Agenda and draft minutes

Cumbria Pensions Committee
Thursday, 8th March, 2018 9.30 am

Venue: Cumbria House, Carlisle

Contact: Holly English  Email: holly.english@cumbria.gov.uk

Items
No. Item

46.

APOLOGIES FOR ABSENCE

To receive any apologies for absence.

Minutes:

Apologies for absence were received from Mr D Fairbairn and Mr P Thornton.

 

Mr N Hughes was in attendance as a substitute for Mr P Thornton.

 

47.

Terms of Reference and Membership

Minutes:

The Chair welcomed Ms A Clark to her first meeting of the Pensions Committee since undertaking the role of Senior Manager – Pensions and Financial Services (Deputy s151 Officer – Pensions).

 

48.

DISCLOSURES OF INTEREST

Members are invited to disclose any disclosable pecuniary interest they have in any item on the agenda which comprises

 

1          Details of any employment, office, trade, profession or vocation carried on for            profit or gain.

 

2          Details of any payment or provision of any other financial benefit (other than from the authority) made or provided within the relevant period in respect of any expenses incurred by you in carrying out duties as a member, or towards your election expenses.  (This includes any payment or financial benefit from a trade union within the meaning of the Trade Union and Labour Relations (Consolidation) Act 1992.

 

3          Details of any contract which is made between you (or a body in which you have a beneficial interest) and the authority

 

(a)       Under which goods or services are to be provided or works are to be executed; and

 

            (b)       Which has not been fully discharged.

 

4          Details of any beneficial interest in land which is within the area of the authority. 

 

5          Details of any licence (alone or jointly with others) to occupy land in the area of the authority for a month or longer. 

 

6          Details of any tenancy where (to your knowledge)

 

            (a)       The landlord is the authority; and

 

            (b)       The tenant is a body in which you have a beneficial                                                         interest.

 

7          Details of any beneficial interest in securities of a body where

 

(a)       That body (to your knowledge) has a place of business or land in the    area of the authority; and

 

 

(b)       Either –

 

(i)      The total nominal value of the securities exceeds £25,000 or one            hundredth of the total issued share capital of that body; or

 

(ii)     If that share capital of that body is of more than one class, the total nominal value of the shares of any one class in which the relevant person has a beneficial interest exceeds one hundredth of the total issued share capital of that class.

In addition, you must also disclose other non-pecuniary interests set out in the Code of Conduct where these have not already been registered.

 

Note

 

A “disclosable pecuniary interest” is an interest of a councillor or their partner (which means spouse or civil partner, a person with whom they are living as husband or wife, or a person with whom they are living as if they are civil partners).

Minutes:

Mr K McDonald declared a personal interest as his daughter and wife were members of the Cumbria LGPS.

 

49.

EXCLUSION OF PRESS AND PUBLIC

To consider whether there are any items on the agenda for which the press and public should be excluded.

Minutes:

RESOLVED,            that the Press and Public be excluded from the meeting during consideration of the following agenda items on the grounds that they contain exempt information as defined under Paragraph 3 of Part 1 of Schedule 12A of the Local Government Act 1972 (as amended) relating to the financial or business affairs of particular individuals:-

 

Agenda Item 16 – Part II Appendices from Item 15

Agenda Item 17 – Update on BCPP Ltd Developments

Agenda Item 18 – Quarterly Monitoring to 31st December 2017 (Part 2 Items)

Agenda Item 19 – Verbal Update on Emerging Issues

Agenda Item 20 – Investment Sub Group Activity Report to February 2018

 

50.

MINUTES pdf icon PDF 130 KB

To confirm as a correct record the minutes of the Cumbria Pensions Committee held on 5 December 2017 (copy enclosed).

 

Minutes:

The minutes of the previous meeting held on 5 December 2017 were confirmed as circulated and thereupon signed by the Chair.

 

51.

REPRESENTATION FROM NON COUNTY COUNCIL EMPLOYERS AND DISTRICT COUNCILS

This is a standing item.  To receive concerns, queries and comments from the Cumbria Pensions Board, scheme employees, including the public.

