Business Plan
& Budget
1.
Business
Plan
1.1
It is anticipated that
2021/22 will see some key activities within the following
themes:
·
Pension Fund
Oversight and Governance activities: Fund/Employer actuarial work,
Fund external legal advice, Pension Fund Annual Report and
Accounts, External/Internal audit work, Achievement of the
Statutory Annual Benefit Statement, Implementation of McCloud
provisions, Public Sector Exit Payments, Review of Academies,
Employer covenant reviews and final implementation of the ill
health insurance cover for employers.
·
Investment
activities: Review investment strategy,
develop the Fund’s Environmental, Social and Governance (ESG)
credentials, UK Stewardship Code 2020, Principals of Responsible
Investment, review and implement any agreed changes to the
Fund’s credit structure, assistance with annual accounts
completion, Investment Governance, Investment Pooling, Cost
Transparency, Cost Management.
·
ACCESS
activities: ACCESS support unit (ASU),
Actively managed listed assets, Alternative/ non-listed assets,
alternative / non listed assets, passive assets,
Governance.
·
Employer engagement
activities: i-Connect implementation,
contribution monitoring, communications strategy.
·
Pension
Board/Committee Training: Implementation of the agreed
training strategy for the Board and Committee, Provision of 2
Investment Governance/Strategy days, Attendance at third party
provided LGPS related training, Breaches, Good
Governance.
·
Pension
Administration: Implementation of the sovereign
pensions administration service, Maintaining Member Data, Data
Improvement Programme, Annual Benefit Statement (ABS) Compliance
and Employer Engagement Planning, McCloud working group.
1.2
Each theme within the
business plan includes activities planned for the year. The
strategic nature of East Sussex Pension Fund objectives means that
a number of the 2021/22 activities build on work previously
undertaken and will in turn provide the foundation for further
milestones in subsequent years.
1.3
On a day to day basis
the pension function is led and co-ordinated by the Pension Fund
Officers. Pension administration will be a sovereign provision of
service and will sit under the Head of Pensions in April 2021 and
no longer provided by Orbis Business Operations. The Pension
Committee and Board will receive updates on the work plan each
quarter.
1.4
A budget totalling
£7,091k (£3,730k 2020/21) to support the
business plan for 2021/22 is detailed below in Table 1:
Table 1 Pension Fund
Management Expenses
|
2019/20
Outturn
|
Item
|
2020/21
Budget
|
2020/21
Forecast Outturn
|
2021/22
Budget
|
|
£000
|
£000
|
£000
|
£000
|
|
|
Pension
Fund Staff Costs
|
|
|
|
|
376
|
Fund
Officers1
|
431
|
591
|
1,706
|
|
-
|
Recruitment
costs
|
-
|
50
|
12
|
|
376
|
Sub
Total
|
431
|
641
|
1,718
|
|
|
Pension
Fund Oversight and Governance
|
|
|
|
|
345
|
Actuarial Fund
Work
|
250
|
309
|
250
|
|
97
|
Actuarial
Employer Work2
|
150
|
90
|
100
|
|
(97)
|
Employer
reimbursement
|
(150)
|
(76)
|
(100)
|
|
-
|
Training
Costs
|
30
|
3
|
10
|
|
30
|
External Audit
– Grant Thornton
|
26
|
30
|
30
|
|
17
|
East
Sussex County Council Recharges3
|
19
|
217
|
286
|
|
119
|
Legal
Fees
|
115
|
187
|
165
|
|
182
|
Subscriptions
and Other Expenses
|
222
|
173
|
72
|
|
693
|
Sub
Total
|
662
|
933
|
813
|
|
|
Investment
activities
|
|
|
|
|
130
|
Investment
Advice
|
140
|
210
|
192
|
|
-
|
ESG
Advice
|
35
|
36
|
25
|
|
54
|
Custodian
|
150
|
67
|
75
|
|
64
|
ACCESS
|
78
|
86
|
93
|
|
3,003
|
Investment
Manager Fee Invoices4
|
1,200
|
2,167
|
3,313
|
|
3,251
|
Sub
Total
|
1,603
|
2,566
|
3,698
|
|
|
Pension
Administration5
|
|
|
|
|
999
|
Orbis Business
Operations Support Services
|
934
|
1,123
|
-
|
|
-
|
East
Sussex County Council Recharges3
|
-
|
-
|
237
|
|
-
|
System Services
and License
|
-
|
398
|
346
|
|
38
|
Consultancy
& Service Providers - Benefits
|
100
|
150
|
100
|
|
-
|
Other
Expenses
|
-
|
84
|
243
|
|
1,037
|
Sub
Total
|
1,034
|
1,755
|
926
|
|
5,357
|
Total
|
3,730
|
5,895
|
7,155
|
1This is assuming a full team it is
in place
2As we are moving away from a
valuation year we expect the employer queries to decrease in
2021/22
3Staffing on costs have been
separated from the direct staffing costs to provided greater
clarity on staffing costs.
