Agenda and minutes

Surrey Pension Fund Committee
Friday, 20 December 2019 10.30 am

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

Contact: Amelia Christopher  Email: amelia.christopher@surreycc.gov.uk

Items
No. Item

54/19

APOLOGIES FOR ABSENCE AND SUBSTITUTIONS

55/19

MINUTES OF THE PREVIOUS MEETING: 13 SEPTEMBER 2019 pdf icon PDF 115 KB

56/19

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:

    There were none.

57/19

QUESTIONS AND PETITIONS pdf icon PDF 140 KB

    To receive any questions or petitions.

     

    Notes:

    1.  The deadline for Member’s questions is 12.00pm four working days before the meeting (16 December 2019).

    2.  The deadline for public questions is seven days before the meeting (13 December 2019).

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

     

    Additional documents:

    Minutes:

    Six questions were received from members of the public. The responses can be found as an annex to these minutes.

    Supplementary questions were asked from five members of the public and verbal answers were provided.

    Actions/further information to be provided:

    In agreement with the Chairman, officers will provide written replies to questions one and six.

     

58/19

SCHEME ADVISORY BOARD REVIEW OF GOVERNANCE IN THE LGPS pdf icon PDF 100 KB

    In accordance with Fund’s governance objectives in the 2019/20 Business Plan.

     

    Additional documents:

    Minutes:

    Witnesses:

    Neil Mason - Strategic Finance Manager (Pensions)

    Key points raised in the discussion:

    1. The Strategic Finance Manager (Pensions) informed Members on the work the Fund were doing in conjunction with its governance consultant Hymans Robertson on compliance and future proofing the Fund going forward, in order to develop Phase III of the Fund’s ‘Good Governance’ report.
    2. The Chairman noted the importance of ‘skills and training’ within the Phase II Report, particularly the distinct separation between responsibilities to the Pension Fund as Members of the Committee and their responsibilities as councillors and employer/employee representatives.

     

    RESOLVED:

    The Committee noted the report.

    Actions/further information to be provided:

    None.

59/19

COMPANY ENGAGEMENT AND VOTING pdf icon PDF 244 KB

    In accordance with Fund’s investment objectives in the 2019/20 Business Plan.

     

    Additional documents:

    Minutes:

    Witnesses:

    Mamon Zaman - Senior Pensions Finance Specialist

    Key points raised in the discussion:

    1. The Senior Pensions Finance Specialist highlighted the progress made by the five-year initiative, Climate Action 100+ which operated across six different industries - not just fossil fuel industries - to facilitate low carbon transition.
    2. The Chairman referred to positive progress by the largest steel manufacturer in the world, Arcelor Mittal in reducing its carbon usage and Glennmont Partners’ recent investment in a 36 megawatt onshore wind farm in Italy.

     

    RESOLVED:

    The Pension Fund Committee:

    Reaffirmed that ESG Factors were fundamental to the Fund’s approach, consistent with the Mission Statement through;

    • Commending the outcomes achieved for quarter ending 30 September 2019 by Robeco in their Active Ownership approach and the LAPFF in its Engagement with multinational companies as at 31 September 2019.
    • Noting the outcomes in relation to ESG issues, through Surrey Pension Fund’s share voting for the quarter ending 30 September 2019.
    • Supporting the work carried out by Climate Action 100+ in their engagement on ESG issues, and Darwin on their strong Environmental Credentials.

     

    Actions/further information to be provided:

    None.

     

60/19

LOCAL BOARD REPORT pdf icon PDF 95 KB

    In accordance with Fund’s governance objectives in the 2019/20 Business Plan.

     

    Additional documents:

    Minutes:

    Witnesses:

    Nick Harrison - Chairman of the Local Pension Board

    John Smith - Pension Governance and Employer Manager

     

    Key points raised in the discussion:

    1. The Chairman of the Local Pension Board noted the recommendations of the report to the Committee and added that monitoring the Key Performance Indicators (KPIs) entailed a substantial amount of work due to a backlog of cases and the difficulty in measuring old cases within that backlog.
    2. The Strategic Finance Manager (Pensions) explained that in the past the Pension Administration Strategy was not an accurate measure towards improvement; the most recent revision addressed that as the Pension Fund team were more confident that the Pension Administration team could meet the KPIs.
    3. The Chairman of the Local Pension Board noted that the programme of work was substantive, but adequate training resources for the Local Pension Board remained an issue and in response, the Chairman of the Committee stressed that the Committee would help with that.
    4. The Chairman of the Local Pension highlighted the red risk affecting staff retention within the Administration Risk Register on the move of County Hall. In response to a Member’s query on the risk grading, he stated that the red risk was graded before confirmation of the move to Woking. He acknowledged that the inherent risk could move from red to amber and the residual risk would remain at amber. The Strategic Finance Manager (Pensions) added the Pension Administration team could work flexibly from other sites but staff retention was being addressed in consultation with the Chief Executive.