Minutes:

Nothing was raised on this occasion.

 

52.

SCHEDULE OF FUTURE MEETINGS pdf icon PDF 56 KB

To receive for information a schedule of future meetings of the Cumbria Pensions Committee (copy enclosed).

Minutes:

The Committee noted the schedule of future meetings.

 

53.

Responsible Investing

To consider a presentation by the Director of Corporate Governance, Legal & General and Head of Local Authorities, Legal & General (to be tabled).

 

Minutes:

The Committee considered a presentation from the Director of Corporate Governance, Legal & General Investment Managers (LGIM) and Head of Local Authorities (LGIM).

 

The presentation discussed the following issues:-

 

Ø  Active ownership and its importance

Ø  Structure updates, managing conflicts and integrating environmental, social and governance (ESG) factors

Ø  Stewardship and its importance

Ø  LGIM’s active and impactful engagement

Ø  Influencing and impacting debates

Ø  Improving stewardship on a global scale

Ø  The increase in opposition to remuneration resolutions

Ø  Desire to increase board diversity

Ø  Climate Impact Pledge

Ø  LGIM’s corporate governance strengths

 

The presenter spoke about a number of real life examples of how LGIM had influenced change in companies through improving governance standards, using scale to influence and collaborating to protect shareholder rights. LGIM also advised that they had developed an ESG tool to improve integration with active funds and company engagement, providing a bank of information for their investment managers to use.

 

The Chair thanked LGIM for their informative presentation.

 

Mr T Gardener asked how the Corporate Governance Team at LGIM was itself governed to ensure pressure exerted on companies to undertake responsible investing was appropriate and not unduly influenced by individual agendas. Mr Sadan responded that LGIM had 2 non-executive directors on the Board who provided challenge to the Corporate Governance Team and monitored and ensured the audited corporate policies had been abided by.

 


54.

Fund Policy Document - Annual Review pdf icon PDF 125 KB

To consider a report by the Assistant Director – Finance (s151 Officer) (copy enclosed).

 

Additional documents:

Minutes:

Members received a report from the Assistant Director – Finance (s151 Officer) which provided the Cumbria Local Government Pensions Scheme, Fund Policy Document Annual Review.

 

It was advised that it was a regulatory requirement for Fund Policy documents to be kept up to date. In addition to updates as and when required throughout the year, it was good practice for Pensions Committee to formally review all aspects of management and governance of the Cumbria Local Government Pension Scheme (LGPS) at least annually. The report incorporated all changes to existing policies to reflect circumstances and regulation changes in 2017-18.

 

At the time of the meeting there had been no substantive changes to the policies in the Fund Policy Document since the last review in March 2017. The Investment Strategy Statement (ISS) had been amended to further reflect the Fund’s alignment to the BCPP Ltd’s Responsible Investment policies, which did not conflict with the Fund’s investment principles.

 

Additionally the Admissions and Terminations policy had been amended to require all admission bodies to have a guarantor except where specifically agreed otherwise by the Fund. The policy had also been amended to provide the Fund with greater flexibility to respond to unexpected circumstances that may arise in respect of terminations.

 

The Training Policy had been updated to ensure continued compliance with the Pensions Regulator’s Code of Practice in line with the ongoing focus in the area of Member and officer training. The policy also acknowledged the requirement for the Fund as a collective to be available to demonstrate its expertise, experience and knowledge, such that they were capable of making investment decisions and understanding the nature of risks involved in the context of the MiFID ii regulations.

 

A discussion took place regarding regular correspondence from individuals and pressure groups that requested the Fund disinvest from certain products such as fossil fuels and arms manufacturing. Officers advised that the Investment Strategy Statement (ISS) stated the Fund’s primary aim is to deliver investment returns and therefore the Fund would not disinvest in such products unless maintaining the investment affected the Fund’s duty to generate investment return, however where two investments were evenly balanced then environmental, social and governance considerations could be taken into account. A Member asked for more information regarding the process to respond to such correspondence. The Group Finance Manager explained that the team would respond to each correspondence individually and provide a courteous tailored response. Following on from this, a Member asked how much time and money was spent on responding to such queries. It was advised that if any concerns arose the Council has a vexatious complainer policy to deal with such issues.

