Councillors and committees

Agenda and minutes

Venue: Ashcombe Suite, County Hall, Kingston upon Thames, Surrey KT1 2DN. View directions

Contact: Cheryl Hardman  Email: cherylh@surreycc.gov.uk

Items
No. Item

1/15

APOLOGIES FOR ABSENCE AND SUBSTITUTIONS

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    Minutes:

    Apologies for absence were received from Judith Glover. 

2/15

MINUTES OF THE PREVIOUS MEETING: 14 November 2014 pdf icon PDF 838 KB

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    To agree the minutes as a true record of the meeting.

    Minutes:

    The Minutes were approved as an accurate record of the meeting.

3/15

DECLARATIONS OF INTEREST

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    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.

4/15

QUESTIONS AND PETITIONS pdf icon PDF 49 KB

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    To receive any questions or petitions.

     

    Notes:

    1.  The deadline for Member’s questions is 12.00pm four working days before the meeting (9 February 2015).

    2.  The deadline for public questions is seven days before the meeting (6 February 2015).

    3.  The deadline for petitions was 14 days before the meeting, and no petitions have been received.

     

    Minutes:

    Three questions were received from County Councillor Jonathan Essex.  The questions and responses are attached as Annex 1 to the Minutes.

     

    Mr Essex asked a supplementary question related to his first question.  He highlighted the significant investment of the Pension Fund in fossil fuel companies and suggested that many firms were considering long-term sustainability of investments and consequently divesting themselves of stocks in fossil fuel companies.  He queried how the Surrey Pension Fund was addressing this issue.  The Chairman responded that the Statement of Investment Principles outlines how this issue is dealt with.  The Surrey Pension Fund is also involved with the Local Authority Pension Fund Forum (LAPFF) which discusses investment issues and engages in questions around climate change and fossil fuel with relevant companies.

     

    Mr Essex also asked a supplementary question related to his third question.  He asked if the Board would consider amending the Statement of Principles so that, instead of stating:

     

    “...external fund managers could deploy ESG considerations in deciding upon selection,”

     

    it states:

     

    ““...external fund managers should deploy ESG considerations in deciding upon selection.”

     

    The Chairman agreed to consider this under item 8 ‘Revised Statement of Investment Principles’.

5/15

ACTION TRACKING pdf icon PDF 95 KB

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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.

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.     In relation to A12/14 (training needs analysis), the Strategic Finance Manager – Pension & Treasury informed the Board that this would be addressed under Item 6 ‘Manager Issues and Investment Performance’.

    2.    In relation to A21/14 (training), the Strategic Finance Manager – Pension & Treasury explained that the synthetic equities training would be deferred to a future meeting date, while training on multi asset credit would be provided later in the day.

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That the action tracker was noted and the committee agreed to remove the completed actions from the tracker.

     

    Next steps:

    None.

6/15

MANAGER ISSUES AND INVESTMENT PERFORMANCE pdf icon PDF 273 KB

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    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 Finance Manager – Pensions & Treasury introduced the report.  He informed the Board that a final report on the transfer of funds from Mirabaud to Majedie Asset Management would be provided at the next meeting.

    2.    The Strategic Finance Manager – Pensions & Treasury explained the reasons for the sale of Capital Dynamic’s US Solar Fund to Terra Forma Power Inc.  He would circulate an annualised return and IRR (Action Review ref: A1/15).

    3.    Members expressed difficulties with regard to the proposed meeting on 15 May 2015 and requested that this be changed (Action Review ref: A2/15).

    4.    The Board discussed the increased premium quoted by Legal & General to take out an ill health insurance policy.  The Board supported the recommendation to delay the purchase of ill health insurance and suggested that the issue be looked at again in a year.  The Strategic Finance Manager – Pensions & Treasury agreed to include information on ill health insurance in an upcoming communication to employers (Action Review ref: A3/15).

    5.    The Board considered the drivers for working towards a liability driven investment (LDI) strategy.  In particular the Board addressed funding levels and the real yield trigger.  It was generally accepted that a real yield trigger should not be adopted in isolation from the funding level.  It was agreed to come back to this later in the meeting.

