approved and signed by the Chairman.

21.

Funding Strategy Statement pdf icon PDF 209 KB

To provide Committee Members with the draft Funding Strategy Statement to consider, review and approve for consultation with Employers

Additional documents:

Decision:

(a)          The Committee approved the draft Funding Strategy Statement; and

 

(b)          The Committee delegated the refinement and finalisation of the draft Funding Strategy Statement to the officers before formal consultation with employers.

Minutes:

Mr Middleman presented the key factors to consider when developing a funding strategy. 

 

He emphasised the importance of the Funding Strategy Statement as part of the Actuarial Valuation as it balances out a number of key risks.

 

Mr Middleman explained that fundamentally it is the “plan” for the Fund to ensure it has sufficient monies to pay members' benefits when they retire for as long as they live. This is financed through employer and employee contributions, and investment returns, so the balance between the two elements is what the FSS determines.  The other critical aspect is an employer’s covenant.  The covenant of an employer is the ability and willingness that an employer can pay their contributions that we require from them.  This also affects the level and timing of contributions you would request from different types of employer.   For example, a Council would be expected to be able to fund its pension liabilities over a longer timeframe with more certainly than, say, an employer who is reliant on specific funding streams. Therefore, the funding strategy has to take into account these differences.

 

Mr Middleman noted key points about the proposed assumption changes on the Funding Strategy Statement which was contained in the separate presentation.   The key changes where:

 

·         A reduction in the discount rate/return outlook relative to CPI inflation.

·         A change in the life expectancy assumption resulting in a reduction in life expectancy for the Fund.

·         A change in the short term pay growth to a minimum of 2% p.a. for 4 years to 2023.

·         An average reduction in the recovery period of 3 years to target the same period to full funding.

 

Mrs McWilliam queried why there are two different discount rate assumptions; one for past and future. Mr Middleman confirmed that there are two elements for how contributions are set.  Past service is looking at the deficit relating to the benefits that have already been earned. Future service is based on members who are in the Fund continuing to earn benefits, and these have a much longer timeframe to earn returns than the liabilities already accrued as this includes pensions in payment already.

 

Secondly, Mrs McWilliam asked about the recent announcement of the merging of RPI and CPI. Mr Middleman said that the announcement would not affect the valuation position as this was determined prior to the announcement so assets and liabilities are consistently measured. Equally it is not absolutely certain that the change will happen (although likely) and how it will manifest itself.  Mr Middleman therefore recommended no change in the parameters at this valuation but consideration of this issue will be needed going forward.  However, there was a market reaction to the announcement which will need to be considered in the context of the flightpath and hedging strategy adopted.   Any impact will be reported at future Committee meetings where appropriate.

 

            Mr Everett said that even the Councils are in different places in terms of affordability so it has to cater for all circumstances and he felt  ...  view the full minutes text for item 21.

22.

Responsible Investment Policy pdf icon PDF 149 KB

To discuss the development of the Fund’s Responsible Investment Policy and consider the Wales Pension Partnership Responsible Investment

Additional documents:

Decision:

(a)          The Committee expressed views on the Fund’s RI beliefs, to help develop the Fund’s policies; and

 

(b)          The Committee agreed the Wales Pension Partnership RI Policy.

Minutes:

Mr Buckland stated that the Fund had decided to review the current approaches in place relating to responsible investing to ensure they had the appropriate focus given recent developments. A survey was sent out to gather views from Committee members.

 

            Mr Buckland emphasised that the fiduciary duty is to get the best possible return for investment, however he noted that there are considerations regarding ESG risks (Environmental, Social and Governance) that the Fund can and does take account of. There are already policies in place within the ISS (Investment Strategy Statement) such as responsible investment and sustainability policy. Mr Buckland explained the Fund is therefore starting from a well formed policy and is looking to enhance and develop it into something more effective.

 

He explained that the potential responsible investment approaches are:

-           Integration – ESG factors are integrated – broader perspective and risk/opportunity

-           Stewardship – exercising active ownership (voting rights and engagement)

-           Investment – the aim is for long term growth within areas of positive responsible impact

-           Negative Screening – avoiding investment with a negative responsible impact i.e. tobacco/coal

 

            Mr Everett argued that blunt screening may well not be necessary if you applied integration well. He believed it would be good to see the process of thinking and challenge. Mr Buckland agreed.

 

            Mrs Fielder stated that the Fund already has a number of investments in renewable energy and she is looking to integrate this more across the WPP. Mr Everett said that they should welcome WPP's commitment to drive progress in this area and in particular would assurance that the Fund's policy requirements could be delivered by WPP. Mr Latham responded that Russell and Link are at the next Committee therefore the Committee can ask them questions and get more clarity.