 

Members were in agreement that the current process for responding to such approaches and the methods the Fund utilises to assess the merits of its investments are still appropriate and should continue.

 

In addition Members agreed that additional wording should be added to the Fund’s Communications policy to confirm the agreed approach to responding to queries about its Investment  ...  view the full minutes text for item 54.

55.

Minutes of Cumbria LGPS Local Pensions Board pdf icon PDF 217 KB

To receive the minutes of Cumbria LGPS Local Pensions Board meeting held on 30 January 2018 (copy enclosed).

 

Minutes:

The Committee were guided through the minutes of the Cumbria LGPS Local Pension Board meeting held on 30 January 2018.

 

Officers brought attention to a recommendation in the minutes at Minute Number 9 which asked Pensions Committee to allocate a budget of £5,000 to the Board to cover costs associated with their agreed work plan. The Finance Manager - Pensions, Investment & Governance advised that this recommendation would be dealt with in a separate report to the Committee.

 

The Chair of the LGPS Local Pension Board was in attendance for the meeting and assured members of the Committee that, if allocated, the £5,000 set aside for external support would only be used if necessary and would be in place as a contingency.

 

RESOLVED,            that Pensions Committee note the minutes of the Cumbria LGPS Local Pensions Board meeting held on 30 January 2017.

 

56.

Minutes of BCPP Joint Committee pdf icon PDF 186 KB

To receive the minutes of BCPP Joint Committee meeting on 16 January 2018 (copy enclosed).

 

Minutes:

The Committee received the minutes of the BCPP Joint Committee meeting held on 16 January 2018.

 

Councillor Worth indicated that there had been extensive discussions at the meeting regarding the addition of 2 Non-Executive Directors being drawn from the current representatives on the Joint Committee of the 12 Partner Funds, however the decision was carried and the nominations and the subsequent ballots were expected to take place by July 2018.

 

RESOLVED,            that Pensions Committee note the minutes of the BCPP Joint Committee meeting held on 16 January 2018.

 

57.

Update on BCPP Asset Management Company pdf icon PDF 137 KB

To consider a report by the Assistant Director – Finance (s151 Officer) (to follow).

 

Additional documents:

Minutes:

The Committee received a report from the Assistant Director – Finance (s151 Officer). The report updated Members on developments across BCPP Ltd and progression towards the company being able to offer Partner Funds the ability to transition assets into the pool.

 

The project continued to move at pace towards the final delivery of phase three of the BCPP implementation plan, i.e. to establish a fully regulated asset management company that was ready to accept the transition of assets. This was scheduled for June 2018 although the company did not expect to offer asset classes relevant to Cumbria Pension Fund’s Asset Allocation Strategy until September 2018.

 

RESOLVED,             that Pensions Committee:

 

(1)  Note the progress on the development of BCPP Ltd.

 

(2)  Approve an increase in Fund’s contribution to the development of BCPP Ltd from £0.350m to £0.425m.

 

(3)  Approve for the Chair of the Pension Committee, in his capacity as the Council’s shareholder representative for the company, to vote to agree the pension scheme arrangements, involving both a defined contribution scheme and, in certain circumstances, access to the LGPS.

 

(4)  Note that BCPP Ltd will only become an admitting body to the LGPS if and when the necessary guarantees have been agreed by all shareholders.

 

(5)  Agree in principle for the Fund to accept the necessary guarantees required to enable BCPP Ltd to become an admission body in the South Yorkshire Pension Authority (SYPA), subject to the approval of these guarantees being given by the Assistant Director - Finance (S151 Officer) and Senior Manager - Legal and Democratic Services (Monitoring Officer) in consultation with the Chair of the Pension Committee, as the Fund’s shareholder representative for BCPP Ltd.

 

(6)  Approve for the Fund to agree to a waiver to the protections under the FCA Client Money Rules.

