Agenda and draft minutes

Surrey Pension Fund Committee
Friday, 13 September 2019 10.00 am

Venue: Ashcombe Suite, County Hall, Penrhyn Road, Kingston upon Thames, Surrey, KT1 2DN

Contact: Ben Cullimore  020 8213 2782

Items
No. Item

37/19

APOLOGIES FOR ABSENCE AND SUBSTITUTIONS

38/19

MINUTES OF THE PREVIOUS MEETING: 7 JUNE 2019 pdf icon PDF 196 KB

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DECLARATIONS OF INTEREST

    All Members present are required to declare, at this point in the meeting or as soon as possible thereafter

    (i)            Any disclosable pecuniary interests and / or

    (ii)           Other interests arising under the Code of Conduct in respect of any item(s) of business being considered at this meeting

    NOTES:

    ·         Members are reminded that they must not participate in any item where they have a disclosable pecuniary interest

    ·         As well as an interest of the Member, this includes any interest, of which the Member is aware, that relates to the Member’s spouse or civil partner (or any person with whom the Member is living as a spouse or civil partner)

    ·         Members with a significant personal interest may participate in the discussion and vote on that matter unless that interest could be reasonably regarded as prejudicial.

    Minutes:

    None received.

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QUESTIONS AND PETITIONS

    To receive any questions or petitions.

     

    Notes:

     

    1.    The deadline for Members’ questions is 12.00pm four working days before the meeting (9 September 2019).

    2.    The deadline for public questions is seven days before the meeting (8 September 2019).

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

    Minutes:

    None received.

41/19

COMPANY ENGAGEMENT & VOTING pdf icon PDF 183 KB

    This report is a summary of various Environmental Social & Governance (ESG) issues that the LAPFF, Robeco and Surrey Pension Fund have been involved in, for the attention of the Pension Fund Committee.

    Additional documents:

    Minutes:

    Witnesses:

     

    Neil Mason, Strategic Finance Manager (Pensions)

    Mamon Zaman, Senior Accountant (Pensions)

     

    Key points raised during the discussion:

     

    1.    The Chairman informed the Committee about the following meetings and training sessions that Members were invited to attend:

     

    ·         Thursday 26 September 2019 – ESG Engagement Forum

    ·         Wednesday 6 November 2019 – Valuation Training for Members

    ·         Wednesday 6 November 2019 – Impact Investment Training for Members

     

    2.    Referring to paragraph 20 of the report, which was concerned with the Climate Change Working Party that had been established by the Borders to Coast Pensions Partnership (BCPP), a Member of the Committee asked officers to include clearer references to it when responding to questions from members of the public. This, they went on to say, showed that the Committee was making positive steps towards the commitments it had made.

    3.    A Member of the Committee welcomed the additional information on share voting and resolutions that had been defeated, as it showed what influence the Surrey Pension Fund was having.

    4.    The Strategic Finance Manager informed the Committee that the Climate Change Working Party had met that week and had engaged with the Head of Pensions for the Church of England, whose approach to ESG issues is broadly consistent with that of the Surrey Pension Fund. Officers were in the process of drawing conclusions from these sessions, and these would be brought to the Committee in December 2019. This would include a re-drafting of the BCPP responsibility policy.

     

    Actions/further information to be provided:

     

    Members of the Committee are to receive invitations to the ESG Engagement Forum and two upcoming training sessions.

     

    Resolved:

     

    The Surrey Pension Fund Committee reaffirmed that ESG factors are fundamental to the Fund’s approach, consistent with the Mission Statement through:

     

    ·         Becoming a supporter of the Taskforce for Climate Related Financial Disclosures (TCFD) with the objective to begin to report against its disclosures for the 2019/20 Annual Report

    ·         Commending the outcomes achieved for the quarter ending 30 June 2019 by Robeco in their Active Ownership approach and the LAPFF in its engagement with multinational companies as at 31 March 2019

    ·         Noting the positive results achieved in relation to ESG issues, through the Fund’s share voting for the quarter ending 30 June 2019

    ·         Supporting the work carried out by BCPP as well as its Climate Change Working Party in understanding climate change risk, and the outcomes achieved by Fund managers during the quarter ending 30 June 2019

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DRAFT ANNUAL REPORT & AUDITED STATEMENT OF ACCOUNTS pdf icon PDF 79 KB

    The Pension Fund Committee’s role is to approve the Annual Report, which contains the audited statement of accounts together with other information about the Fund’s performance during 2018/19. The Annual Report is included as Annex 1.