 

            Mr Buckland explained that he attended the Scheme Advisory Board Investment, Engagement and Governance Sub-Committee meeting the previous week where responsible investment was on the agenda. The intention was that there will be Responsible Investment guidance issued to LGPS Funds. The DWP have issued regulations on 1 October outlining that corporate schemes need to have a responsible investment policy. It is also a requirement to have a policy on climate change however the current LGPS do not require this.

 

            There was a debate around individual fund policies coming together as part of the WPP pool. It was highlighted that is up to each individual administering authority to set its own Fund policy and the pool should be there to implement those policies. However, this can be difficult with eight different administering authorities around the table.

 

            Mr Buckland confirmed that the results of the RI survey that was undertaken showed four Committee member responses. In respect of the ESG issues, 75% of the results reflected that the Committee had a fairly well developed understanding on investment risk/opportunity and the other 25% felt that they are not that developed in this area.

 

            Cllr Hughes asked whether the key focus is to look at climate change and at  ...  view the full minutes text for item 22.

23.

Governance Update. pdf icon PDF 239 KB

To provide Committee Members with an update on governance related matters

Additional documents:

Decision:

The Committee considered the update and provided comments.

Minutes:

Due to the length of the agenda, it was confirmed that the report in this item was noted and any questions taken.

 

Mr Latham confirmed that The Pension Regulator’s survey results were released and one recommendation states that pension funds should have more freedom to pay salaries to attract and retain staff.  Mrs McWilliam noted that local authority policies can result in difficulties in paying appropriate levels to pensions teams, which in turn can impact on retention. The Chairman asked where these thoughts and concerns of the Fund can be raised and heard nationally. Mrs McWilliam said that there are now workshops covering the issues and allowing debate.

 

RESOLVED:

 

The Committee considered the update and provided comments.

24.

LGPS Update pdf icon PDF 192 KB

To provide Committee Members with current matters affecting the management of the LGPS.

Additional documents:

Decision:

The Committee members noted this report and made themselves aware of the various current issues affecting the LGPS and the Fund.

Minutes:

The report was noted and the Chair went straight to questions. Mr Hibbert queried an update on New Fair Deal. Mr Middleman confirmed that it is still being moved forward with a view to implementation in 2020 but it has been held back by other priorities.  He noted that it could still be delayed and will keep the Committee updated.

 

RESOLVED:

 

The Committee members noted this report and made themselves aware of the various current issues affecting the LGPS and the Fund.

25.

Pension Administration/Communications Update pdf icon PDF 253 KB

To update Committee Members on administration and communication matters for the Clwyd Pension Fund and approve some changes to timescales in the Business Plan.

Additional documents:

Decision:

(a)          That the Committee considered the update and provided any comments. In particular, the Committee noted the statistics highlighting the excellent progress with data cleansing (including the submission of valuation data) and the iConnect implementation; and

 

(b)          That the Committee approved the change in timescales to the business plan as outlined in paragraph 1.01.

 

Minutes:

Mrs Williams drew attention to The Pension Regulator Data Quality report 2019 results. The Common Data score decreased from 92.7% last year to 92.1%. This slight decrease was a result of 3,867 more members in scope for testing this year. The Scheme Specific Data score had increased from 68.2% to 81.7%.  However, based on the new factors the Scheme Specific score that will be reported to the TPR is 92.7% and the Common Data score is 96.8%.

 

Mrs Williams also noted that an action on the business plan is to complete the member tracing exercise which is in progress.

 

Mr Everett emphasised that there needs to be a continued push by all stakeholders for members to use the Member Self Service.  This will assist greatly in freeing up resource on the administration team.

 

RESOLVED:

 

(a)          That the Committee considered the update and provided any comments. In particular, the Committee noted the statistics highlighting the excellent progress with data cleansing (including the submission of valuation data) and the iConnect implementation; and

 

(b)          That the Committee approved the change in timescales to the business plan as outlined in paragraph 1.01.

26.

Funding and Flight Path Update pdf icon PDF 190 KB

To update Committee Members on the progress of the funding position and liability hedging undertaken as part of the Flight Path strategy for managing liability risks.

Additional documents:

Decision:

(a)          That the Committee noted the updated funding position (on assumptions consistent with the 2016 valuation) and hedging position for the Fund and the progress being made on the various elements of the Risk Management Framework;

 

(b)          The Committee noted that the equity protection structure has now been revised to increase the level of protection; and

 

(c)          That the Committee noted that any currency risk associated with the market value of the synthetic equity portfolio and the developed equity markets which have now been fully hedged.

Minutes:

Mr Middleman noted that the critical part of the funding and investment is to control the risk which is done via the flightpath.  He noted that the equity protection levels had been increased by 5% of the c£350m covered.