 

(7)  Authorise the Assistant Director - Finance (S151 Officer) and Senior Manager - Legal and Democratic Services (Monitoring Officer) in consultation with the Chair of the Pension Committee, as the Fund’s shareholder representative for BCPP Ltd, to finalise and execute the documentation to implement the waiver to the protections under the FCA Client Money Rules.

 

58.

Quarterly Monitoring to 31st December 2017 (Part 1) pdf icon PDF 147 KB

To consider a report by the Assistant Director – Finance (s151 Officer) (copy enclosed).

 

Additional documents:

Minutes:

Consideration was given to a report from the Assistant Director – Finance (s151 Officer) which advised Members of any material risk, administration, investment performance, governance, and policy issues of the Fund for the quarter ending 31 December 2017, any governance issues or national regulatory changes and outlined the performance of the whole portfolio and movement on liabilities over that period.

 

Risk Management

 

Members considered the risk register which outlined the key risks to the Fund.

 

With the appointment of a Senior Manager – Pensions & Financial Services, the likelihood of the risk associated with workload pressures for the Pension Team had reduced.

 

A new risk had been introduced to the register associated with the implementation of the General Data Protection Regulations and the transition of assets from the Fund to BCPP Ltd.

 

In addition, comments associated with some of the risks had been amended to reflect preparation for the 2019 actuarial valuation and other associated updates.

 

Pensions Administration

 

Performance from Your Pension Service (YPS) continued to exceed the targets set out for the service and there was continued progress in reviewing member data against the Guaranteed Minimum Payment Scheme

 

There had been two employer movements in the quarter to 31 December 2017.

 

Investment Management

 

Fund Investment Performance:-

 

The value of the Fund had increased by £77m to £2,600m over the quarter to 31 December 2017 (£2,523m at 30 September 2017).

 

The Fund’s investment performance (net of fees) over the quarter ended 31 December 2017 was a return of 3.5% which was marginally less than the fund-specific benchmark of 3.7% for the three month period.

 

One year performance over the year to 31 December 2017 was 9.8% (net of fees) which was marginally ahead of the benchmark (9.7%).

 

Three year performance (10.5% per year net of fees) was ahead of benchmark (9.1%).

 

Over the longer term of ten years the Fund return (net of fees) of 7.5% per year was above the Fund’s specific benchmark return of 7.0%.

 

Oversight & Governance:

 

There was one legal breach to report and no Fund discretions applied during the quarter.

 

Oversight & Governance - Policy & Regulation:

 

There had been no new policies or regulations implemented which related to the LGPS since Pension Committee met in December 2017. Revisions to the Fund’s policies were considered elsewhere on the meeting’s agenda.

 

The Fund was continuing to work with YPS to ensure appropriate arrangements were in place to comply with new legislative requirements from May 2018 relating to the General Data Protection Regulations.

 

In relation to GDPR, a Member asked whether the Cumbria Pensions Committee and YPS were jointly responsible for information held, and whether this could result in a risk of failure through the fault of another organisation. It was explained that work was being undertaken to look at this in more depth.

 

RESOLVED,            that Pensions Committee receive and note the performance and monitoring of the Fund for the period from 1st October 2017 to 31st December 2017.

 

59.

ISG Feedback - Equity Protection

To consider a presentation by the Assistant Director – Finance (s151 Officer) (to be tabled).

 

Minutes:

A presentation was delivered from the Assistant Director – Finance (s151 Officer) which detailed the equity protection product approved by ISG.

 

The presentation considered:-

·         The 2016 actuarial valuation

·         Current fund performance

·         2017 investment strategy review

·         Fund risk exposure

·         Equity protection objectives

·         Details of the protection agreed by ISG

·         Alternative options considered

 

The Group Finance Manager – Pensions and Treasury advised that at the last meeting of the Investment Sub Group (ISG) it was agreed to protect £1,075m of UK, US and European holdings, against falls in equity values from 5% to 30%, purchase a tapered product after protection ends, and to cap gains at 9.0% per annum. The Sub Group had been advised that the current estimate of the premium payable was £3.5m providing protection until 31 March 2020, however this cost could potentially vary on a daily basis until purchased and they agreed a premium of up to £10.0m could be accepted.

