Agenda and minutes

33.1     The Board agreed that the minutes were a correct record of the meeting held on 3 November 2016.

34.1     Apologies for absence were received from Tony Watson.

35.1     There were none.

Notification of any items which the Chair considers urgent and proposes to take at the appropriate part of the agenda.

36.1     There were none.

37.1         The Board considered a report on the Pension Committee’s agenda for its 27 February meeting. The reports were introduced by Ola Owolabi (OO), