Agenda, decisions and minutes

To receive any Declarations and advise Members accordingly.

Councillor Stephen Wilson and Councillor Haydn Bateman declared a personal interest as being members of the Clwyd Pension Fund for all items.

Karen McWilliam (Independent Advisor – Aon Hewitt) and Paul Middleman (Fund Actuary – Mercer) declared a personal interest as employees of Aon Hewitt/Mercer respectively who may submit a tender response to be the operator of the Wales Pool.

To confirm as a correct record the minutes of the last meeting on 8^th November 2016.

It was noted that Karen Williams was not present at the meeting but apart from that, the minutes could be received, approved and signed by the Chairman as a correct record.

The minutes of the meeting of the Committee held on 8 November 2016 were submitted.

RESOLVED:

It was noted that Karen Williams was not present at the meeting but apart from that, the minutes could be received, approved and signed by the Chairman as a correct record.

(a)       That the Committee considered and approved the IAA draft and supported its recommendation to Council.

(b)       That the Committee delegated authority to the Chief Executive to approve minor amendments to the IAA before submission to Council.

(c)        That the Committee supported the new delegations between the Council, the new JGC and this Committee and recommend to Council that the Chair and Vice Chair would automatically be the Member and Deputy for the JGC.

(d)       That the Committee noted the progress made with the appointment of the operator.

Mr Latham (Clwyd Pension Fund Manager) introduced an update on the Working Together Project in Wales.

            Mr Latham explained the report was in three parts covering the Inter Authority Agreement (IAA), the required changes to the Councils’ Constitution (to reflect implementation of the new Joint Governance Committee (JGC)) and an update on the procurement of an operator.  The recommendations agreed by the Committee would be put to the full Council.

A summary of the main features of the IAA are as follows:

·         While the IAA is still a work in progress, it is not expected to change significantly and it will require a change to the Councils’ constitution.

·         It involves the creation of the JGC and an Officer Working Group (OWG).  The JGC would consist of an elected member representative from each of the 8 Constituent Authorities. The OWG will consist of officer practitioners where 2 officers per Authority will be members.

·         Each of the Constituent Authority’s represented will have one vote per member on the JGC.

·         The Chair and Vice-Chair of the JGC would be agreed at a later date.

·         A host council was needed to co-ordinate and link in with new JGC and Carmarthenshire County Council take on this role.

·         Allocation of costs, delegations and the arrangement to exit the Pool are also covered. In relation to governance, the IAA explains that there would be a training policy in place and provision for the JGC/OWG to take appropriate advice.

·         Although there is no scheme member representation co-opted onto the JGC, meetings will be open to the public and there are requirements to liaise with Local Pension Boards and hence their member representatives.

·         The location of the meetings will be rotated around the 8 Constituent Authorities.  Agendas, reports and minutes will be in Welsh and English, with a simultaneous translation of proceedings during the meetings.

·         With regards to the delegations to each Constituent Authority as set out in Schedule 2, it was recommended that these are delegated by Council to this Committee with the exception of points 5 & 6 (amendments to the IAA and termination of the agreement).  If there were any major amendments to these two points then would have to be reverted to Council.

            It was queried if the Host Council would change in the future.  Mr Latham explained that it could change in the future and Mrs McWilliam added that should the Host Council change, then it would need an amendment to the IAA.  This would have to be agreed by all Pension Fund Committees/Councils as it would be classed as a significant amendment.

            A question was asked about paragraph 7.1 of the IAA and how advice was to be provided.  Would Carmarthenshire County Council take on the role of monitoring officer for the pool?  Mr Latham explained that the expectation is it will likely be the Host Council. 

            Cllr Bateman asked about provisions for Voluntary Exits (page 36).  Mr Latham said it was hoped that this would not materialise but there was provision for any  ...  view the full minutes text for item 53.

(a)       Committee noted the business plan and agreed actions.

(b)       Committee approved the recommendation to move G4 (Key Man Risk) to 2017/18.

(c)        Committee approved the change to Officers’ Delegations incorporating changes to Funding Risk Management decisions

Mr Hughes (Pensions Finance Manager) gave an update on key points in the report relating to the Business Plan for 2016/17. 