4The Fund has appointed some new
external managers as part of a review of the its ESG and equity
positioning which has increased the estimated invoiced fees amount
for 2021/22.
5The Pension Administration team is
moving to sovereign control some costs have not been fully agreed a
prudent estimate has been applied
Key budget
assumptions
1.5
The key budget
assumptions are set out below
·
ACCESS cost based on
the budget set by the ACCESS Joint Committee.
·
Manager fees based on
invoiced fees only. Fees are based on the assets under management
no movement has been included in this figure.
·
Assumptions of a 1.5%
pay award have been built into the staffing model
·
The full budgetary
implications for the change from Orbis to East Sussex to the
Pension Fund has not been fully costed at this point a reasonable
estimate has been made from available information.
1.6
This budget will
deliver the key themes detail in table 2 below:
2.
Significant
Workstreams Analysed by Stream
2.1
There are 5
significant work streams against various thematic headings with in
the budget these are:
1.
Pension Fund
Oversight and Governance activities:
·
Governance and
compliance reviews
·
Data
Improvement
·
Communications
implementation
2.
Investment
activities:
·
Investment
Strategy
·
UK Stewardship Code
2020
·
Principals of
Responsible Investment
·
Investment
Governance
3.
ACCESS
activities:
·
Sub Fund transition
management
·
Investment
Governance
4.
Pension
Board/Committee Training:
·
Relevant
Training
·
CIPFA Knowledge and
Skills Framework
5.
Pension
Administration:
·
Performance Management
Group
·
McCloud Work
Plan
1. Pension Fund
Oversight and Governance activities:
Good Governance
Review
In 2019/2020 the
Pension Committee commissioned forward looking Good Governance
Review, with its primary purpose to support the East Sussex Pension
Fund’s desire to get ahead of the game and establish the
principles of the Scheme Advisory Board’s ("SAB") Good
Governance Project in the Pension Fund’s governance
arrangements, in order that it will be compliant with the
recommendations expected to follow.
The project lead to a
significant number of changes to the fund including a new Pension
Fund team structure and revisions to various policies as well as
the introduction of a conflicts of interest policy. The work
resulting from the good governance review concluded in November
2020, however the pension fund though the expansion of the team and
through Internal audit reviews have identified further work that is
needed from a governance and compliance perspective. In 2021/22 the
fund will undertake a comprehensive review of THE Code of practice
14 to ensure that the fund meets the expectations of compliance of
the Pensions Regulator in all areas of fund administration. In
addition the fund will reconfirm it is fully compliance on GDPR and
that it provides sufficient documentation for members and employers
in this area.
Data
Improvement
In 2019/20 there were issues in
delivering the 2019 Annual Benefit Statements. There was a major
project commissioned in 2020 to clear many of the problems and
ensure the 2020 ABS process was improved. The 2020 ABS
project was a significant success compared to the prior year
however there are still a few areas where data can be improved.
Data will never be perfect as it is continually moving but the Fund
should be aiming for improved Data Scores
annually.
The Pensions Regulator (TPR) has
set targets of 100% for both common and scheme specific data and
the fund saw an improvement in its score in November 2020 resulting
from the projects completed to date.
