Agenda and minutes

To note the Cumbria Pensions Forum Terms of Reference (copy enclosed)

RESOLVED that, the Terms of Reference of the Cumbria Pensions Forum be noted. 

To elect a Chairman for the ensuing year.

Under the terms of the Forum’s Constitution, the Chairman must be a member of Cumbria County Council.

RESOLVED that, Councillor M Worth be elected as Chair of the Pensions Forum for the ensuing year.

To receive any changes to membership and appointments

RESOLVED that, the membership of the Pensions Forum be noted.

To receive any apologies for absence

Apologies for absence were received from Mrs B Cannon, Mr G Nicolson, Mr D Southward, Mrs H Wall and Mr J Airey.

To received the Minutes of the meeting held on 15 October 2015 (copy enclosed)

RESOLVED that, the Minutes of the Cumbria Pensions Forum held on 15^th October 2015 be agreed as a true and accurate record.

Your Pensions Service, represented by Diane Lister, will present on the performance of the pensions administration service for Cumbria LGPS

Your Pension Service, represented by Diane Lister, gave a presentation on the performance of the Pensions Administration Service for the Cumbria Local Government Pension Scheme (LGPS).

She advised that performance targets had increased from eighteen to twenty one. Seven thousand calculations had been completed with 97% of these completed on target. The 3% which had failed to meet this had been completed within just a few days of deadline.

Statutory administration included sending out P60s to all pensioners together with Annual Benefits Statements. Annual Benefit Statement surgeries had been established and dates provided however a full schedule could be circulated to all employers on request.

The annual Employer Conference took place in October 2016 which was followed by a feedback survey. The main challenge centred on pensionable pay and a payroll calculator was provided to employers to assist with this. Additional guidance was given relating to leavers, retirements, ill health retirement, flexible retirement, etc. Individual email had been deemed to be the preferred communication choice. 64% of Scheme Members had registered to use the self service tool, however more than half of these weren’t utilising it. A demonstration had therefore been given at the conference. Targeted training including piloting final pay calculations via an automated system was being considered and employers were requested to email their suggestions to Your Pensions Service. .

Steven Moseley, representing Your Pension Service, presented the updated changes to Consultation, the Public Sector Exit Payment Cap, the Recovery of Exit Payments and Reform.

In May 2016 a consultation commenced regarding the changes relating to Fair Deal Proposals for TUPE Transfers and the choices available to employees. The Department of Communities and Local Government deemed that where employees were transferred to a new employer, the new provider must offer continued access to the LGPS with the exemption of Higher Education, Police and Fire Service staff.

Defined freedom and choice changes were implemented in April 2016. It was now proposed to give more freedom of choice for members with Additional Voluntary Contributions (AVCs) in respect of how and when they were able to access their pension. From the age of 55 members could draw some or all of their AVCs as a taxable lump sum.

Amendments to the Assumed Pensionable Pay (APP) calculation for members whose salary varied were being considered. It was proposed that employers would have the discretion to vary the pay actually received to that which would be the usual rate of pay.

From 1^st April 2008 to 31^st March 2014, leavers had voluntary access to their Pension. From 1^st April 2014 employer consent was removed and it was proposed to backdate this prior to 1^st April 2014. This was being significantly underwritten and further information was expected around December 2016. It was questioned what the possible changes would be in December 2016. Mr Moseley confirmed that this was unknown at the present time due to technicalities concerning legislation. The Senior Manager - Pensions & Financial Services (Deputy S151 LGPS Officer) commented  ...  view the full minutes text for item 38.

To receive a presentation on the Pension Scheme Annual Report and Accounts 2015/16. Copies of the Annual Report and Accounts will be available on the Council’s website from November 2016 at www.cumbria.gov.uk/finance.

A presentation was given by the Finance Manager and the Finance Manager – Pensions and Treasury regarding the Annual Report and Accounts 2015 /16 including Key Performance Statistics.

The Finance Manager – Pensions and Treasury presented the Annual Report and Accounts and Relevant Policy Changes. As at March 2016, Cumbria LGPS had 126 employers; this was increasing year on year due to the new academies, and 54,000 employees were members. Membership equated to 13% of the adult population of Cumbria. Actuaries were however decreasing and this would have future implications.

In 2015, £82 million was paid out in benefits and £65 million was received in contributions; resulting in a £16 million deficit leaving the fund cash flow negative at contributions level. Investment income was keeping the Pension Fund afloat reflecting the asset strategy. Good income streams were being received resulting in a positive cash position.

At March 2016 £2.047 billion was held in investments; these were not exposed to any one risk. Growth assets were providing good investment returns for the future and expectations had been built in regarding asset performance.

The Finance Manager presented the Business Plan set for 2015 / 16, the majority of which had been achieved. A significant piece of work relating to Local Government Investment Pooling had been undertaken.

Good investment returns had been achieved with fund specific performance outperforming expectations after everything had been paid. In respect of performance the Cumbria LGPS was in the top 10 – 25 Local Government Pension Schemes. More detail was available in the Annual Report and Accounts for 2015 / 16, copies of which had been made available on the website in October. The Senior Manager - Pensions & Financial Services (Deputy S151 LGPS) advised that as part of the efficiency drive, the report was in electronic format as it was a large document, however hard copies of the report were available if required.

There had been a change in the Cumbria LGPS reporting requirements. Disclosure of management costs was expanded since the Chartered Institute of Public Finance and Accounting (CIPFA) guidance was issued in June 2016. A re-categorisation of debtors and creditors regarding investments had been implemented. No material errors were noted within the Audit; the opinion of which was unqualified and unmodified. The Audit was clean and had been prepared before deadline. Preparation for the 2016 / 17 accounts timetable had been reviewed and publicised but would again require the use of estimates. In summary, it had been a good investment year; the return for 2015 / 16 was 1.9% with a benchmark of 0.2%. The ten years’ investment return of 6.2% per annum was benchmarked at 5.7%. Progress had been made in relation to the LGPS investment pooling proposal with further investment strategy changes being implemented for 2016 / 17.