     

    The external auditor (Grant Thornton) has issued an unqualified opinion on the accounts and this is outlined in the External Audit Findings Report (Annex 2).

    Additional documents:

    Minutes:

    Witnesses:

     

    Nick Harrison, Chairman of the Surrey Local Pension Board

    Neil Mason, Strategic Finance Manager (Pensions)

     

    Key points raised during the discussion:

     

    1.    A discussion was had about potential amendments that needed to be made to the annual report, with one Member of the Committee highlighting that they were a member of the Conservative Party and not an independent.

    2.    The Chairman informed officers that the Vice-Chairman’s name had been misspelled and that the report needed to be written in the past tense throughout.

    3.    The Committee heard from the Chairman of the Surrey Local Pension Board, who explained that his statement had been sent to officers and would be shared with Members after the meeting.

    4.    It was agreed that Members of the Committee would have a week to inform officers of any amendments that needed to be made to the report.

     

    Actions/further information to be provided:

     

    1.    The Chairman of the Surrey Local Pension Board’s statement is to be circulated to Members of the Committee.

    2.    Members of the Committee are to inform the Strategic Finance Manager of any amendments that need to be made to the draft annual report.

     

    Resolved:

     

    The Pension Fund Committee:

     

    1.    Noted and approved the Draft Annual Report with the Audit Pension Fund Accounts for publication, subject to audit approval and any recommended alterations.

    2.    Noted the content of the ‘External Audit Findings for Surrey Pension Fund’ report, as set out in Annex 2, which reviewed the Surrey Pension Fund Statement of Accounts 2018/19.

    3.    Noted the Letter of Representation with regards to the Surrey Pension Fund Statement of Accounts, as set out in Annex 3.

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LOCAL PENSION BOARD REPORT pdf icon PDF 112 KB

    This report is a summary of administration and governance issues reviewed by the Local Pension Board at its meeting of 18 July 2019 that need to be brought to the attention of the Pension Fund Committee.

    Additional documents:

    Minutes:

    Witnesses:

     

    Nick Harrison, Chairman of the Surrey Local Pension Board

    Andrew Marson, Pensions Lead Manager

     

    Key points raised during the discussion:

     

    1.    The Chairman of the Surrey Local Pension Board introduced the report and explained to the Committee that one of the Board’s main concerns over the previous year had been the key performance indicators (KPIs). The Board, alongside the pensions administration and pensions fund teams, were in the process of refining those.

    2.    The Chairman of the Surrey Local Pension Board went on to discuss the backlog of work that currently existed and told the Committee that it amounted to more than one years’ worth. A letter outlining concerns had been written to the Cabinet Member responsible for Orbis and the Section 151 Officer, who issued a response and committed to remedying those issues. The Committee also heard that a project had been put in place by the Pensions Administration department.

    3.    The Committee also heard about the work the Board had done on the risk register. Given the scale of the issues, the Board had tended to increase the scores as they needed to see greater delivery before reducing them.

    4.    The Pensions Lead Manager endorsed the Chairman of the Surrey Local Pension Board’s summary and explained to the Committee that they were in a healthy position now the size of the task was known. It would take time to deal with the issues but officers were feeling optimistic.

    5.    Responding to a question from a Member of the Committee about future changes would be made to the administration of pensions, the Pensions Lead Manager explained that a significant part of the plan was to not only address the legacy issues but to make sure the administration service was fit for purpose, ready for the future and resilient.

    6.    A Member of the Committee questioned whether the 31 August 2019 deadline for benefit statements had been met and was told by the Pensions Lead Manager that it had.

     

    Actions/further information to be provided:

     

    None.

     

    Resolved:

     

    The Surrey Pension Fund Committee:

     

    1.    Approved the following governance steps in order to expedite progress of the Administration Service Improvement Plan and provide appropriate assurance:

    a.    Pension Administration officers are to provide cost estimates to Pension Fund officers for each project in the Administration Service Improvement Plan.

    b.    Pension Fund officers are to set out and agree with Pension Administration officers the appropriate assurances in support of the projects in the Administration Service Improvement Plan.

    c.    The Business Case for the Administration Service Improvement Plan is to be written and agreed by the Pension Administration officers and Pension Fund officers.

    d.    Authorisation of the Business Case is to be delegated to officers (including the Director of Corporate Finance) in consultation with the Chairman of the Surrey Pension Fund Committee and the Chairman of the Surrey Local Pension Board.