            Mr Hibbert asked why the actuarial fees had been underestimated. Mr Latham said it had been underestimated in relation to areas such as the Flightpath restructure and equity protection work. 

            Mr Hibbert asked if his training log could be updated in relation to his attendance at the Annual TUC event – A Decent Retirement.  Mr Hughes was confirmed this could be added to his training log if he provide the details.

            Mr Latham noted that a large number of new employers have joined the Pension Fund which had added to workloads. 

RESOLVED:

1.         Committee noted the business plan and agreed actions.

2.         Committee approved the recommendation to move G4 (Key Man Risk) to 2017/18.

3.         Committee approved the change to Officers’ Delegations incorporating changes to Funding Risk Management decisions

(a)       PFC noted the report and made themselves aware of the various current issues.

(b)       PFC noted the Employment Tribunal Ruling and the consultation regarding GMPs.

(c)        PFC agreed to the delegation to respond to the Pension Fund officers and that the response should propose option 2.

Mr Middleman presented the report on current issues affecting the LGPS.  He highlighted the item regarding the Employment Tribunal ruling regarding age discrimination against younger judges given they were not protected against changes in benefits.  This could potentially affect the LGPS as members within 10 years of retirement in 2012 have an underpin applied to their benefits.  Further updates will be provided if required.

            Mr Middleman also reported on the Guaranteed Minimum Pension (GMP) Consultation which covered the issue of equalising GMPs between males and females and also the promise to Government employees that they would receive full indexation on their GMP element via the State Scheme.  The consultation covered 3 proposals.  The deadline for responses was 20 February.

            Mr Middleman explained that the proposals were effectively passing the burden from the State Scheme to the public sector schemes. The proposals will also increase the administration burden, materially so under the first proposal.    This would entail LGPS Funds having to do a year on year benefit comparison including what members would receive from the State Scheme. 

In summary the 3 options:

1.    Case by Case approach: The lowest funding cost for employers but very difficult and costly operationally given the requirement for a year on year benefit comparison for each member.

2.    Full indexation for all members who reach SPA after 6 April 2016: No year on year benefit test so simpler operationally.  Would be the highest funding cost/risk and based on the valuation this is estimated to be £7m for the CPF.  This approach is already in place for members reaching SPA up to 5 December 2018.

3.    GMP conversion: Similar to 2 but requires a full GMP reconciliation and conversion.  The cost depends on the conversion terms.

            Mr Middleman noted that the operational costs under proposal 1 should not be underestimated and would require significant investment in systems and processes. Most LGPS Funds are favouring option 2 in their responses due to these operational challenges.

            Mrs Burnham noted that the preferred option after discussions at Advisory Panel is option 2.  This is in line with the objectives of the CPF which is to streamline operational matters as far as possible.

            Due to tight time scales Mrs Burnham requested that the consultation response is prepared by her and it is formally delegated to officers to respond on behalf of the PFC. 

RESOLVED

(a)       PFC noted the report and made themselves aware of the various current issues.

(b)       PFC noted the Employment Tribunal Ruling and the consultation regarding GMPs.

(c)        PFC agreed to the delegation to respond to the Pension Fund officers and that the response should propose option 2.

(a)       The Committee considered and noted the update.

(b)       The Committee agreed to delegate the appointment of the provider for the GMP reconciliation project.

Mrs Burnham gave an update on the Business Plan 2016/17 and Current Developments.  She noted that in regards to paragraph 1.03, the online data transmission tool has been set up and they were hoping to enrol more employers into using it.   The request to delegate the appointment of a provider for the GMP reconciliation project was also highlighted.

RESOLVED

(a)       The Committee considered and noted the update.

(b)       The Committee agreed to delegate the appointment of the provider for the GMP reconciliation project.

The Committee noted the content of the presentation and the ongoing discussions at a national level.

Mr Harkin gave a presentation on MIFID II and how this would have implications for the Fund.  The intention for MIFID II is to increase protection for investors.  The main impact for LGPS Funds would be to reclassify local authorities from “professional clients” to “retail clients” as in the UK, Local Authorities are not separate from the Pension Fund.  Retail clients have the highest “protection” under MIFID II.  However this would have a material impact on the ability to operate as a Fund as many investment managers and advisors only work with “professional clients”.   It was noted that the pools would have professional client status.