    6.    The Strategic Finance Manager – Pensions & Treasury introduced the audit findings for Pension Fund Investment and the Management Action Plan.  He highlighted the high priority recommendation on quarterly reconciliations and explained that, while reconciliations had taken place immediately, at the time of the audit there had been a slight delay in updating the council’s SAP system.  It would be a priority to update SAP in future.

    7.    The Surrey Pension Fund Advisor responded to the audit recommendation that independent advisers comply with FCA guidance, in particular the RDR rules.  He suggested that there was some confusion as he provided strategic investment advice and so did not need to be FCA registered. The Chairman informed the Board that she had discussed this point with the Chief Internal Auditor and did not believe that the recommendation would be pursued.

    8.    The Board considered investment in the Marathon Emerging Market Fund.  The Strategic Finance Manager – Pensions & Treasury and the fund’s advisers supported this as a way for Marathon to provide exposure to emerging markets without having to deal with the bureaucracy imposed by particular countries.  It was agreed to defer this decision and for the Strategic Finance Manager – Pensions & Treasury to provide more detail (Action Review ref: A4/15).

    9.    The Strategic Finance Manager – Pensions & Treasury tabled the Pension Fund Board’s Assessment Results (attached as Annex 2).  He highlighted areas where the Board had excelled and topics on which training could be provided.  The Chairman informed the Board that some of the questions had been badly  ...  view the full minutes text for item 6/15

7/15

PENSION FUND BUSINESS PLAN 2015/16 pdf icon PDF 70 KB

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    The 2001 Myners Report recommended that local authority pension funds should approve an annual business plan in respect of the objectives required for the ensuing year. Business planning is regarded as an important tool, assisting in the identification of how service delivery can be maximised within resource constraints.

     

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    Following on from the previous item, it was agreed to add a review of consultant and advisory arrangements under ‘Investment’.

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    Subject to the above amendment, the Pension Fund Board ADOPTS the Business Plan in respect of the 2015/16 financial year.

     

    Next steps:

    None.

     

8/15

REVISED STATEMENT OF INVESTMENT PRINCIPLES pdf icon PDF 95 KB

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    With adjustments to asset allocation within the Pension Fund, 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 Board considered the earlier request by County Councillor Jonathan Essex that, instead of stating:

    “...external fund managers could deploy ESG considerations in deciding upon selection,”

    The Statement of Investment Principles states:

    “...external fund managers should deploy ESG considerations in deciding upon selection.”

    The Mercer representative stressed that Fund Managers do deploy ESG considerations in deciding upon selection.  The Board agreed to make the change.

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    1.    That, subject to the above amendment, the revised Statement of Investment Principles be APPROVED.

    2.    That the revised Core Belief Statement be APPROVED.

     

    Next steps:

    None.

     

9/15

RESPONSIBLE INVESTMENT AND STEWARDSHIP POLICY pdf icon PDF 79 KB

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    Shareholders have a clear interest in promoting the long term success of the companies in which they invest. As the ultimate owners of those companies, there is a clear incentive to vote the shares in a constructive way with the companies’ long-term sustainability the ultimate objective. This paper will recommend that the Pension Fund take responsibility for the voting of its shares according to its own Responsible Investment and Stewardship Policy, a draft of which is attached to the paper.

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.     The Strategic Finance Manager – Pension & Treasury introduced the report and confirmed that Manifest was appointed following a competitive tender process. 

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That the voting templates and revised Responsible Investment and Stewardship Policy be APPROVED and ADOPTED.

     

    Next steps:

    None.

     

10/15

CORPORATE GOVERNANCE SHARE VOTING pdf icon PDF 117 KB

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    This report provides a summary of the Fund’s share voting process in Q2 and Q3 2014/15.

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Strategic Finance Manager – Pension & Treasury introduced the report.

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That the report be NOTED.

     

    Next steps:

    None.

