Issue - meetings

1.    That the Committee noted the report of the AVC review.

2.    That the Committee delegate powers to Fund Officers to act on the recommendations and implement next steps.

Mr Middleman gave an update on the Additional Voluntary Contributions (AVC) Review. He explained that AVCs are payments that members make in order to boost pension incomes on top of the normal contributions but AVCs are invested externally and not in the Clwyd Pension Fund. The review looked at the return on investments, the range and suitability of funds available, communication and administration of providers.  The report only considered the Prudential AVC provision and not the historical providers such as Equitable Life.  He stressed that whilst the arrangements/funds used were individual member decisions, it is a “group” policy held by the Fund.  The review concluded that there were no material concerns with the provider.

Whilst take up is broadly in line with the average for a Fund of the size of the CPF, one of conclusions of the review was to make sure that AVC options are communicated to members.  Charges are benchmarked against the market and so these were considered to be in line with the market.  Performance has generally been good but there were just a couple of funds that were underperforming over various time periods which would need to be kept under regular review.

Mr Middleman explained that the current Lifestyle option was to switch down equity content to bonds as members approach retirement in order to protect/stabilise fund values.  Members tend to take AVCs as all or at least part tax free lump sum as opposed to pension. Therefore modified lifestyle options targeting a switch to cash or cash/bond type investments should be considered.

The with-profits fund (which is the default fund) performed relatively well but the return for members relies on terminal bonuses being paid and this is not guaranteed so members should be reminded of that risk. This is very important given the with-profits is the “default” fund if members do not make an investment choice so it’s only good governance to warn them of the risks.

Mr Hibbert asked, in terms of communication, if it is sufficient to simply remind members of choice or will there be a slightly more targeted/forceful communication.  Mrs Burnham (Pensions Administration Manager) said they need to be careful in communications so as they are unable to give financial guidance but they intend to provide a focussed communication for those with lifestyle/with profit options and then a wider communication to all members.  They will be advising members about the importance of obtaining independent financial advice and they will communicate as much as they can without giving any advice.

RESOLVED

1.         That the Committee noted the report of the AVC review.

2.         That the Committee delegate powers to Fund Officers to act on the recommendations and implement next steps.