            Mr Harkin explained there is an option for LGPS Funds to “opt-up” to professional status if certain quantitative and qualitative criteria are met.  There would be no issue meeting the qualitative criteria but the quantitative criteria could be difficult to achieve.  There is significant potential risk to Funds unless this process is made simpler.

            The FCA issued a consultation which closed in January 2017 and a response is expected in March 2017.  All stakeholders have input into the consultation to express concerns and meetings with the FCA are going on with both the LGA/PLSA who have been lobbying regarding the LGPS implications, however nothing will be clear until March. 

            The LGPS pools are forming a group of practitioners to communicate these issues to the FCA.  Flintshire County Council volunteered and is providing the representation for the Wales Pool on this matter.  Mr Hibbert noted the importance of sorting the issues out at the start of a process so was supportive of the representation from the Fund.

RESOLVED

(a)       The Committee noted the content of the presentation and the ongoing discussions at a national level.

The Committee considered and noted the update and next steps.

Mrs Fielder (Pensions Finance Manager) gave an investment and funding update on the Business Plan 2016/17, currents development and news, funding and investment related policy and delegated responsibilities.

The main points highlighted were:

·         Actuarial valuation – this needs to be finished by the 31 March and the final Funding Strategy Statement will be tabled at the March committee.  Officers are currently liaising with employers to confirm final contribution rates for 2017/20.

·         The AVC review will be finished by the end of March and the next steps will be communicated at the next meeting.

·         Investment Strategy Statement work has commenced and the proposed statement will be brought to the meeting in March.

·         The delegated responsibilities and actions taken were noted in para 1.07.

RESOLVED

(a)       The committee considered and noted the update and next steps.

Committee noted the Economic and Market Update and the information in the report.

Mr Harkin gave a report on the economic and market update for the quarter to 31 December 2016 and noted that the sentiment has been driven by the US election result. 

Key points made:

·         the weakening of Sterling

·         Higher inflation expectations

·         Rising commodity prices

            Asset markets have generally been positive and there has been a big “bounce” in the US equities market.

            Mr Hibbert noted that the lack of detailed discussion was likely due to the fact that there was a lot of information to absorb but this was seen as a positive position.  Mr Harkin offered to discuss the detail in the report with any Committee members who wished to do so before the meeting to aid discussion if that would be helpful.

RESOLVED

(a)       Committee noted the Economic and Market Update and the information in the report.

Committee noted and discussed the investment and strategy manager performance.

Mr Harkin presented a report on the performance of both the Fund’s investment strategy and investment managers over the quarter to 31 December 2016.  A “light touch” strategy review was completed in conjunction with the actuarial valuation.

Key additional points covered were:

·         The strongest performance element came from the In House assets, equities and the Best Ideas portfolio.

·         At the current time there are no concerns with any of the Fund’s investment managers.

            Cllr Bateman asked if it was possible to continue to live with a lower interest rate environment.  Mr Harkin and Mr Middleman both noted this depended on what happened with inflation.  A sustained period of low interest rates/returns and high inflation would impact materially on funding positions and costs for employers.  This cannot be ruled out in the current fiscal environment and supports the need for a robust risk management framework and well diversified asset portfolio.

RESOLVED

(a)       Committee noted and discussed the investment and strategy manager performance.

Committee noted the report and progress of the various elements of the risk management framework.

Mr Middleman explained the report on the funding and risk management framework. 

Main additional points were as follows:

·         there were no concerns on risk management and all measures were rated “green”

·         The LDI mandate has increased significantly in value so the intention is to release collateral back into the portfolio to rebalance the holding back to closer to the benchmark level.  This had been estimated to be c£60m but the level will be reviewed before implemented. 

·         The LDI restructuring agreed at the last PFC has not yet been implemented as the gain has not been over the £25m threshold. This will be monitored and implemented when (and if) market conditions are favourable enough.

·         The implementation of the Equity protection is ongoing and the PFC will be updated at future meetings.

RESOLVED

(a)       Committee noted the report and progress of the various elements of the risk management framework.