     

11/15

LOCAL GOVERNMENT PENSION SCHEME: GOVERNANCE REGULATIONS pdf icon PDF 83 KB

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    The report explains the planned changes to the governance of the Local Government Pension Scheme (LGPS) as a result of the Public Service Pensions Act 2013 and Regulations issued on 28 January 2015. The key requirement is for a proposed new Local Pension Board to assist the Administering Authority in the running of the Pension Fund and to monitor compliance with rules and standards.

     

    Additional documents:

    Minutes:

    Declarations of interest:

    None.

     

    Key points raised during the discussion:

    1.    The Strategic Finance Manager – Pensions & Treasury introduced the report and confirmed that a final report would be brought to the next meeting.

    2.    The overheads related to the new Local Pension Board were discussed. 

    3.    The Strategic Finance Manager – Pensions & Treasury confirmed that it was possible get permission from the Secretary of State to join the new Local Pension Board with the existing Pension Fund Board.  This was not seen as viable as it was difficult to see how effective scrutiny could be achieved.

    4.    The Strategic Finance Manager – Pensions & Treasury informed the Board that a bulletin on the new requirements would be circulated to employer and member bodies soon, along with an invitation for nominations to the new Board.  He would also circulate the draft report to Council to the Surrey Pension Fund Board first for comments (Action Review ref: A7/15).

    5.    The Board recommended that consideration be given to the name Local Pension Advisory Board for the new Local Pension Board.

     

    Actions/Further information to be provided:

    The Strategic Finance Manager – Pensions & Treasury to circulate the draft report to Council to the Surrey Pension Fund Board first for comments.

     

    Resolved:

    That the Pension Fund Board NOTED the report.

     

    Next steps:

    None.

     

12/15

KEY PERFORMANCE INDICATORS pdf icon PDF 70 KB

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    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 Senior Advisor (Pension Fund) informed the Board that there are ongoing conversations with other local authorities to provide pensions administration.  Expansion will bring challenges but it is intended to continue providing outstanding service.  The optimum size for pensions administration before inefficiencies develop is 300,000 to 500,000 members.  The Chairman requested that officers keep an eye on capacity issues and membership size and report back.  The Director of Finance informed the Chairman that a business case is completed for each authority.  The authorities that have so far delegated responsibilities for their pensions administration are not large.  There are no big rewards from expanding but there is a positive impact on reputation and cost efficiencies.

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That the Pension Fund Board NOTED the KPI statement.

     

    Next steps:

    None.

     

13/15

PENSION FUND RISK REGISTER pdf icon PDF 73 KB

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    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.    A Member highlighted the risks suggested for inclusion by Internal Audit.  The Strategic Finance Manager – Pensions & Treasury reminded the Board that it had requested that the Risk Register be rationalised. This had been discussed with Internal Audit and they now accepted the more succinct Risk Register.

    2.    The Director of Finance informed the Board that it would be necessary to update the mitigation for Risk 5 now it had been decided not to insure against the cost and impact of ill health retirements.  The Senior Advisor (Pension Fund) highlighted the existing mitigation in regulations that an independent physician must sign off ill health retirements.

     

    Actions/Further information to be provided:

    None.

     

    Resolved:

    That, subject to the above amendments, the revised Risk Register be NOTED.

     

    Next steps:

    None.

     

     

    The Board meeting adjourned at 12.10pm for lunch and training and reconvened at 2.15pm without Tony Elias.

     

     

    MANAGER ISSUES AND INVESTMENT PERFORMANCE [Item 6]

     

    1.    The Board returned to its discussion on the liability driven investment strategy (LDI).  After further discussion it was accepted that, as it was arguably more difficult for a manager to know as soon as a trigger funding level had been hit, the trigger should be the real yield of appropriate duration to match the liabilities.  Following a lengthy debate it was agreed to revise the real yield trigger to 0.27% and incorporate this into the mandate documentation with Legal & General.

     

    Resolved:

    1.    That the REVISED real yield trigger of 0.27% to switch into the leveraged gilt structure be incorporated into the mandate documentation with Legal & General.

     

14/15

DATE OF NEXT MEETING

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    The next meeting of the Surrey Pension Fund Board will be on 15 May 2015.

    Minutes:

    The date of the next meeting would be rescheduled.