     

    2.    Approved proposed changes to the risk register, as noted in the Risk Register section of the report.

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GOVERNANCE COMPLIANCE STATEMENT pdf icon PDF 97 KB

    Local authority pension funds are required to publish and keep under review a Governance Compliance Statement. The Governance Compliance Statement of the Surrey Pension Fund is comprised from the Compliance to Statutory Guidance Statement and a Governance Policy Statement.

     

    The Governance Compliance Statement was last reviewed by the Pension Fund Committee at its meeting of 22 May 2015. This paper notes any changes to the Governance Compliance Statement since the last review.

    Minutes:

    Key points raised during the discussion:

     

    1.    The Chairman explained to the Committee that the report was a brief one and outlined the update to the Governance Compliance Statement that were being proposed. These were concerned with changing mentions of the Pension Fund Board to the Pension Fund Committee.

     

    Resolved:

     

    The Surrey Pension Fund Committee noted the amendments to the Compliance to Statutory Guidance Statement and the Governance Policy Statement.

45/19

MINISTRY OF HOUSING, COMMUNITIES & LOCAL GOVERNMENT (MHCLG) - CONSULTATION ON CHANGES TO THE LOCAL VALUATION CYCLE AND THE MANAGEMENT OF EMPLOYER RISK pdf icon PDF 110 KB

    The Secretary of State for the Ministry for Housing, Communities and Local Government (MHCLG) consultation on proposed changes to the LGPS Regulations in respect of the local valuation cycle and the management of employer risk.

    Additional documents:

    Minutes:

    Witnesses:

     

    Neil Mason, Strategic Finance Manager (Pensions)

    Gemma Sefton, Hymans Robertson

     

    Key points raised during the discussion:

     

    1.    The Committee heard from the Strategic Finance Manager, who ran through the proposed amendments to the local fund valuations from the current three-year cycle to a four-year cycle. The Fund did not believe that a persuasive business case had been set out by the Government regarding the proposed changes.

    2.    The Strategic Finance Manager went on to explain that the second area of proposed amendments was concerned with flexibility on exit payments. The proposals would allow the Fund to have more flexibility on how these payments were received and, from the view of the Fund, this represented a positive development for both scheme employers and the Fund.

    3.    Discussing the proposals for policy changes to employers required to offer LGPS membership, the Strategic Finance Manager outlined the changes being considered and explained that the Fund had responded the consultation noting that cash flows may end up being reduced and that the affected employers, by ending their intake of new members, would be accelerating their point of maturity. The Fund was wary this could bring about a situation where there were separate pension rights for the same set of employees.

    4.    Referring to the employees listed in paragraph 18 of the report (“further education corporations, sixth form corporations and higher education corporations in England”), the Chairman asked to what extent the changes would impact the Fund. In response, the Strategic Finance Manager explained that the proposed changes would affect some of the Fund’s larger employers but that the exact numbers would need to be confirmed. It was then agreed that these would be provided outside of the meeting.

     

    Actions/further information to be provided:

     

    The Strategic Finance Manager is to provide the Committee with figures relating to the number of effected further education corporations, sixth form corporations and higher education corporations.

     

    Resolved:

     

    The Pension Fund Committee noted the report and annexes.

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SCHEME ADVISORY BOARD REVIEW OF GOVERNANCE IN THE LGPS pdf icon PDF 96 KB

    In January 2019, the Scheme Advisory Board (SAB) appointed Hymans Robertson (Hymans) to facilitate a review of governance structures for the LGPS. This paper provides details of the survey issued by Hymans and the subsequent report “Good Governance in the LGPS”, published in July 2019. Any changes to the LGPS governance will have an impact on the Surrey Fund.

    Minutes:

    Witnesses:

     

    Neil Mason, Strategic Finance Manager (Pensions)

     

    Key points raised during the discussion:

     

    1.    The Strategic Finance Manager thanked those Members who had engaged and responded to the survey and explained that the general consensus was that the existing structures were satisfactory provided the Fund was ring-fenced from the wider Council.

    2.    The Committee heard that the Section 151 Officer would be provided with the necessary support and ongoing training to understand their role as lead officer of the Fund.

