Agenda and minutes
PDF 66 KBVenue: Committee Room A, County Hall. View directions
Contact: Cheryl Hardman
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APOLOGIES FOR ABSENCE AND SUBSTITUTIONS
Minutes: Apologies were received from Philip Walker. |
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MINUTES OF THE PREVIOUS MEETING: 20 September 2013
To agree the minutes as a true record of the meeting. Additional documents: Minutes: The minutes were agreed as an accurate record of the meeting. |
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DECLARATIONS OF INTEREST
To receive any declarations of disclosable pecuniary interests from Members in respect of any item to be considered at the meeting.
Notes: · In line with the Relevant Authorities (Disclosable Pecuniary Interests) Regulations 2012, declarations may relate to the interest of the member, or the member’s spouse or civil partner, or a person with whom the member is living as husband or wife, or a person with whom the member is living as if they were civil partners and the member is aware they have the interest. · Members need only disclose interests not currently listed on the Register of Disclosable Pecuniary Interests. · Members must notify the Monitoring Officer of any interests disclosed at the meeting so they may be added to the Register. · Members are reminded that they must not participate in any item where they have a disclosable pecuniary interest.
Minutes: There were none. |
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QUESTIONS AND PETITIONS
To receive any questions or petitions.
Notes: 1. The deadline for Member’s questions is 12.00pm four working days before the meeting (11 November 2013). 2. The deadline for public questions is seven days before the meeting (8 November 2013). 3. The deadline for petitions was 14 days before the meeting, and no petitions have been received.
Minutes: There were none. |
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An action tracker is attached, detailing actions from previous meetings. The Board is asked to review progress on the item listed. Minutes: Declarations of Interest: None.
Key Points Raised During the Discussion: 1. In relation to A6 (equity derivatives), the Strategic Manager – Pension Fund & Treasury suggested that a discussion on equity derivatives could be scheduled for the February 2014 meeting of the Board. This discussion would focus on equity futures.
Actions/Further Information to be Provided: The recommendation tracker to be updated to reflect the discussion, as noted above.
Resolved: That the actions tracker was noted and the committee agreed to remove page 172 of the tracker as the actions were completed.
Next Steps: None.
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PENSION FUND ADMINISTRATION STRATEGY
A Pension Fund Administration Strategy is set out in Annex 1 for the Board to approve as a basis for consultation with scheme employers.
Additional documents: Minutes: Declarations of Interest: None.
Key Points Raised During the Discussion: 1. The Pensions Manager introduced the report, highlighting that although an administrations strategy was not compulsory, it was good practice. The proposed strategy was not contentious and mainly formalised the existing position. 2. In response to a query, the Pensions Manager responded that the Strategy would not materially increase the administrative workload as it was not intended to report on all activities. There was need to balance the benefits of monitoring practice with workload pressures. It was proposed to use the key performance indicators (KPIs) which already exist to monitor performance against the administration strategy. If there are problems with any employers this was likely to be fairly transparent. 3. The Pensions Manager confirmed that a Benefit Statement has to be provided annually. However, it was possible that in future, statements could be put online to enable Member self-service. Some members will probably still want hard copy Benefit Statements. 4. Members asked whether the administering authority was striving to receive all data from scheme employers electronically. The Pensions Manager agreed that the authority was seeking to increase the proportion of data provided electronically but highlighted the variations between employers and the different levels of resource they have to make such adjustments.
Sheila Little joined the meeting.
5. A Member asked, given the responsibility of employers to ensure that all information provided is correct, whether employers are shown a copy of the data inputted. The Pensions Manager responded that the employee would have the opportunity to check details such as change of hours in their Annual Statement. 6. There was a discussion about ex gratia payments made by the employer, for example, as part of a redundancy package. The Pensions Manager confirmed that this would not go through the Pension Fund and that it was not the Surrey Pension Fund’s role to monitor redundancy payments made by employers. If pension benefits were augmented through additional years, the employer would be charged. The scheme employer would invariably bear the cost as a lump sum although they do have the option of spreading the cost over three years. 7. The Chairman congratulated officers for a concisely written strategy.
