MINUTES of a meeting of the PENSIONS AND INVESTMENT COMMITTEE held at County Hall, Matlock on 27 January 2016
PRESENT
Councillor D J Wilcox (in the Chair)
Derbyshire County Council
Councillors S Brittain, R Davison, S J Ellis, S Freeborn, J Innes, R Parkinson, and D Williams (substitute member)
Derby City Council
Councillor P Hezelgrave
Trade Union Observers
M Wilson
An apology for absence was submitted on behalf of Councillor S Marshall-Clarke
116MINUTES RESOLVED that the minutes of the meeting held on 16 December 2015 be confirmed as a correct record and signed by the Chair.
2/16UPDATE ON MEMBER TRAINING PROGRAMME Member Training Needs Self-Assessment Forms had now largely been completed and returned, and the Investment Team was evaluating the results of the exercise and would develop a rolling member training plan accordingly. It was proposed to provide a training session following the majority of the Pension and Investment Committee meetings, commencing in March 2016.
A budget for providing member training would be presented to the Committee following the evaluation of the self-assessment forms and the development of a training plan. Where possible, the training would be provided by external providers on a goodwill basis and internally by officers. All costs incurred would be met by the Derbyshire Pension Fund.
RESOLVED to note the report.
3/16UPDATE ON THE APPOINTMENT OF AN EXTERNAL ADVISOR TO THE DERBYSHIRE PENSION FUND The Fund’s current external advisor, Mr Philip Williams, had previously informed the Committee of his intention to retire in 2016, and it was likely that his last meeting would be in March 2016.
The role of External Advisor was currently being advertised, and the closing date for applications was 9 February 2016. The appointment would be for an initial term of three years with an option for the County Council to extend for a further three years on an annual basis. The initial screening, including a presentation/interview, would be carried out by the Investment Officer (or nominee) in conjunction with the Assistant Director of Finance and support from Corporate Procurement. The initial screening would be used to draw up a shortlist of candidates who would be invited back in February/March to attend a re-run of the presentation/interview. It was proposed that the Chair and Vice-Chair (or nominees) of the Committee, together with Councillor Marshall-Clarke and an opposition member, attended the final presentation/interview and confirmed the appointment. It was intended that a report seeking approval to appoint the preferred candidate would be presented to the Pensions and Investment Committee in March 2016, although there was a risk of slippage to April 2016.
A maximum quarterly budget of up to £4,000 had been set for the services, based on current rates. All costs in respect of the external advisor, including the costs of the application process, would be met by the Derbyshire Pension Fund.
RESOLVED to (1) note the proposed process for the appointment of a new external advisor; and
(2) confirm the attendance of the Chair and Vice Chair (or nominees), together with Councillor Marshall-Clarke and an opposition member, at the final presentation/interview.
4/16DERBYSHIRE PENSION FUND RISK REGISTER The Derbyshire Pension Fund Risk Register was presented. This had last been presented to the Committee in October 2015. One new risk item had been added since October 2015 in respect of the potential risk of a delay in the timing of an appointment of a new external advisor to the Committee.
The Risk Register had identified five high risk items – failure to constitute a Local Pension Board in a timely manner; staffing; fund assets being insufficient to meet liabilities; fluctuations in assets and liabilities; and LGPS Investment Pooling. The Fund’s Local Pension Board had yet to meet, and the delay reflected the fact that the Chair had only accepted the post immediately prior to Christmas. All members had now been appointed and the first meeting was to be arranged as soon as possible.
Staff recruitment and retention had been a long term issue, and remained challenging due to current public sector pay constraints. The recruitment of Fund Managers was presently supported by a market supplement, although the current agreement expired in March 2016. Whilst a proposal to extend the market supplement would shortly be taken to Cabinet, the target was to move towards a medium risk score by reviewing the organisational structure to identify progression opportunities and by working with HR to achieve an appropriate and sustainable Fund Manager salary level.
An inevitable risk was that assets were insufficient to meet liabilities and fluctuated from one valuation to the next. The Fund was currently only 82% funded, and the long term target was to eliminate the deficit by 2032. The Fund constantly monitored its Asset Allocation and had a significant proportion of its assets in growth assets, whilst proactively managing investment risk.
RESOLVED to note the current Risk Register.
5/16PROPOSED STATEMENT OF INVESTMENT PRINCIPLES CONSULTATION RESULTS The Statement of Investment Principles had been approved by the Committee in October 2015, subject to the outcome of the consultation process which had run between 3 – 24 December 2015, where stakeholders had been asked to provide comments in respect of the proposed Statement. The Fund had received thirteen responses, and these principally related to the Fund’s policy towards Socially Responsible Investments. Respondents had largely been individuals, but one response had been received from Transition Chesterfield. The Chair of the Committee had recently met with Transition Chesterfield, along with several other interested parties, and an overview was provided on the discussion from the meeting. It had been agreed that the Chair would revisit Transition Chesterfield in six months’ time to discuss the current position.
The responses to the consultation had been considered, and the in-house investment team remained of the view that a strategy of engagement with companies rather than negative screening to exclude stocks from the portfolio on ESG/ethical grounds, was more compatible with the Administering Authority’s fiduciary duty.