     

    RESOLVED:

    The Pension Fund Committee:

    1. Noted the progress of the administration service improvement plan II (SIP2).

    2. Approved the draft Administration Strategy and allowed for a consultation with scheme employers.

    3. Approved the draft Service Specification between the Pension Fund and the Pension Administration service.

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

    5. Noted the minutes of the Local Pension Board meeting of 24 October 2019.

    Actions/further information to be provided:

    None.

     

61/19

2019 VALUATION UPDATE pdf icon PDF 93 KB

    In accordance with Fund’s funding objectives in the 2019/20 Business Plan.

     

    Additional documents:

    Minutes:

    Witnesses:

    Neil Mason - Strategic Finance Manager (Pensions)

    Nick Harrison - Chairman of the Local Pension Board

     

    Key points raised in the discussion:

    1. The Strategic Finance Manager (Pensions) informed Members of the significant changes from 2016 to the Funding Strategy Statement (FSS):

    ·         That colleges and higher education institutions were affected due to the decrease in their recovery periods – similar to private companies.

    ·         The previous distinction between multi-academy and single academy trusts had been removed.

    ·         Actuarial improvements were not expected to return to employers due to the McCloud judgement.

    ·         The early cessation of admission bodies had been included.

    ·         Tailored employer investment strategies would be brought to the Committee in March 2020 for approval, the Fund was working on its draft strategies with its investment consultant, Mercer and its governance consultant, Hymans Robertson prior to consultation with scheme employers. 

    1. The Chairman of the Local Pension Board was pleased that the Surrey Pension Fund were moving away from a single investment strategy as that issue had been raised by the Local Pension Board.
    2. The Vice-Chairman queried whether officers could advise on anything controversial in the report, in response the Strategic Finance Manager (Pensions) noted that officers were already in consultation to explore solutions to the issues affecting colleges and higher education institutions - those issues were however not material to the Fund.

     

    RESOLVED:

    The Pension Fund Committee:

    Approved the draft Funding Strategy Statement (FSS) to enable it to be shared with scheme employers in a 30 day consultation.

     

    Actions/further information to be provided:

    None.

     

62/19

CASH-FLOW ANALYSIS pdf icon PDF 92 KB

    In accordance with Fund’s funding objectives in the 2019/20 Business Plan.

     

    Minutes:

    Witnesses:

    Ayaz Malik - Pensions Finance Specialist

    Clare Chambers - Pensions Service Delivery Manager

     

    Key points raised in the discussion:

    1. The Pensions Finance Specialist explained that the contributions received and net cash-flow were significantly higher in quarter two than quarter one.
    2. The Chairman stressed that the six month period between quarters did not generate a detailed trend so suggested a cash-flow analysis covering an eighteen month period. The Strategic Finance Manager (Pensions) responded that a more comprehensive report on the benefits paid, the contributions received and the Fund’s cash-flow scenario with illiquid investments would be provided to the Committee next year.
    3. The Chairman queried the large increase in deferred members between quarter one and quarter two and in response the Pensions Service Delivery Manager acknowledged that the approximately 3,000 difference in deferred members was due to the backlog being processed and would continue to steadily increase as well as the contributions from deferred pensions.
    4. The Vice-Chairman suggested the addition of a third recommendation to include more a detailed cash-flow analysis over a longer period of time and specific targets set in relation to the processing of the Fund’s membership, the contributions received and benefits paid out. 

     

    RESOLVED:

     

    The Pension Fund Committee:

    1.    Noted the cash-flow position for quarters one and two.

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

    Actions/further information to be provided:

    None.

     

63/19

COMPETITION & MARKETS AUTHORITY (CMA): INVESTMENT CONSULTANT (IC) STRATEGIC OBJECTIVES pdf icon PDF 89 KB

    In accordance with Fund’s investment objectives in the 2019/20 Business Plan.

     

    Additional documents:

    Minutes:

    Witnesses:

    Mamon Zaman - Senior Pensions Finance Specialist

    Anthony Fletcher - Independent Advisor (MJ Hudson)

    Neil Mason - Strategic Finance Manager (Pensions)

    Steve Turner - Investment Consultant (Mercer)

     

    Key points raised in the discussion:

    1. The Senior Pensions Finance Specialist reported that the draft Strategic Objectives identified by the Fund for its Investment Consultants formed the basis of scoring upcoming tenders to employers - March/April 2020.
    2. The Chairman questioned if the Strategic Objectives applied to the Independent Advisor, in response the Independent Advisor stated that the Strategic Objectives acted as a guideline for him and that other local authorities had set objectives that mirrored their Investment Consultants.
    3. The Strategic Finance Manager (Pensions) explained that the Fund’s Investment Consultant was up for retender next year with a review by the Competition Markets Authority (CMA), which would be discussed in conjunction with the Fund’s Independent Advisor.
    4. The Vice-Chairman sought clarification on the more detailed interaction between the Committee and Fund with the Independent Consultants in practice and how the Fund could be more informed on its more technical applications. In response, the Chairman proposed that the Committee add to the recommendation its request for further development of the draft Strategic Objectives to set out more specific interactions between the Fund and its Investment Consultants.
    5. The Investment Consultant (Mercer) informed Members that from a technical perspective the Committee were asked to approve the draft Strategic Objectives which would then be sent to the Fund’s Investment Consultants (Mercer). That would then allow the Fund to accept advice from Mercer from January 2020 in order to develop those Strategic Objectives further.