Actions/Further Information to be Provided: None.
Resolved: That the Pension Fund Administration Strategy be APPROVED for consultation with scheme employers.
Next Steps: A further report will be submitted on the outcome of the consultation with scheme employers.
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KEY PERFORMANCE INDICATORS
In line with best practice, Pension Fund Board members will be supplied with Pension Fund key performance indicators (KPIs) on a quarterly basis, covering investment and administration practices.
Additional documents: Minutes: Declarations of Interest: None.
Key Points Raised During the Discussion: 1. The Strategic Manager – Pension Fund & Treasury introduced the item, tabling an updated copy of the key performance indicators (KPIs) (attached as Annex 1). He stressed that the red indicators only highlighted slight variances and were not significant. 2. There was a suggestion that while the achievement against targets was good, some of the targets may be too low. As an example, the ‘Transfers In’ target was 85% and actual performance was 99%. The Pensions Manager explained that the targets were set for the full twelve months and that, while on a quarterly basis performance may look particularly good, the averaged out performance may be closer to 85%. However, this would be looked at again (Action Review ref: A7/13). 3. A Member asked what the administration cost per scheme member was. The Pensions Manager informed the Board that the cost per member was around £16 per annum, while the UK average cost per pension fund member was around £20 but he would confirm the actual figures at the next meeting (Action Review ref: A8/13). 4. It was suggested that the word “all” be removed from “all relevant Communications Material will be posted onto website within one week of being signed off”, if the target was only 85%. 5. The Strategic Manager – Pension Fund & Treasury clarified that the funding level refers to the Surrey-wide fund. Each employer would have its own funding level. Some District and Borough Councils have a funding level into the mid to late 70% while some employers would have a much lower funding level. Employers also have different member profiles.
Actions/Further Information to be Provided: i. ‘Transfer in’ targets to be reviewed. ii. The administration cost per scheme member to be confirmed.
Resolved: That the KPI statement format be APPROVED.
Next Steps: None.
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PENSION FUND RISK REGISTER
Surrey County Council, as administering authority for the Surrey Pension Fund, is responsible for the delivery of benefit promises made to members of the Surrey Pension Fund. It achieves this by setting objectives and goals with varying timeframes. Risks lie in failing to meet the intended goals.
Risks that are established as an issue must be identified and evaluated via a risk register. The risks must be prioritised with existing controls or new controls implemented to mitigate the risks. This should be recorded in a risk register, which needs monitoring on a quarterly basis.
Additional documents: Minutes: Declarations of Interest: None.
Key Points Raised During the Discussion: 1. The Strategic Manager – Pension Fund & Treasury introduced the item, highlighting the addition of a new column which shows the net risk score after mitigating actions have been taken into account. 2. The Strategic Manager – Pension Fund & Treasury informed the Board that the “pensioners living longer” risk had been reassessed and now was rated the number one risk to the Pension Fund. The net risk score also highlighted the negligible impact that mitigating actions could have on this risk. Officers agreed with the Board that the impact on employers of pensioners living longer should have been 4 rather than 5 as the rating scheme was 1-4. However, this remained the number one risk. 3. There was some debate about the ranking of pensioners living longer at the top of the risk register as it was felt by some that there was a clear trend for demographics while markets remain unstable. While the implications of demographic change could be a strain, mitigating factors such as a later retirement age and increased contribution rates could impact on this. The Surrey Pension Fund Advisor also mentioned that 2012 was the first year since the Second World War when there was no improvement to longevity. It may be that the trend of lengthening life spans may have reached its peak. The Chairman suggested that the issue be brought up with the Actuary and considered at the next meeting. 4. Officers highlighted the introduction of the new risk “rise in ill health retirements impact employer organisations”. As no decision on mitigating actions had yet been taken on this, the net risk score was no different to the total risk score.
Ian Perkin joined the meeting.
