Agenda item

To provide Committee Members with the Clwyd Pension Fund’s draft Annual Report and Accounts for 2021/22, for consideration and to make Members aware of the response to the 2021/22 Audit Enquiries letter

(a)          The Committee considered the Fund’s draft Annual Report for 2021/22 including the draft Statement of Accounts.

(b)          Members noted the Audit Enquiries letter and response

Mrs Fielder confirmed that the 2021/22 annual report was due to be published before 1 December 2022 which included the audited accounts. She thanked Mercer for their support in the production of the Annual Report due to the departure of the Fund Accountant in April 2022.   Mrs Fielder explained that Mr Ferguson, the Fund’s Section 151 Officer had reviewed the accounts and any comments from him had been taken into account.  She also confirmed that the Fund complied with the CIPFA guidance produced in 2019 called “ Preparing the Annual report” as much as was able.

Mrs Fielder went through the annual reporting highlighting a number of areas including the following key points:

-       The Independent Adviser’s report and Pension Board report highlighted the approval of the cyber policy,  excellent progress on the Fund’s responsible investment priorities and targets as well as the continued improvement in administration despite the rise in case numbers.

-       The administration report in appendix 4 reflected that, since the pandemic, employees continued to work from home during 2021/22. Productivity remained high and the number of cases completed exceeded 31,000 during the year.  The registration for the member self-service increased from 36.1% to 48.4%. 52 of the 54 employers in the Fund now used iConnect.

-       At 31 March 2022, the Fund had maintained a fully funded position as per pages 83 to 86 in the Funding and Flightpath item. As the Fund was in a valuation year, the funding position would be formally reviewed, and the risk management framework would monitor the impact of rising inflation and interest rates which continued after the accounting year end, and these will be considered as part of the assumptions setting.

-       The Fund performed well in the year as outlined on pages 85 to 103 as the Fund achieved an investment return for the year of 13.3% against the Fund benchmark of 9.1%. The local authority average for this figure was 8.6%. This placed the Fund second in the universe of peer LGPS Funds.

-       Highlights were the best ideas portfolio which achieved 20.3% and the private markets portfolio which returned 26.4% in aggregate, of which private equity returned 36.0% and the local impact portfolio returned 40.3%. In contrast, global and emerging market equities returned 2.3%, which was a reversal of the previous year’s return of 42.2% when private markets only managed to return 4.6%.

-       The Fund continued to make commitments to private market assets favouring those with a sustainable impact or local remit.

-       During the year, more assets were transitioned to the WPP, namely emerging market equities. The 10% strategic allocation was now managed by Russell Investments which brought the Fund’s total investments in the WPP to 32%.

-       The fund accounts were shown on pages 104 to 139. The main areas to note were that:

o   Assets which included cash but excluded net assets increased from £2.2 billion to £2.5 billion.

o   Contributions from employees and employers increased by £3.4 million.

o   Transfers into the Fund, which were difficult to estimate, increased by £3.5 million.

o   Income over expenditure, excluding fees and investment income, was £4 million compared to £2 million last year.

o   The change in the market value of investments comprised of realised profit and loss and also the unrealised gain/loss in the valuation of assets during the year. The increase to the market value of £261 million was lower this year, as sales were £200 million lower than last year.

o   On pages 115 to 116, management expenses highlighted that administration costs increased by £210k from last year. This was due to IT and staffing costs  which had been in the budget for 2021/22. The oversight and governance costs increased by £334k due to increased legal fees relating to new investments in private markets and the increased support from consultants on private markets.

-       Page 146 showed the actual costs versus the budgets, and in total £436k was underspent against a budget of £25.8 million. A more detailed breakdown was reflected in appendix 8.

-       Page 143 showed the actual cashflow against the budget and the significant variance which was the distribution income from the private markets which  was  better than originally anticipated.

-       Pages 155 to 162 gave further details on the progression of the WPP to date.

-       Section 4 would include the Fund’s regulatory documents which had previously been approved by the Committee such as the Funding Strategy Statement, Investment Strategy Statement, Governance Policy and Communication Strategy. These would be included in the final published document. Other best practice Fund documents were also signposted.

-       Appendix 2 included the draft response to audit and inquiries letter from Audit Wales for 2021/22 and the changes were highlighted. The Committee members were asked to note the response.

            Regarding the economic and market update, Mr Cockerton highlighted his concerns regarding the inflationary pressures which would impact the Fund, noting that this matter was on a later agenda item.

            Mr Ferguson thanked Mrs Fielder and the team for the hard work on the accounts. He reviewed the accounts prior to submission and was happy to support them being submitted to Audit Wales. Mr Ferguson confirmed that the Committee would be asked to approve the final audited accounts at the November Committee meeting.

            On page 95, Cllr Swash highlighted the reference to the ambitious target for the investments in the Fund to have a net zero carbon emissions by 2045. Cllr Swash knew other Funds had a net zero carbon emissions target date of 2030 so asked for more context on this. Mr Harkin said that it was ambitious in the context of the Fund’s current portfolio, balancing risks along the pathway to net zero. He noted that if the Fund were to move their portfolio too quick, this could expose the Fund to significant risks. It was about balancing the trade-off of risks and not putting our fiduciary responsibility to members at risk. Mr Latham added that the Fund planned to undertake an induction session to help the new members understand how the 2045 net zero target date had been set.

RESOLVED:

(a)          The Committee considered the Fund’s draft Annual Report for 2021/22 including the draft Statement of Accounts.

(b)          Members noted the Audit Enquiries letter and response