MINUTES of a meeting of the Pension Committee held at Council Chamber, County Hall, Lewes on 27 February 2025.
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PRESENT |
Councillors Gerard Fox (Chair) Councillors Ian Hollidge, Paul Redstone, David Tutt and Georgia Taylor |
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ALSO PRESENT |
Ian Gutsell, Chief Finance Officer Susan Greenwood, Acting Head of Pensions George Norval, Interim Deputy Head of Pensions Russell Wood, Pensions Manager: Investment and Accounting Iain Campbell, Head of LGPS Investment, Hymans Robertson William Bourne, Independent Investment Adviser Paul Punter, Head of Pensions Administration Paul Linfield, Pensions Communications Manager Mya Khine, Pensions Accountant Dave Kellond, Compliance and Local Improvement Partner James Sweeney, Pensions Investment Officer Bekki Freeman, Solicitor Neil Simpson, Pension Board Cllr Andrew Wilson, Pension Board Trevor Redmon, Pension Board Lynda Hughes, Pension Board
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57. Minutes of the meeting of 21 November 2024
57.1 The Committee
RESOLVED to agree the minutes of the meeting held on 21 November
2024 as a correct record.
58. Disclosure of Interests
58.1 Councillor Tutt declared his role as the Director of the Cyber Centre of Excellence in relation to item 11 of the agenda.
59. Pension Board Minutes
59.1 The Committee RESOLVED to note the minutes of the Pension Board meeting held on 13 February 2025.
60. Pension Reform Agenda
60.1 The Committee
considered a report on the Pension Reform Agenda introduced by
Susan Greenwood (SG) who drew the Committee’s attention to
the following points:
1) Further to
the announcement of a pensions’ review in July 2024, the
Chancellor announced in her Mansion House speech on 14 November
2024 that the government would launch a consultation to ensure that
the LGPS was “Fit for the Future” with a view to
accelerating pooling of assets by March 2026 and supporting the
Chancellor’s aims of accelerating growth and investment in
the UK.
2) The consultation has thirty questions and is focussed on three key areas:
· Reforming the LGPS asset pools: with a single model, whereby LGPS Administering Authorities (AAs) will delegate investment strategy implementation to the pool; Financial Conduct Authority (FCA) registration of pools;
· Boosting LGPS investment in their localities and regions in the UK: by having a target allocation to local investment that supports local economic priorities; working with Mayoral offices and local authorities.
· Strengthening the governance of both AAs and LGPS pools: building on the 2021 Good Governance review.
3)
The Fund has prepared an extensive
response to this lengthy consultation as set out in Appendix 2 of
the report.
4)
Officers have undertaken extensive
work on this and the report sets out the key areas of governance
reform and the assessments of where the Fund currently
complies.
5)
Changes will be required to
strategies and policies however the detail of this is not yet
known.
6)
Details of how the Fund will respond
are set out within the exempt report at item 17 of the
agenda.
7)
A high-level Governance overview has
been provided within the report, overall, the Fund is largely in
line with what is expected to be required, however until the
response is received the detail of further changes is not yet
known.
8)
Local investment is a key focus of
the proposal and officers will need to consider how this will be
incorporated but require more detail.
9)
In response to Committee concerns
regarding how decisions about local investments may conflict with
their Fiduciary Duty, officers highlighted that the KC opinion
published in January stated that any local investment would be
considered a non-financial investment. However, this could be
subject to challenge but noted that the proposals present fiduciary
duty challenges for Committee members.
60.2 The Committee RESOLVED to note the report.
61. Governance Report
Legal and regulatory changes
1) The
Education and Skills Funding Agency published a policy paper in
November 2024 announcing that they will guarantee outstanding LGPS
liabilities when a further education body closes, but not higher
education body, in line with the existing guarantee in place for
academies. As a result, the Fund may consider whether the funding
approach for the employers to whom the guarantee has now been
extended should be revised.
2) This will strengthen the covenant in the Fund for those employers identified as being affected. The Fund will communicate with those employers and review the implications of these changes as part of the next actuarial valuation cycle.
3) The Scheme Advisory Board recently sought an update to Counsel’s opinion on fiduciary duty, having last done so in 2014.
4) In January the Scheme Advisory Board published the updated opinion of Nigel Giffin KC. This is intended as a review and update of the opinion given in 2014 and it considered financial and non-financial matters.