5. Some concern was expressed about the potential for complacency where risks have been downgraded to amber following mitigating actions. However, it was stressed that the Board would continue to look at what further mitigating actions could be taken to address risks. 6. There was some discussion about the necessity for risk 11 “investments markets to fail to perform in line with expectations” to be included in the register given the presence of other more specific investment risks. The Mercer representative suggested that risk 11 related to the triennial full actuarial valuation. 7. It was suggested by a Member that the financial risk range would be valuable information. The Mercer representative agreed that this could be easily calculated for certain risks and would be done as part of the actuarial process. The Chairman asked that the financial risk range be represented for the residual red risks. The Vice-Chairman suggested that risks could be quantified in monetary terms during discussions. The Chief Finance Officer suggested that the benefit of presenting such information would be to enable Members to consider the cost of mitigating actions against the financial risk to the Council. 8. It was suggested that the risk of increases to employer contributions following the actuarial valuation be included ... view the full minutes text for item 44/13 |
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REVISED STATEMENT OF INVESTMENT PRINCIPLES
With the three additions to the private equity portfolio, it is necessary to approve a revised Statement of Investment Principles (SIP).
Additional documents: Minutes: Declarations of Interest: None.
Key Points Raised During the Discussion:
1.
The Strategic Manager – Pension Fund &
Treasury introduced the item, highlighting the revisions to the
Statement of Investment Principles which concerned the addition of
a number of private equity funds on page 199. Actions/Further Information to be Provided: None. Resolved: That the revised Statement of Investment Principles be APPROVED.
Next Steps: None.
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LGPS: CALL FOR EVIDENCE ON THE FUTURE STRUCTURE OF THE LOCAL GOVERNMENT PENSION SCHEME
The Department for Communities and Local Government has issued a call for evidence on the future structure of the Local Government Pension Scheme. This paper sets out the document that the Chief Finance Officer submitted on behalf of the Pension Fund Board, in consultation with the Chairman of the Pension Fund Board.
Additional documents: Minutes: Declarations of Interest: None.
Key Points Raised During the Discussion: 1. The Chairman informed the Board that she was sitting on the Shadow Local Government Pension Scheme (LGPS) Advisory Board as the Conservative and County Council representative. The Advisory Board was chaired by the Chief Executive of the National Association of Pension Funds and included representatives from the Trade Unions and four local authorities. The Advisory Board was considering all submissions in response to the call for evidence on the future structure of the LGPS. So far, there had been 129 responses, including 70 from local authorities. The submissions were highly resistant to the concept of ‘super funds’. Funds were supportive of mergers only if they were to be the ones in charge and there were clear benefits to doing so. 2. The Chairman informed the Board that the Surrey Pension Fund had been approached by a few councils with regard to the possibility of collaborating on some functions. These were well-funded Pension Funds. 3. Members informed the Board that at another conference participants were positive about restructuring, dependent on it being a voluntary process. A further train of thought was that while whole Funds may not be merged, assets may be merged.
4.
There was particular concern about the difficulties
involved with deficit sharing. Actions/Further Information to be Provided: None. Resolved: That the response submitted by the Chief Finance Officer to the Department for Communities and Local Government be NOTED.
Next Steps: None.
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ILL HEALTH RETIREMENT INSURANCE
When a scheme member is retired early due to permanent ill health, the member’s accrued pension benefits are paid immediately without reduction and, in the majority of cases, with an enhancement to benefits.
The cost of providing an ill health pension can be substantial and therefore a significant financial risk to fund employers. Legal and General have developed an insurance product to insure against this risk which can be taken out by individual employers or on a whole fund basis. This report seeks approval from the Pension Fund Board to insure against the financial risk of ill health retirements on a whole fund basis.
Additional documents: Minutes: Declarations of Interest: None.