 

The Committee was reassured that the product identified for equity protection had been determined as the best product for protection required and value for money. In addition the Fund had contracted to obtain independent regulated advice which confirmed it was an appropriate risk management strategy and it was suitable for the Fund.

 

The presentation was noted.

 

60.

Draft Pensions Administration Business Plan and Budget 2018/19 pdf icon PDF 197 KB

To consider a report by the Assistant Director – Finance (s151 Officer) (copy enclosed).

 

Minutes:

Members were guided through a report from the Assistant Director – Finance (s151 Officer). The report advised on the Draft Business Plan for 2018/19 which set out the Pension Fund’s proposed work plan for the year and the Draft Budget 2018/19 which was required to deliver the proposed Business Plan for the Cumbria LGPS.

 

Draft Business Plan 2018/19

 

It was expected that the Fund would continue to experience a number of challenges throughout 2018/19 across all functions of the Fund. These would be driven by the changing national agenda for the LGPS and developments within Border to Coast Pensions Partnership (BCPP) Ltd. Effective governance and operation was required to ensure the Fund was appropriately managed and could meet these changes.

 

Draft Budget 2018/19

 

To take account of the national requirements and associated Business Plan the budget proposed to administer the Cumbria LGPS in 2018/19 was £6.979m, an increase of £1.063m compared to the preceding 2017/18 budget. This increase was predominantly due to developments in BCPP Ltd, additional investment management costs as a result of an increase in the value of the Fund’s assets and the cost of placing equity protection.

 

Cumbria’s contribution to the operating budget for BCPP Ltd after assets start to transition to the pool had been estimated at £0.600m for 2018/19. This forecast would be reviewed during the year in accordance with the Partner Fund’s cost sharing principles as agreed by Joint Committee.

 

A Member asked how the investment management fees for 2018/19 were predicted and it was explained that the figures were compiled based on an assumption of 4% growth based on the December 2017 asset value.

 

RESOLVED,             that Members approve:

 

(1)  The Draft Business Plan for 2018/19

 

(2)  The draft budget required to administer the Cumbria LGPS of £6.979m for 2018/19 (which had been constructed in support of the activities outlined in the Draft Business Plan).

 

61.

Part II Appendices from item 15- for discussion if required

To consider a report by the Assistant Director – Finance (s151 Officer) (copy enclosed).

 

Minutes:

The Committee received the Part II appendices from item 15.

 

62.

Update on BCPP Ltd Developments

To consider a report by the Assistant Director – Finance (s151 Officer) (copy enclosed).

 

Minutes:

A report was presented from the Assistant Director – Finance (s151 Officer) which updated Members on developments across BCPP Ltd and progression towards the company being able to offer Partner Funds the ability to transition assets into the pool.

 

Specifically, the report considered the operational budget for BCPP Ltd for the period 2018/19 to 2020/21. The budget for BCPP Ltd was reserved for shareholder approval and therefore Pension Committee was required to review the budget and consider how the Council should vote its share.

 

A Member asked whether ICT set up costs were classed as an annual operating cost or an initial capital cost. The Assistant Director - Finance (s151 Officer) advised that she would find out and circulate to all Members of the Committee.

 

RESOLVED,             that Pensions Committee;

 

(1)  Note the proposed BCPP budget for 2018/19 to 2020/21

 

(2)  Support the Chair of the Pension Committee, in his capacity as the Council’s shareholder representative for the company, to vote to approve the BCPP budget for 2018/19 to 2020/21.

 

63.

Quarterly Monitoring to 31st December 2017 (Part 2)

To consider a report by the Assistant Director – Finance (s151 Officer) (copy enclosed).

 

Minutes:

Members received a report from the Assistant Director – Finance (s151 Officer) which advised on Part 2 matters arising during the quarter ending 31 December 2017. As the items were part 2 they were therefore excluded from public disclosure due to commercial sensitivity. These matters were generally in regards to either governance or employer issues.