     

    RESOLVED:

     

    The Pension Fund Committee:

    Approved the Draft Strategic Objectives for Investment Consultants of the Fund in line with CMA Requirements.

     

    Actions/further information to be provided:

    None.

     

64/19

RESPONSIBLE INVESTMENT POLICY REVIEW pdf icon PDF 421 KB

    In accordance with Fund’s investment objectives in the 2019/20 Business Plan.

     

    Additional documents:

    Minutes:

    Witnesses:

    Mamon Zaman - Senior Pensions Finance Specialist

    Neil Mason - Strategic Finance Manager (Pensions)

    Anthony Fletcher - Independent Advisor (MJ Hudson)

    Andrew Stone - Border to Coast

     

    Key points raised in the discussion:

    1. The Chairman commented that although the Fund was working closely with the Border to Coast Pension Partnership (BCPP), the Fund had its own clear view of Responsible Investment. The Strategic Finance Manager (Pensions) echoed the importance of the Fund’s close relationship with BCPP as it was crucial to the Fund’s whole investment policy.
    2. The Strategic Finance Manager (Pensions) explained that the BCPP’s Responsible Investment Policy 2020 and Corporate Governance and Voting Policy represented the joint agreement with the twelve partner funds. In addition to those documents, Surrey Pension Fund identified the need for a Committee sub-group on the Fund’s own approach towards Responsible Investment - as indicated in the third recommendation. The sub-group would clearly express the Fund’s core beliefs on Environmental, Social and Governance issues (ESG) and Members of the Committee had been invited to be a part of it.
    3. The Chairman questioned how far the Fund would go on the Spectrum of Capital with the use of its capital to deliver Responsible Investment. In response, the Strategic Finance Manager (Pensions) commented that an independent Engagement Specialist to support the work of the sub-group and measure the Fund’s performance against the United Nations Sustainable Development Goals (SDGs) was being employed and the Fund were committed to ensuring it addressed Environmental, Social and Governance issues (ESG).
    4. The Vice-Chairman expressed unease with the differing definitions of Responsible Investment within the Spectrum of Capital from ‘Traditional’ to ‘Philanthropic’ as it categorised the traditional category as being irresponsible. The other approach of mapping the Fund against the SDGs was useful but only a handful of SDGs could align with the Fund’s investment approach.
    5. The Independent Advisor noted that the Pensions for Purpose Director would argue that a Pension Fund should not move beyond the fourth SDG as that would exceed the Fund’s fundamental fiduciary duty of ensuring sustainable financial returns not detrimental to its beneficiaries.
    6. The representative from Border to Coast commented that policies on Responsible Investment were broad church but it was good practice to include ESG issues to ensure the management of risks and sustainable long term returns.

     

    RESOLVED:

     

    The Pension Fund Committee:

    1. Noted the results of the ShareAction survey regarding the Fund’s approach to Responsible Investment and Climate change.
    2. Approved the revised BCPP Responsible Investment (RI) Policy 2020 and Corporate Governance & Voting Guidelines 2020.
    3. Approved for a Committee sub-group to be convened to develop the Fund’s RI Approach (and define RI). To include, but not limited to:

     

    ·         The Fund’s positioning of Responsible Investment in its Core Investment Beliefs

    ·         The Fund’s relationship with BCPP, more specifically BCPP’s RI approach to the Fund’s pooled assets

    ·         The Fund’s RI approach to existing legacy portfolios yet to be transitioned to BCPP

    ·         The Fund’s RI approach to its Indexed Funds currently held with Legal & General Investment Management (LGIM)

    ·         Reaching a  ...  view the full minutes text for item 64/19

65/19

EXCLUSION OF THE PUBLIC

    That under Section 100(A) of the Local Government Act 1972, the public be excluded from the meeting during consideration of the following items of business on the grounds that they involve the likely disclosure of exempt information under the relevant paragraphs of Part 3 of Schedule 12A of the Act.

     

    Minutes:

    RESOLVED:

     

    That under Section 100(A) of the Local Government Act 1972, the public be excluded from the meeting for the following items of business on the grounds that they involve the likely disclosure of exempt information under the relevant paragraphs of Part 3 of Schedule 12A of the Act.

66/19

INVESTMENT MANAGER ISSUES AND PERFORMANCE AND ASSET/LIABILITIES UPDATE

67/19

PRIVATE MARKET REVIEW

68/19

BORDER TO COAST UPDATE

69/19

DATE OF NEXT MEETING