A
new data improvement project will begin in 2021 and this will be
managed inhouse, however there will be various smaller projects
that could be outsourced once the data item has been
identified.
One of the main projects planned
for 2021/22 is the roll out of i-Connect for employers to submit
data monthly. This will enable data to be input into the system
monthly and cleansed at point of input rather than requiring
significant work from employer and the Pensions Admin team
annually.
Communications
Implementation
The Fund commissioned a
communications review to take place in the last quarter of 2020/21
to report back to Pensions Committee in March with recommendations.
The fund will implement the recommendations in line with Pension
Committee approval, developing a brand for the Fund and ensuring
the fund communicate with members of the fund and employers more
effectively. The budget has not yet been updated for this project
and ongoing costs while we await approval from the Pensions
Committee on the recommendations.
2. Investment
activities:
New Investment
Strategy
The Investment
Strategy is usually reviewed annually and the strategy can be
amended through out the year at Pension Committee meetings. The
Fund will be focusing on a number of areas in 2021/22 including a
review of the remaining passive equity holdings, review of FI and
credit, further allocation to Infrastructure cashflows into Private
Equity and significant work on ESG.
UK Stewardship Code
2020
This sets high
stewardship standards for asset owners and asset managers, and for
service providers that support them.
The Code comprises a
set of ‘apply and explain’ Principles for asset
managers and asset owners, and a separate set of Principles for
service providers. The Code does not prescribe a single approach to
effective stewardship. Instead, it allows organisations to meet the
expectations in a manner that is aligned with their own business
model and strategy.
The investment market
has changed significantly since the publication of the first UK
Stewardship Code. There has been significant growth in investment
in assets other than listed equity, such as fixed income bonds,
real estate and infrastructure. These investments have different
terms, investment periods, rights and responsibilities and
signatories will need to consider how to exercise stewardship
effectively in these circumstances.
Environmental,
particularly climate change, and social factors, in addition to
governance, have become material issues for investors to consider
when making investment decisions and undertaking stewardship. The
Code also recognises that asset owners and asset managers play an
important role as guardians of market integrity and in working to
minimise systemic risks as well as being stewards of the
investments in their portfolios.
When applying the
Principles, signatories should consider the following, among other
issues:
·
the effective
application of the UK Corporate Governance Code and other
governance codes;
·
directors’
duties, particularly those matters to which they should have regard
under section 172 of the Companies Act 2006;
·
capital structure,
risk, strategy and performance;
·
diversity,
remuneration and workforce interests;
·
audit
quality;
·
environmental and
social issues, including climate change; and
·
compliance with
covenants and contracts.
PRI (Principle of
Responsible Investment)
The PRI is the
world’s leading proponent of responsible
investment.
It works to understand
the investment implications of environmental, social and governance
(ESG) factors and to support its international network of investor
signatories in incorporating these factors into their investment
and ownership decisions. The PRI acts in the long-term interests of
its signatories, of the financial markets and economies in which
they operate and ultimately of the environment and society as a
whole.
The PRI encourages
investors to use responsible investment to enhance returns and
better manage risks but does not operate for its own profit; it
engages with global policymakers but is not associated with any
government; it is supported by, but not part of, the United
Nations.
The
six Principles for Responsible Investment are a voluntary and
aspirational set of investment principles that offer a
menu of possible actions for incorporating ESG issues into
investment practice.
The
Principles were developed by investors, for investors. In
implementing them, signatories contribute to developing a more
sustainable global financial system. They have attracted a
global signatory base representing a
majority of the world’s professionally managed
investments.
3. ACCESS
activities:
Sub Fund transition
management
As at the end of
December 2020 there is £31.119 billion of investments pooled
within ACCESS. The total number of actively managed listed asset
sub-funds created by link is currently 22 with another 6 planned to
launch over the next year. There are 2 more sub-funds being
considered by ACCESS as potentially viable in the pool.
Once this has been
completed ACCESS will need to review its sub-fund offering to
ensure it enables investing authorities to implement their
investment strategies. Consider requests
from investing authorities around additional sub-fund
offerings.
ACCESS will need to
undertake a review of its arrangements for the operator of its ACS
to determine how it wants to proceed at the end of the current
contract.