    3.    Referring to the establishment of two working groups, as outlined in Paragraph 9, the Strategic Finance Manager explained that they had not yet been established but that representatives from the Fund would be happy to be involved with them.

    4.    The Chairman asked that updates on developments relating to the Good Governance project were provided at future Committee meetings.

     

    Actions/further information to be provided:

     

    Updates on developments relating to the Good Governance project are to be provided at future Committee meetings.

     

    Resolved:

     

    The Pension Fund Committee noted the content of the report.

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SURREY PENSION FUND LOGO pdf icon PDF 100 KB

    The Surrey Pension Fund Committee approved its new Mission Statement on 7 June 2019 and the Fund thereafter reviewed and redesigned its logo to better represent its new Mission Statement.

    Additional documents:

    Minutes:

    Key points raised during the discussion:

     

    1.    A Member of the Committee highlighted Paragraph 3, which explained that the new logo had been funded internally, and spoke of the importance of communicating that to the public.

     

    Actions/further information to be provided:

     

    None.

     

    Resolved:

     

    The Pension Fund Committee approved the new Surrey Pension Fund logo and its alignment with the Fund’s Mission Statement, approved on 7 June 2019.

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2019 VALUATION UPDATE pdf icon PDF 95 KB

    To provide members with an update on the delivery of the 2019 actuarial valuation of the Pension Fund.

     

    Additional documents:

    Minutes:

    Witnesses:

     

    Gemma Sefton – Hymans Robertson

    Neil Mason – Strategic Finance Manager (Pensions)

     

    Key points raised during the discussion:

     

    1.    The Committee heard from the representative from Hymans Robertson, who provided an update on the delivery of the 2019 actuarial valuation and highlighted the next stages.

    2.    Members viewed a graphic that showed the change in membership makeup from 2016 and were told that the Fund was continuing to grow in size, with 20% more records at the 2019 valuation and a continued growth in payroll and the amount of benefits that are paid out each year.

    3.    The representative from Hymans Robertson explained that the Fund was in a healthy place and was 96% funded, with much of that being as a result of asset returns. She went on to highlight the assumed investment return and the funding level that mapped to, as well as showing Members a graphic that illustrated how the Fund’s assets and liabilities had changed since 2016.

    4.    Members went on to view changes to the funding strategy and other policy areas that were under review. The representative from Hymans Robertson explained that everything included in the 2019 valuation was in draft until 31 March 2020 and further consultation would take place before then.

    5.    Responding to a request from the Chairman, the representative from Hymans Robertson expanded on the McCloud Judgement and GMP equalisation and the potential impact these could have.

    6.    Referring to the whole fund funding position graphic provided to Members and the assumed future investment return, the representative from Hymans Robertson explained that an asset model that contained long-term assumptions about all of the asset classes held by the Fund over 20 years had been run in order to formulate the figures.

    7.    The Committee heard that conversations would be had with employers about multiple investment strategies and that the intention would be that no one would be moved without their understanding. There was a need to be pragmatic and proportionate to make sure everything had an appropriate award for employers and that different funding objectives were kept in mind.

    8.    A Member of the Committee asked for information about how other Funds had approached similar strategies and names of these funds would be provided to the Strategic Finance Manager by the representative from Hymans Robertson so they could be contacted on the Fund’s behalf. The Strategic Finance Manager also informed the Committee that case studies were included in the funding strategy statement paper.

     

    Actions/further information to be provided:

     

    The representative from Hymans Robertson is to provide the Strategic Finance Manager with names of pension funds that had approached similar investment strategies so that they can be contacted on the Fund’s behalf.

     

    Resolved:

     

    The Pension Fund Committee:

     

    1.    Noted progress on the delivery of the 2019 actuarial valuation of the Pension Fund.

    2.    Approved for officers to work with the investment consultant and the actuary to implement multiple investment strategies for employers.

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CASHFLOW ANALYSIS pdf icon PDF 80 KB

    A cashflow analysis allows the Surrey Pension Fund to ascertain a projection as to when benefit payments may exceed income. This information can influence both the investment and funding strategy.

    Minutes:

    Witnesses:

     

    Neil Mason, Strategic Finance Manager (Pensions)

     

    Key points raised during the discussion:

     

    1.    The Strategic Finance Manager introduced the report and explained that officers had received key management information that was needed in order to provide a more detailed cashflow analysis. This would be completed in the new year.