5) It is the intention that from April 2027 most unused pension funds and death benefits will be included within the value of a person’s estate for Inheritance Tax purposes and pension scheme administrators will become liable for reporting and paying any Inheritance Tax due on pensions to HMRC. In the context of the Local Government Pension Scheme this will mean that any death grant payable would always fall within the estate of the deceased member for inheritance tax purposes, and as a result scheme administrators will be responsible for reporting and paying any inheritance tax due.
6) A consultation seeking views on the processes required to implement the Inheritance Tax changes closed on 22 January 2025. The response only addressed the process for implementing the changes, and not the issue of the change itself as that was not within the focus of the consultation.
7) The Officers response provided to the Inheritance Tax consultation makes clear the view that accounting for and paying of inheritance tax, should be the responsibility of the personal representative (executor) and not be that of the pension scheme administrator. The response is consistent with that of the National Pension Officer Group and other LGPS funds.
8) In response to questions from the Committee, officers confirmed that all death grants would likely be delayed as officers would need information from the personal representative about the Estate before benefits could be settled. There was an expectation that only a very small percent of deceased members pension fund death grant benefits would be liable for any Inheritance Tax
Funding
9) The Fund Actuary has prepared the indicative quarterly funding update as at 31 December 2024, rolling forward assumptions from the valuation and reflecting actual experience since March 2022, included as Appendix 5. The indicative funding report shows the funding position increase from 120% in June 2024 to 122.4% in December 2024. This does, however, represent a minor decrease from the position in March 2022 of 122.8%
61.2 The Committee RESOLVED to note the Governance report.
62. Pensions Administration report
KPIs
1) The volume
numbers of tasks received are extraordinarily high compared to the
historical position and are unsustainable. 82% for Q4, 2024
performance, so below what officers are aiming for. However, the
table in Appendix 1 of the report demonstrates that performance has
improved over the quarter as the workload has decreased through
clearing the backlog, which is encouraging. Further, death and
retirement requests were processed on time which is key.
2) The Admin
Working Group met on 2 December 2024 and went through the October
2024 Admin Performance in detail. Full explanations were provided
about the cases with the longest number of days taken and where the
average number of days were high. The attendees were appropriately
reassured the data was accurate and being reported correctly and
most importantly that the PAT were working tirelessly and
effectively to clear the backlog and improve the reported team
performance. The impact of uneven spikes in post received (like
following the issue of ABS) were much better understood.
November and December 2024 KPIs demonstrated a significant
improvement, and the Admin Working Group will look at the detail of
this at their next meeting.
3) January
2025 saw further admin performance improvement (91%), however,
poorer numbers are anticipated in February and March 2025 due to
the mid-year bulk file from BHCC. The BHCC i-Connect January 2025
data file was run in early February 2025 and overall went well
which is very positive and indicates that the BHCC monthly
i-Connect files should treated as BAU like other onboarded
employers. Officers will not support BHCC with the February 2025
i-Connect file upload.
4) In
response to questions from the Committee about capacity, officers
confirmed that based on the January 2025 i-Connect file and through
regular calls with BHCC that there is confidence that this work can
be done effectively without support from the Fund’s
officers.
Helpdesk
5) The Fund
aims to achieve a gold standard service provision for the Pensions
Helpdesk. The team is working effectively, and members of the
Helpdesk are taking on more work from the administration team and
there are no concerns.
Staff
6) Since the
last meeting there has been one resignation, and a staff member
will be beginning maternity leave, so some redeployment of staff
required.
Projects
7) Pensions
Dashboard: Officers continue to focus on getting the data ready
using a Heywood Altair Insights dashboard report to identify gaps.
Heywood are our Integrated Service Provider, and a project plan has
been created, with a two-phase approach pencilled in. Phase one was
completed in January 2025. Reconciliation of data from the
Altair system and Prudential is ongoing to ensure it is consistent.
All schemes must onboard by 31 October 2026, but the LGPS formal
staging date is 31 October 2025. It is not yet known when the
pension dashboards will go live to the public.
8) I-Connect:
Officers had targeted the last 10 employers (who had historically
had data issues or been less engaging) to be onboarded by 31 March
2025. All have had their initial meetings and discussions about our
specifications and requirements, two of the employers won’t
progress at this point as they are changing their payroll software
on 1 April 2025. University of Brighton is almost ready to be
onboarded which represents good progress. The increased volume of
employers now onboarded to i-Connect should reduce the number of
queries when officers start the ABS work.