The ACCESS Support
Unit and Link are continuing to work to find a solution to enable
investing authorities to transition investments from one sub-fund
to another, within Link’s ACS structure. Currently this is
not possible within the sub-fund structure as the trading costs
associated with investing and dis-investing would be shared by any
other investors in the sub-funds.
Discussions have taken
place with Link with a view to create a number of specific
‘transition’ sub-funds, that would enable transitions
within the ACS and ensure that the costs of transition remain with
the authority moving their investment. Link have provided an
initial quote for the cost of ‘transition’
sub-funds.
It remains an option
for authorities invested in a sub-fund to transition in cash
– by disinvesting from one sub-fund and using the cash to
invest in another, or transition outside the ACS –
authorities can disinvest from a sub-fund ‘in-specie’
and undertake a transition in an account held with their own
custodian, using a specialist transition manager, and then invest
‘in-specie’ to the new sub-fund.
Investment Governance
The governance
arrangements around ACCESS is currently being reviewed with updates
to the Inter Authority Agreement being completed in 2020/21 and
Governance manual being updated to reflect current practices. Once
this have been agreed the structure of the Officer groups will be
reviewed to ensure that the appropriate decisions are being made at
the appropriate level with the necessary level of
delegation.
4. Pension Board/Committee
Training:
Relevant Training
Relevant training is
required to aid the Committee members in performing and developing
personally in their individual roles and to equip them with the
necessary skills and knowledge to act effectively in line with
their responsibilities. The Committee and Board are required to
improve knowledge and skills in all the relevant areas of activity
for the purposes of enabling members and representatives to
properly exercise their functions as a member of the
ESPF.
The training
necessary to achieve the required knowledge and skills is set out
in the training plan. The strategic objectives relating to
knowledge and skills are to:
•
ensure the Fund is
managed and its services delivered by people who have the
appropriate knowledge and expertise;
•
ensure the Fund is
effectively governed and administered;
•
ensure decisions are
robust, are well founded and comply with regulatory requirements or
guidance from the Pensions Regulator, the Scheme Advisory Board and
the Secretary of State for Communities and Local
Government.
To achieve these
objectives – Members of the Committee require an
understanding of:
•
their responsibilities
as delegated to them by East Sussex County Council as an
administering authority of an LGPS fund;
•
the fundamental
requirements relating to pension fund investments;
•
the operation and
administration of the Fund;
•
the principles
involved in controlling and monitoring the funding level;
and
•
effective decision
making in the management of the Fund.
To assist in
achieving these objectives, the Fund will aim for full compliance
with the CIPFA Knowledge and Skills Framework and the Pension
Regulator’s Code of Practice to meet the skill set
required. Attention will also be given to the guidance issued
by the Scheme Advisory Board, the Pensions Regulator, Local
Government Association and guidance issued by the Secretary of
State. So far as is possible, targeted training will also be
provided that is timely and directly relevant to the Board and
Committee’s activities as set out in the Fund’s
business plan.
Addressing the ESPF
Business Plan
It is vital that
training is relevant to any skills gap or business need and
training should be delivered in a manner that fits with the
business plan. The training plan will therefore be regularly
reviewed to ensure that training will be delivered where necessary
to meet immediate needs to fill knowledge gaps.
Consideration will be
given to various training resources available in delivering
training to the Board and Committee. These may include but
are not restricted to training delivery:
•
In-house
•
Self-improvement and
familiarisation with regulations and documents
•
The Pension
Regulator’s e-learning programme
•
Attending courses,
seminars and external events
•
Internally developed
training days and pre/post meeting sessions
•
Regular updates from
officers and/or advisers
•
Circulated reading
material
•
Desktop / work-based
training
•
Attending courses,
seminars and external events
•
Internally developed
sessions
•
Shared training with
other funds or frameworks
•
Circulated reading
material
The Fund will commit
to providing a minimum of 4 formal training sessions per year for
Board and Committee members inline with the approved annual
training plan
Acquiring, Reviewing and Updating
Knowledge and Understanding
Committee members should commit
sufficient time in their learning and development and be aware of
their responsibilities immediately they take up their
position. The Fund will therefore provide induction training
for all new Committee members.