 

Non-compliance events were recorded arising from late payments from employers to the Fund. In the quarter to 31 December 2017 there were twelve employers to report.

 

In addition to this, non-compliance events were recorded which arose from late data submission from three employers during the quarter.

 

RESOLVED,            that Pensions Committee receive and note the quarterly monitoring Part 2 items of the Fund for the period to 31 December 2017.

 

64.

Verbal Update on Emerging Issues

To consider a verbal update by the Assistant Director – Finance (s151 Officer).

 

Minutes:

The Group Finance Officer gave a verbal update on emerging issues. A discussion took place regarding the relationship with BCPP Ltd including proposed amendments to the offering in respect of sub-funds and the changes to timing the sub-funds being available and the resulting concerns. It was AGREED that Officers and Advisors would meet to agree some appropriate wording for a letter to be addressed to the Pool which would re-iterate the Fund’s expectations.

 

Committee was also asked, in their capacity as shareholder representative for BCPP Ltd,  to approve the appointment of KPMG as external auditor of BCPP Ltd which was due to be discussed at the next Joint Committee meeting to be held on 13 March 2018.

 

RESOLVED,            that Pensions Committee approve for KPMG to be appointed as external auditors of BCPP Ltd.

 

65.

Investment Sub Group Activity Report to February 2018

To consider a report by the Assistant Director – Finance (s151 Officer) (copy enclosed).

 

Minutes:

Consideration was given to a report from the Assistant Director – Finance (s151 Officer) which outlined activities since the Investment Sub Group (ISG) on 24 November 2017, any decisions made by the Section 151 Officer and the proposed future work schedule of the Investment Sub Group.

 

The Committee was advised that:

 

At ISG on 20th February 2018 the Group received a report detailing Fund investment activity for the period.

 

In December 2017, Pensions Committee received a progress update on the work undertaken to assess options to manage the risk of employer contribution rate increases at the next valuation and requested that ISG explore and assess potential equity protection strategies and approve a course of action.

 

Having reviewed the findings to date and considered the regulated advice provided, Members of the ISG agreed:-

 

·         To implement equity protection on the value of the Fund’s current UK, US and European equity holdings, totalling £1,075m.

 

·         The Fund should purchase protection that would protect the equivalent value of the Fund’s equity against falls between 5% and 30%.

 

·         The protection should be financed primarily by capping the potential increase in equity asset value at 9.0% per annum, with a premium payable, depending on final pricing and market conditions.

 

·         The equity assets should be protected until 31st March 2020 (the date at which the 2019 valuation is signed off by the actuary).

 

·         Officers and the Fund’s Independent Advisers should determine the final technical aspects of the approved solution with the provider and also the market timing of implementation. Once this is agreed, the final documentation will be completed by the Section 151 Officer in consultation with the three Members of the Investment Sub Group.

 

In addition Members agreed to;

·         note the progress on the infrastructure and opportunistic investments as detailed in the report;

 

·         note the performance of the Fund over the quarter to 31st December 2017, and note that whilst one equity manager continues on watch there are no other matters of sufficient concern to warrant escalation by Officers from the individual manager performance reviews;

 

·         advise the Committee of the suggested work programme for the next quarter.

 

RESOLVED,             that Pensions Committee:

 

(1)  Note the Investment Sub Group’s decision to implement the equity protection strategy and the reasons for doing so, as a means to assist in the aim of mitigating the risk increased employer contributions at the 2019 valuation,

 

(2)  Note the progress of the Investment Sub Group from November 2017 to February 2018,

 

(3)  Note the overall performance of the Fund at December 2017 and that, at a specific manager level, while one equity manager remains on watch there are no matters of sufficient concern to warrant escalation from the individual manager performance reviews, and

 

(4)  Approve the proposed work programme if the ISG for the next reporting period.

 

66.

Closing Comments

Minutes:

The Chair thanked Officers and Advisors for their hard work in preparing the papers.