Other responses to the consultation related to a variety of matters, the majority of which were not applicable to the Statement of Investment Principles. No responses had been received from any Fund employers, and the Fund would explore ways in which to increase employer engagement in the future. The Statement was subject to ongoing review and would be updated, as and when required, to reflect changing circumstances.
RESOLVED to (1) confirm that no changes to the proposed Statement are required, based on the outcome of the consultation; and
(2) approve the Statement of Investment Principles.
6/16THE END OF CONTRACTING OUT FROM 6 APRIL 2016 As part of the introduction of the new State Pension, contracting-out of the additional State Pension on a defined benefit basis would end on 5 April 2016. As a result, from 6 April 2016, currently contributing Fund members would automatically be brought back into the State Pension scheme, and would no longer be contracted out of the State Scheme. This would have no impact on Fund members’ potential LGPS benefits, but eligibility for the contracted out National Insurance contributions rebate of 3.4% for employers and 1.4% for employees would cease from this date. The cost to the County Council would be an additional £4m per annum, and many employees would also see net pay reduce.
The Department for Work and Pensions had communicated the detail of the changes to employing authorities, and it was for each employer to manage the impact on their budgets. In turn, employers were communicating the information to their employees. It was suggested that a matrix could be produced which highlighted the cost implications per grade, and this could then be circulated.
RESOLVED to note the report.
7/16PREPARATIONS FOR THE TRIENNIAL VALUATION OF THE DERBYSHIRE PENSION FUND The LGPS was a funded scheme, and periodic assessments were needed to ensure that the Fund had sufficient assets to meet its liabilities. The Scheme regulations set out when valuations were to be carried out, and Derbyshire Pension Fund was about to embark on this exercise with a view to setting the employer contribution rates for the three years from April 2017 to March 2020. Each LGPS pension fund was required to appoint a fund actuary to carry out the valuation exercise, and Derbyshire had appointed Hymans Robertson LLP.
Planning meetings with Hymans Robertson had commenced towards the end of 2015, and a timetable had been agreed. The data currently held in the pensions administration system required cleansing in a number of areas and posts had been established and recruited to in order to support the work. The valuation exercise also depended upon the promptness and accuracy of the employers’ year end returns for 2015/16, and communications with employers stressing the urgency of the task this year had taken place; a year-end return template and guidance notes had been devised and circulated; and the larger employers plus those who had historically had difficulties with the exercise, had been contacted directly.
The Fund had agreed with the actuary to take a risk-based approach to funding for all employing authorities. This would provide a more accurate outcome, with specific attention being given to the funding position of, and the level of risk appropriate for, each individual employing authority. To establish the position, each employer would complete the ‘Employer Risk Questionnaire’. As well as helping to inform valuation decision making, this would provide an objective look across all employers, enabling proactive management of employer funding issues and helping to identify any problems or misunderstandings at an early stage.
RESOLVED to note the report.
8/16LOCAL GOVERNMENT PENSION SCHEME INVESTMENT REGULATIONS In November 2015, the Government had published a consultation document – Local Government Pension Scheme: Revoking and Replacing the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2009 - together with the draft Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016. The consultation was formed of two main proposals:-
- A package of reforms that proposed to remove some of the existing prescribed means of securing a diversified investment strategy and instead placed the onus on authorities to determine the balance of their investments and take account of risk. The changes proposed would move towards the ‘prudent person’ approach to investment
- The introduction of safeguards to ensure that the more flexible legislation proposed was used appropriately, and that the guidance on pooling assets was adhered to, including a power to allow the Secretary of State to intervene in the investment function of an administering authority when necessary.
Views had been sought on whether the proposed revisions to the investment regulations would give authorities the flexibility to determine a suitable investment strategy that appropriately took account of risk; and whether the proposals to introduce the power of intervention as a safeguard would enable the Secretary of State to intervene, when appropriate, to ensure that authorities took advantage of the benefits of scale offered by pooling and delivered investment strategies that adhered to regulation and guidance.
Members raised a number of comments that they felt should be included in the consultation response, including around stepped arrangements and the fact that there was an unnecessary assumption of power from the Secretary of State. A response would be written and this would be discussed with the Chair prior to its submission.
RESOLVED (1) to note the report; and
(2) that the Director of Finance be authorised to respond to the Investment Regulations consultation by 19 February 2016 following consultation with the Chair of the Committee.
9/16EXCLUSION OF THE PUBLIC RESOLVED that the public be excluded from the meeting during the Committee’s consideration of the remaining items on the agenda to avoid the disclosure of the kind of information detailed in the following summary of proceedings:-
SUMMARY OF PROCEEDINGS CONDUCTED AFTER THE PUBLIC HAD BEEN EXCLUDED FROM THE MEETING
1.To confirm the exempt minutes of the meeting held on 16 December 2015
2.To consider the exempt report of the Director of Finance and Director of Legal Services on Stage 2 Complaint under the Local Government Pension Scheme Adjudication of Disagreements Procedure (contains information relating to an individual)
3.To consider the exempt report of the Director of Finance on Update on LGPS Investment Pooling (contains information relating to the financial or business affairs of any particular person (including the Authority holding the information))
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