In June 2016 it was agreed that the Administration Policy would be changed to allow for a one off charge to be levied to bring in new employers. This was in the sum of £250.  ...  view the full minutes text for item 39.

To receive a presentation on the ongoing national progress towards asset pools within the LGPS, including an update on the Borders to Coast Pensions Partnership BCPP proposal

The Chair offered thanks to the finance team for the tremendous amount of work over the previous two years especially with regards to asset pooling.

A presentation was given by the Senior Manager - Pensions & Financial Services (Deputy S151 Officer LGPS) regarding asset pooling in the Local Government Pension Scheme for England and Wales.

The assets of the LGPS which were perceived as being sovereign wealth funds were a complete misnomer as the Pension Fund was not sovereign.

In terms of scale, asset pooling consisted of six funds worth more than £25 billion. Asset pooling allowed for strong governance and decision making together with reduced costs and the provision of excellent value for money. Improved capacity and capability to invest in infrastructure were additional attractive benefits.

All funds had, within a period of six months, provided the Government with eight pooling proposals together with robust business cases. The proposals made the funds compliant with the Financial Services Act. These proposals were provided in July 2016 with the regulations being laid in November 2016. Final review meetings were ongoing with the Minister with BCPP scheduled to have their meeting that week. Approval would follow and the S151 and Monitoring Officers were to meet at the end of the month.

Optimum savings could be made by asset pooling with those with similar investment beliefs. Cumbria County Council was part of the Border to Coast (BCPP) pooling proposal. Those involved had likeminded investment beliefs and a “one fund, one vote” ethos; the sizes of the funds involved was irrelevant, all partner funds would have an equal vote.

BCPP was a means of pooling assets to achieve savings through scale and improve investment expertise and resilience. The partner funds were building a regulated jointly owned investment management company wholly owned by the partner funds. It was anticipated that there would be savings in the region of £25 – £55 million annually. The funds combined held £40 billion in assets with 905,995 members and 2,166 employers as at 31^st January 2015.

Pooling regulatory requirements were due in November 2016. Payback was expected to be immediate, however in an unfavourable market the expectation was that it would take four years. Cumbria’s savings would be in the region of £2.1 - £4.3 million per annum after meeting the upcoming wider regulations.

The goal was to maximise net of costs performance funds with a need for choice in asset allocation; 90% of the fund performance was due to investing in the right market at the right time. The individual fund’s asset allocations would remain with those individual funds within the pooling partnership. Pools were needed to ensure scale, however there were very little changes otherwise; the Forum and Board would remain and the management of the fund performance would continue. A joint Committee would be formed but the governance and sovereignty would remain with Cumbria; there would be no impact on scheme members. The key driver of investment performance was asset allocation; 90% – 95%  ...  view the full minutes text for item 40.

Presentation by the Actuary (Mercers, represented by John Livesey) on the progress and results to date of the 2016 Triennial Actuarial Valuation including the draft Funding Strategy Statement for comment.

A presentation was given by the Actuary (Mercers), represented by John Livesey and Leanne Johnston focussing on the Triennial Actuarial Valuation and the Funding Strategy.

Mr Livesey reported that the Actuarial process was designed so that by the end of a member’s working life, there would be enough assets to cover the proportion of benefits built up over their working life. The hope was that a member would reach 100% to cover the benefits.

The 2016 Funding Strategy had a number of key drivers. The discount rate was linked to real returns and there would be a continuation of the short term pay growth at 2% for the next 2 years.

The 50 / 50 option whereby members could make contributions of 50% to gain 50% of the benefits was being removed. The take up had only been around 0.1% - 0.2% across the LGPS. Deficit recovery contributions were to be linked to the Consumer Price Index (CPI) going forward.  Long term asset returns were compared to the CPI and short term CPI changes. Consideration was being given regarding how to beat long term targets.

The Cumbria LGPS invested in a wide range of asset types in order to spread the risk and generate better returns based upon economic estimates. The best estimate was CPI plus 3% per annum; with a margin of prudency of CPI plus 2% per annum. This was the same as the Actuarial Valuation assumption. In 2013 there was a deficit of £457 million. 2013 was used as a baseline as the market improved after the rate was set; a funding level of 83% was used instead of 78.4%. The 2016 funding position was much improved. Investment returns over the previous three years had been strong with 25% overall returns outperforming the assumed 15%. As regards life expectancy, this had improved since 2013 but not to the extent of that expected.

Ms Johnston advised that 126 employers were signed up to the Cumbria LGPS, each of whom was running their own notional pot of assts. There were no cross-subsidies and each had very different membership profiles.

There was a different profile of membership in terms of average ages; the older the member, the higher the future service cost. There were a variety of open and closed schemes with variable future service costs. Ill health retirements were more expensive than age retirements. The 50 / 50 scheme also incurred a significant cost. A high staff turnover could however have a positive impact.

A question was asked at which point those above the 105% funded would lose some taxable benefits. It was confirmed that this had now ceased within the LGPS.

Information was provided as to the valuation of the Cumbria LGPS as at 31^st March 2016. In respect of the Funding Strategy comments were made as to the appropriateness of assumptions and proposals regarding the deficit contributions and recovery plans. The issue of affordability was raised as was the question of whether any year would be  ...  view the full minutes text for item 41.

Provisional date: to be confirmed – October/November 2017.

The provisional date of the next meeting of the Cumbria Pensions Forum was 10^th October 2017.