 

He noted that the opportunity was taken to increase the hedging protection on currency to c75% overall to lock in gains to date.  This was on the basis that a No Deal Brexit was less likely.

 

Cllr Bateman queried whether the process of hedging is costly. Mr Middleman confirmed that there is a cost to hedging, varying from the cost of implementation and the ongoing cost of controlling that risk. The key is to consider the “value for money” of the hedging versus the cost and this is always done as part of the process of deciding whether to implement it.   To date the overall benefit of the flightpath has far outweighed the cost.

 

Mr Harkin highlighted the cost on page 202, paragraph 1.07. He also noted that the depreciation of the pound resulted in a gain for the Fund because of the unhedged physical overseas equity exposure. He expressed that these gains needed to be banked so that if the pound strengthened, the Fund is able to keep the gains.

 

Mr Harkin said that there will be further details about this in the training session in October.

 

RESOLVED:

 

(a)          That the Committee noted the updated funding position (on assumptions consistent with the 2016 valuation) and hedging position for the Fund and the progress being made on the various elements of the Risk Management Framework;

 

(b)          The Committee noted that the equity protection structure has now been revised to increase the level of protection; and

 

(c)          That the Committee noted that any currency risk associated with the market value of the synthetic equity portfolio and the developed equity markets which have now been fully hedged.

27.

Investment and Funding Update pdf icon PDF 181 KB

To provide Committee Members with an update of investment and funding matters for the Clwyd Pension Fun

Additional documents:

Decision:

The Committee considered and noted the update for delegated responsibilities and provided comments.

Minutes:

The report was noted and the Chairman went straight to questions. Mrs Fielder highlighted the commitment previously made with Threadneedle which is a Low Carbon Workplace Fund aiming to make buildings sustainable. It has also been agreed to commit to their second Fund.

 

RESOLVED:

 

The Committee considered and noted the update for delegated responsibilities and provided comments.

28.

Pooling Investments in Wales pdf icon PDF 181 KB

To provide Committee Members with an update on implementation of Pooling Investments in Wales.

Additional documents:

Decision:

(a)          That the Committee noted the report; and

 

(b)          That the Committee discussed and agreed any comments or questions for WPP.

Minutes:

Mr Latham explained some key elements of this report.

 

                      On paragraph 1.09 on page 235, Mr Latham outlined that the pool had planned to create a European equity mandate, however the investors that had originally requested it will now invest into the Global mandate. 

 

                      On paragraph 1.08 also on page 235, Mr Latham noted that the transition of fixed income assets is likely to be pushed to later than November 2019 (as originally stated in the report). It will now potentially be the first week of December 2019, however the closer to Christmas it is, will present some liquidity issues.

 

Mr Latham noted that after discussion it had been agreed that advisers will be able to attend Fund Manager engagement days.

 

Mr Hibbert noted again for the record the lack of member representatives at JGC and he wished for this to be formally raised at the agenda on the WPP. Mrs McWilliam highlighted that she was not aware that the ongoing meeting with Pension Board Chairs was intended to be instead of scheme member representation on the JGC.  Mr Hibbert highlighted that Pension Board Chairs are often not scheme member representatives. The Chairman said that he would raise this at the next JGC. Mr Buckland noted that the scheme member representation within Pools’ governance arrangements was being raised at a national level, and it had recently been covered at the SAB Investment, Engagement and Governance sub-committee meeting.

 

RESOLVED:

 

(a)          That the Committee noted the report; and

 

(b)          That the Committee discussed and agreed any comments or questions for WPP.

29.

Economic and Market Update and Investment Strategy and Manager Summary pdf icon PDF 180 KB

To provide Committee Members with an economic and market update and performance of the Fund’s investment strategy and Fund Managers.

Additional documents:

Decision:

(a)          The Committee discussed and commented on the Market and Economic update for the quarter ended 30 June 2019, which effectively sets the scene for the Investment Strategy and Manager Performance summary; and

 

(b)          The Committee discussed and commented on the Investment Strategy and Manager Performance summary for the quarter ended 30 June 2019.

Minutes:

The report was noted with Mr Harkin highlighting that all of the information on page 249 is dated to the end of June 2019 however things have moved on since. Since then there has been increase in volatility within growth assets such as equities and commodities.

 

            Mr Harkin stated that it had been a strong quarter for investment returns resulting in over £90m appreciation of assets. He also confirmed that at 31 July 2019 the Fund tipped over £2bn in size.

 

RESOLVED:

 

(a)          The Committee discussed and commented on the Market and Economic update for the quarter ended 30 June 2019, which effectively sets the scene for the Investment Strategy and Manager Performance summary; and

 

(b)          The Committee discussed and commented on the Investment Strategy and Manager Performance summary for the quarter ended 30 June 2019.

 

elcome to Flintshire County Council Skip to Content
Cymraeg English