     

    Actions/further information to be provided:

     

    None.

     

    Resolved:

     

    The Pension Fund Committee:

     

    1.    Noted the cashflow positions for quarters four and one.

    2.    Determined that no change was required to the investment or funding strategy as a result of the current cashflow position.

50/19

INVESTMENT STRATEGY REVIEW

Minutes:

Witnesses:

 

Neil Mason, Strategic Finance Manager (Pensions)

Hemal Popat, Director (Investments) – Mercer

Steve Turner, Partner – Mercer

 

Key points raised during the discussion:

 

1.    The Committee heard from the Strategic Finance Manager, who explained that the investment strategy review built on the draft report that had been brought to the last meeting regarding changes in the asset allocation. He then explained to those present the key points from the report and the proposals that the Committee was being asked to consider, as outlined in the Part 2 papers.

2.    The Partner from Mercer provided Members with more information on the changes that had been made to the investment strategy since the last meeting of the Committee. Members also heard about the further work being done with Border to Coast regarding the development of the global equity fund.

3.    The Committee worked through the investment strategy review and were informed of the key points of consideration by the Director (Investments) from Mercer, who explained in detail the equity portfolio comparison and total portfolio impact before moving on to the review of the equity protection strategy. Members were informed about the objectives for the current strategy and reviewed graphics relating to performance before analysing the possible actions that could be taken at the expiry of protection. It was recommended that a working group was convened to work through the options.

4.    The Strategic Finance Manager explained that the issue being considered was an extremely complex one and that the establishment of a working group was being recommended due to the limited time available for discussion in a formal Committee meeting. It was proposed that the working group would meet on the morning of 16 October 2019 and that all Members of the Committee would be invited to attend.

 

Actions/further information to be provided:

 

Members of the Committee are to be invited to attend a working group to decide what approach to endorse regarding equity protection renewal.

 

Resolved:

 

The Pension Fund Committee:

 

1.    Approved the proposed changes to the asset allocation as outlined in the Part 2 report.

2.    Authorised officers to work with the independent advisor, investment consultant and Border to Coast to explore a solution incorporating a regional/GDP based approach to global equities including additional allocation to emerging market equities.

3.    Approved the convening of and delegation of authority to an investment sub-committee in respect of the decisions regarding the continuation of the equity protection strategy. This sub-committee will include members, officers and advisors and will consider options regarding the equity protection strategy, including:

 

                              i.        Renew the entirety of the protection

                             ii.        Renew a portion of the protection

                            iii.        Cease equity protection when the current contract expires

51/19

BORDER TO COAST UPDATE

Minutes:

Witnesses:

 

Neil Mason, Strategic Finance Manager (Pensions)

Andrew Stone, Border to Coast

 

Key points raised during the discussion:

 

1.    The Chairman asked for Item 16 to be considered before Item 15 due to time constraints.

2.    The Strategic Finance Manager congratulated the Chairman of the Committee for being re-elected chair of the Border to Coast Joint-Committee and informed those present that there was a typo in Paragraph 21, where it referred to “UK equity” rather than “global equity”.

3.    The Strategic Finance Manager went on to update Members on the progress that had been made since the last meeting of the Committee and explained the work being undertaken with other pension funds on regional GDP-based funds.

4.    The Committee viewed a presentation from the representative from Border to Coast, who provided Members with an introduction to the new asset class.

 

David Mansfield left the meeting at 12:24pm.

 

Actions/further information to be provided:

 

None.

 

Resolved:

 

The Pension Fund Committee agreed the recommendations outlined in the Part 2 report.

52/19

INVESTMENT MANAGER ISSUES

Minutes:

Witnesses:

 

Adrian Brown, MJ Hudson

Neil Mason, Strategic Finance Manager (Pensions)

 

Key points raised during the discussion:

 

1.    The Chairman introduced the report and explained that he would have discussions with officers about future reporting and formats used.

2.    The Committee heard from the representative from MJ Hudson, who informed those present about the manager review meeting of 16 July 2019 and discussions that had been undertaken with Fund managers.

 

Actions/further information to be provided:

 

None.

 

Resolved:

 

The Pension Fund Committee noted the main findings outlined in the Part 2 paper.

53/19

DATE OF NEXT MEETING