Pension software
9) A paper on
the Pensions Admin Software tender was presented to the Pensions
Committee on 21 November 2024 advising Officers had evaluated the
LGPS Framework bid and were happy with the quality of the
submission. Officers recommended that Heywood Limited would
continue to provide a robust and comprehensive service to the Fund
and further system enhancements should be taken on as part of a new
contract. The Pensions Committee authorized the Chief Finance
Officer to complete the appropriate due diligence to award the
contract. The award was made on 23 January 2025. The contract will
commence on 28 April 2026 for a five-year term, with an option to
extend up to 26 April 2034.
63.2 The Committee welcomed
the detailed information and thanked the officers for their
continued hard work and transparent reporting.
63.3The Committee RESOLVED to note the report.
63. Quarterly budget monitoring report and 2025/26 Business Plan and Budget
63.1 The Committee
considered the Quarterly Budget report presented by Russell Wood
and noted the following points:
2024/25 Q3 Forecast Outturn as at 31 December 2024
1) The budget
requirements for 2024/25 were set at £4.561m (£4.463m
2023/24 excluding investment manager fees) to support the Business
Plan activities and administration of the Fund. The forecast
outturn at the third quarter of 2024/25 is £4.314m
(£4.400m last quarter), this is a slight decrease from the
last projected position of £85k and reflects an underspend to
the approved budget of£247k.
The Business Plan and Budget
2) Total
2025/26 budget proposed is £4.645m (£4.561m 2024/25) to
support the Business Plan activities and administration of the
Fund. This represents are increase of £84k on the 2024/25
budget. There has been a full review of the costs for 2025/26 and
the budget for individual lines have changed. The overall result
was a budget which was slightly above the previous years. This did
not include a budget for any additional expenditure which relates
to activity undertaken by ACCESS in response to the Governments fit
for the future consultation this will be provided at the next
meeting when the direction of travel is clearer.
63.2 The Committee
RESOLVED to note:
1) the 2024/25 Q3 forecast financial outturn position; and
2) Approve the Business Plan and Budget for 2025/26 in Appendix 1.
64. Internal Audit report
64.1 The Committee
considered the internal audit report presented by Danny Simpson
(DS) and noted the following points:
1) The review
of the Fund’s Financial Controls was completed as part of the
Internal Audit Strategy and Plan for Pensions 2024/25 and provides
assurance on the overall effectiveness of controls.
2) An opinion
of Substantial Assurance over the controls in place was
provided.
Annual strategy plan
3) Officers
will be reviewing the preparedness for the pooling reforms and
ensuring that the required pace can be achieved. It was agreed that
these pieces of work could be done in parallel towards the end of
Q1, 2026 and into Q2, 2026 whilst noting that the full scope of
what is required may not be fully known at Q1, 2026.
4) The
administration of pension benefits will be audited every year as
the volume of transactional work is so significant .
5) The KPIs
are looked at as part of the pension admin audit which is a
long-established standard practice. A future training session on
the Pensions Dashboards is planned for the Committee in September
25.
64.2 The Pension
Committee RESOLVED to:
1) note the Pension Fund – Financial Controls Audit Report (Appendix 1); and
2) approve the Internal Audit Strategy for Pensions and Annual Plan 2025/26 (Appendix 2).
65. Risk Register
65.1 The Committee considered the risk register presented by George Norval (GN).
65.2The Committee considered the following risks:
1) Risk I5 -
which focuses on the changes that will be required to Investment
Pooling in relation to the “Fit for the Future”
government consultation proposals. The risk here is around the
government’s proposals and/or the arrangements of ACCESS
being insufficient for the needs of ESPF, which could cause a
reduction in funding level among other negative impacts. Until the
proposals are finalised, the risk score is high, although it is
mitigated slightly to a moderate risk by ESPF continuing to engage
with and shape the proposals.
2) Risk G1,
key person risk, has also been reduced. The Fund now has in place
an Acting Head of Pensions and has extended the contract of the
Interim Deputy Head of Pensions, ensuring the continuation of
service.
3) Risk G3, there is still one outstanding question from the Pension Committee meeting on 25 September 2024 regarding whether system back-ups were immutable and assessment of third-party provider backs up. The Fund are in liaison with Information Security team on the query about back-ups and will continue to assess the risk around Cyber Security. Officers acknowledged that the Committee are very keen to know the outcome of a review of the system back-ups. It is anticipated that the Information Security team will provide an update ahead of the next meeting.