Key Points Raised During the Discussion: 1. The Pensions Manager introduced the item, explaining that now appeared to be an appropriate time to consider insuring against ill health retirement costs because individual cost of ill health retirements would increase with the new LGPS coming into effect in April 2014, while Legal & General had recently significantly reduced their premium rates from 0.85% to 0.63%. He also explained that purchasing a policy on a whole fund basis would result in lower premiums and easier administration. It was proposed that before contractually committing the Council, procurement advice would be sought from the Head of Procurement. 2. Members asked whether the costs of ill health retirements once the pension accrual rate had been increased to 1/49th could be calculated. The Pensions Manager stated that it would be costly to undertake that calculation at this time but that the cost to the Fund would increase. 3. Members asked for clarification that all employers would not need to agree before this insurance was taken out. Officers confirmed that this was the case. 4. In response to a query, the Chairman agreed that the risk of ill health retirements was greater for smaller employees than for the County Council but stressed the paternalistic purpose of the Pension Fund Board. 5. Members queried the impact on the employee of having to wait a period of time for the insurance company to settle a claim. Officers assured the Board that this insurance would not impact on the employee’s right to receive an ill-health pension as the employee has a statutory right to their pension. The Fund would pay this and then negotiate with the insurance company for reimbursement. If there is any prevarication with claims, this would be reported back to the Board and the decision could be taken to stop using the company. 6. Members asked if the insurance covers all eventualities. Officers confirmed that the insurance would cover all Tier 1 and Tier 2 retirements. 7. It was suggested that this insurance was not a good deal for the Fund as staff were not in risky employment such as mining. However, it was also acknowledged that there was an increasing trend for ill health retirements. The Pensions Manager also highlighted the potential risk to the Pension Fund if small employers went out of business because of the cost of ill health retirements. 8. There was a query about whether insurance would lead to changes in behaviour; for example, whether employers would be more likely to agree to ill health retirements. The Pensions Manager informed the Board that an independent medical practitioner had to sign off on an ill health retirement and that it was very difficult to put pressure on them to approve an unnecessary retirement. 9. The possibility of running an internal pooling arrangement to self-insure against ill health retirements was discussed. This would avoid the Fund being exposed to the profit element of the insurance business. The Pensions Manager informed ... view the full minutes text for item 47/13 |
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MANAGER ISSUES AND INVESTMENT PERFORMANCE
This report is a summary of all manager issues that need to be brought to the attention of the Pension Fund Board, as well as manager investment performance.
Additional documents: Minutes: Declarations of Interest: None.
Key Points Raised During the Discussion: 1. The Strategic Manager – Pension Fund & Treasury introduced the report. He informed the Committee that Capital Dynamics had drawn down on 70-80% of the fund. The full requirement of £20m had been forwarded to Darwin. 2. The Board was informed that about 60-65 acceptances to the Surrey Pension Fund AGM had been received. 3. The Strategic Manager – Pension Fund & Treasury reported that stock lending had started on 4 November 2013. 4. The Board heard that the stock voting policy was now up and running. Where there are voting issues which attract publicity and/or are contentious, the Chairman of the Board would be involved and perhaps the whole Board. 5. The Surrey Pension Fund Advisor reported to the Board on the meetings with external fund managers. Notes of the meetings with external fund managers were tabled and are attached as Annex 2. 6. The Strategic Manager – Pension Fund & Treasury introduced the Financial and Performance Report, highlighting the increased fees paid to UBS and Majedie. This was due to their having invoiced for performance related fees following strong performance. 7. There was a discussion about whether there was a need to rebalance the Fund. It was agreed to keep the current asset allocation as it is but to reconsider the new Standard Life fund at the next meeting.
8.
The Strategic Manager – Pension Fund &
Treasury informed the Board that the Surrey Pension Fund was on the
long list for Large Fund of the Year and Corporate Governance at
the LGC Awards 2013 to be announced on 11 December 2013. Actions/Further Information to be Provided: To reconsider the new Standard Life fund at
the next meeting. Resolved: 1. To APPROVE the report and the decisions as laid out; 2. To APPROVE the Surrey Pension Fund making a USD 25m commitment to the Global Clean Energy and Infrastructure Fund; 3. To APPROVE the Surrey Pension Fund making a £20 commitment to the Darwin Property Fund.
Next Steps: None.
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DATE OF NEXT MEETING
The Surrey Pension Fund AGM is on 22 November 2013.
The next meeting of the Surrey Pension Fund Board will be on 14 February 2014.
Minutes: This was noted. |