Flexibility
It is recognised that a rigid
training plan can frustrate knowledge attainment when too
inflexible to reflect a change in pension law or new
responsibilities required of Board members. Learning
programmes will therefore be flexible to deliver the appropriate
level of detail required.
The Pensions Regulator E-learning
toolkit
The Regulator has developed an
on-line tool designed to help those running public service schemes
to understand the governance and administration requirements in the
public service schemes code of practice. The toolkit is an
easy to use resource and covers 7 short modules. These
are:
·
Conflicts of
Interests;
·
Managing Risk and
Internal Controls;
·
Maintaining Accurate
Member Data;
·
Maintaining Member
Contributions;
·
Providing Information
to Members and Others;
·
Resolving Internal
Disputes;
·
Reporting Breaches of
the Law.
These modules are designed to
apply to all public service schemes and are not LGPS
specific. The toolkit is designed specifically with pension
board members in mind, however in the view of Fund the material
covered is of equal relevance to members of the Committee.
Completion of the toolkit will not in itself provide Committee and
Board members with all the information they require to fulfil their
knowledge and skills obligations. It does however provide a
good grounding in some general areas.
The intention is that the
e-learning modules will be completed collectively by the members of
the committee as part of their regular meetings. This allows
answers to be discussed among the group and ensures that all
members present will benefit from the training. As with other
training sessions, the e-learning sessions will only be undertaken
when the committee is quorate.
Risk
Risk Management
The compliance and delivery of
training is at risk in the event of –
·
frequent changes in
membership of the Committee;
·
resources not being
available;
·
poor standards of
training;
·
inappropriate training
plans.
These risks will be monitored by
officers within the scope of this training strategy and be reported
where appropriate.
Budget
Training is an essential
requirement of a well-run pension fund. A training budget
will be agreed as part of the business plan and costs will be met
from the Fund.
5. Pension
Administration:
Pension Administration
Transfer
The decision was taken for the
pension administration team to be moved back to sovereign control
from the Orbis partnership. Work has been undertaken for the
service to have fully transferred by 1 April 2021.
Once the team is fully transferred
there will be a program to shape the service to meet the needs of
the East Sussex Pension Fund. Work will be taking place throughout
the year to improve the service that is provided to members
employers and other stakeholders. This will ensure that the Pension
Fund is well place to deal with the other issues that it will face
throughout the year.
McCloud Work
plan
The Fund is part of the Local
Government Pension Scheme (LGPS), a public service scheme for local
government and associated workers. Following the Hutton review of
public service pension schemes, LGPS benefits accruing from 1 April
2014 were changed from 1/60ths final salary to 1/49ths Career
Average Revalued Earnings (CARE). Retirement ages were also
increased from age 65 to State Pension Age (SPA), although many
members have protected retirement ages lower than 65. CARE benefits
effectively lose the link to salary growth and are instead revalued
each year in line with Consumer Price Index (CPI) inflation. As
part of a package of “transitional protections”
accompanying the change, members who were within 10 years of the
60ths scheme normal retirement age at 1 April 2012 were protected
by an ‘underpin’. The underpin ensures that the benefit
received by eligible members for service from 1 April 2014 was the
greater of 1/60ths final salary or 1/49ths CARE.
Two Court of Appeal judgements in
December 2018 (which the Supreme Court denied the
Government’s leave to appeal against in June 2019),
collectively referred to here as the “McCloud”
judgement, ruled that similar transitional protections in the
Firefighters’ and Judges’ pension schemes amounted to
unlawful discrimination against younger members (and indirectly
against women and ethnic minorities). A written ministerial
statement confirmed that the principle applies to these
transitional protections in the LGPS and other public service
schemes.
It is, however, very unclear what
form the remedy will take in the LGPS i.e. how benefits will change
to remove the discriminatory protections and what would be done to
compensate members for any adverse impact on service from 2014 to
that point. In essence, therefore, McCloud will have a
retrospective effect on current active members’ benefits, as
well as future service benefit accrual.