Risk Register Workshop
4) Officers will be holding a Risk Register workshop towards the end of March 25 via Teams. This will focus on reviewing the Risk Register and its mitigating actions and adding, removing or amending risks as is deemed necessary. Committee members are encouraged to attend.
66.3 The Committee RESOLVED to note the report.
66. Investment Report
66.1 The Committee considered a report introduced by Russell Wood drew the Committees attention to the following points:
PRI
1) The Summary Scorecard gives an overview of the Fund’s scores against the PRI median score. The Scorecard is shown below and indicates that there are still areas where the Fund can improve but that it is currently performing above the median PRI score on all areas. One item which couldn’t be completed but this will be resolved for next year’s submission.
Stewardship Report
2) The Fund is pleased to confirm that it has maintained its status as a UK stewardship code signatory. The Stewardship report is now on our website along with notification that the Fund are still signatories.
CMA
3) With the introduction of the new Investment Consultancy contract with Hymans Robertson, the Pension Committee are asked to review and approve the strategic objectives that have been set for Hymans Robertson under their new contract which are set out at Appendix 4 of the report.
Scheme Advisory Board
4) Counsel Opinion was sought in on the implications of the current events in Gaza on LGPS, the opinion sets out that there is no potential prosecution that can be made with regard to the Fund’s investments.
5) The SAB has now received Nigel Griffin KC’s updated opinion on the fiduciary duty in the context of the LGPS, there have not been any changes in respect of what has been published so far in respect of the reforms.
66.2Iain Campbell (IC) drew the Committees attention to the following points:
1)
The Committee welcomed the new
format and noted that Hymans are happy to tailor the report as
required.
2)
Since the last reported position,
the valuation of the Fund has increased from £4.917bn as at
30 September 2024 to £5.070bn as at 31 December 2024 (an
increase of£95m). This performance reflects a positive
absolute return of 2.0% in the quarter to December 2024. The Fund,
however, underperformed the benchmark in the period by 1.6%.
3)
Performance of Fund
assets is similarly behind benchmark over longer time periods. Over
the past 12 months and 3 years the Fund has relative returns of -
4.3% and - 3.1% p.a. respectively.
4)
Year-on-year
headline CPI inflation rose in Q4,2024 to 2.9%, 2.5% and 2.4%, in
the US, UK and eurozone, respectively, largely due to a smaller
negative impact from energy prices relative to last year’s
sharp declines. Core inflation, which excludes volatile energy and
food prices, was little changed, but remains above headline
measures, at 3.2% in the US and UK, and 2.7% in the eurozone.
5) US 10-year yields rose 0.8% pa to 4.5% pa, driven by strong growth, expectations of a more inflationary policy mix under Trump, and anticipated higher bond issuance to fund tax cuts. UK 10-year gilt yields rose 0.6% pa to 4.6% pa, spiking after the Autumn 24 Budget, as investors digested a likely slower pace of rate cuts and higher gilt issuance. French 10-year yields rose 0.3% pa to 3.2% pa as political ructions led Moody’s to downgrade the country’s debt. Equivalent German and Japanese yields rose 0.2% pa to 2.4% pa and 1.1% pa, respectively.
6)
Credits spreads
fell further in Q4,2024 leaving both investment and speculative
grade spreads near historic lows. Global investment grade credit
spreads remained at 0.9% pa while speculative grade credit spreads
fell 0.2% pa to 3.1% pa.
7)
The results of the
quarter mask a lot of volatility, stocks like the magnificent seven
continued to outperform and commercial property is recovering with
a return to normal conditions.
8)
The Committee noted
that the global equity market index is mainly US based and
magnificent seven stocks with high valuations placed on some
markets and therefore they could be vulnerable to big drops in the
market if expectations are not met.
9)
The independent
advisor advised of three potential challenges; that tariffs will
not be positive for growth and returns, if the magnificent seven
stocks are broken up this could cause challenges to valuations,
also valuations are much higher in US, and if they were
brought down this would have an effect on markets.
10)The Fund is a longer-term
investor with a diversified portfolio which provides protection if
there is a crash in the market and managers have convictions which
they adhere to but there will be careful consideration of these
matters as part of the strategy planning for next year.
11)Benchmarks are set to give an indication of relative performance of the investment managers against the broad equity market and there are some outliers who are currently struggling which is bringing down the overall relative figures.
12)In response to questions about
underperforming funds, IC confirmed that he meet with
WHEB Active Impact Equity which
underperformed the MSCI World benchmark by 7.8% over the
quarter.
Active sustainable equity funds want to invest in companies who
transition to a more sustainable position, they have a small
sub-set of companies who meet their criteria and are therefore all
invested in a small concentration which results in volatility from
the benchmark in the short term. Additionally, these stocks screen
out the magnificent seven which has led to underperformance across
these funds.
13) IC noted that there have been some unsuccessful stock picks as small growth style companies tend to be selected but there are risks of overpaying. An example is Hello Fresh which did well during the pandemic but struggled afterwards which is a good example of an error in judgement.
14)Hymans will provide the
necessary constructive challenge to the managers and there are no
actions proposed at this point particularly with the uncertainty
around pooling and the Committee noted that the fund will be kept
under close review.
15)Further to this WHEB announced last month that they are being acquired by another impact focused manager, Foresight group, WHEB will retain the brand and the team and this is considered to be a good match and there are no concerns at this point.
16)IFM have informed the Fund that IFM Investors,
and the UK’s largest profit-to-member pension provider, Nest,
have entered a binding agreement that will see Nest take a 10%
ultimate ownership stake in IFM and provide foundation investments
to help launch three new IFM products over the next 12-18 months,
with presumptive support for new products into the future.
17)In response to a question about how Hymans can influence the stewardship function of the different managers, IC confirmed that the Responsible Investment team research the fund management teams so that there can be regular review and challenge, this is something that is taken seriously and more information can be provided on this to the Committee in future.
18)IC agreed to provide further
information about the red rating for Baillie Gifford on a follow up
e-mail.
66.3 The Committee RESOLVED to note the investment report.
67. Work programme
67.1 The Committee considered its work programme, introduced by SG, and noted the following points:
1) This is a valuation year, and this is reflected in the work programme;
2) The June 2025 training will now focus on valuation training rather than member induction following the announcement of the postponement of the elections in May 25;
3) In June there will be income generation training and understanding the position of the Fund and managing cashflow;
4) It was
agreed that Business continuity will be reviewed and then either
addressed in the workplan or within the risk register.
67.2 The Committee RESOLVED to agree the work programme.
68. Exclusion of the public and press
The Committee RESOLVED to exclude the public and press from the meeting for the remaining agenda item on the grounds that if the public and press were present there would be disclosure to them of exempt information as specified in paragraph 3 of Part 1 of the Local Government Act 1972 (as amended), namely information relating to the financial or business affairs of any particular person (including the authority holding that information).
69. AVC Report - exempt information
69.1 The Committee considered the Exempt Additional Voluntary Contributions (AVC) report.
69.2A summary of the discussion is set out in an Exempt minute.
69.3 The Board RESOLVED to note the report.
70. Pension Reform Agenda (exempt items)
70.1 The Committee considered the Exempt Pension Reform Agenda report.
70.2 A summary of the discussion is set out in an Exempt minute.
70.3 The Committee RESOLVED to agree the recommendations set out in the exempt report.
71. Investment Report - exempt information
71.1The Committee considered the exempt Investment report.
71.2A summary of the discussion is set out in an exempt minute.
71.3 The Committee REOLVED to agree the recommendation set out in the exempt report.
72. Governance Report - exempt information
72.1Committee considered the exempt risk register.
72.2A summary of the discussion is set out in an exempt minute.
72.3 The Committee RESOLVED to agree the recommendations within the exempt report.
73. East Sussex Pension Fund (ESPF) Breaches Log - exempt information
73.1 The Committee considered a report providing an update on the Breaches Log and outstanding or new Internal Dispute Resolution Procedure (IDRP) cases.
73.2A Summary of the discussion is set out in the exempt minute.
73.3 The Committee RESOLVED to:
1) Note the breaches of law and steps being taken;
2) Note the new IDRP complaint raised in the relevant period; and
3)
Note the update on cases being considered by The Pensions
Ombudsman.
74. Employer Admissions and Cessations - exempt information
74.1 The Committee considered a report providing an update on the latest admissions and cessations of employers within the Fund.
74.2 The Committee RESOLVED to:
1)
Note the ongoing proceedings for the admission of admitted bodies
to the Fund;
2)
note the ongoing proceedings for the
cessation of employers from the Fund; and
3) Agree the recommendations within the exempt report.
The meeting ended at 13.14
Councillor Gerard Fox (Chair)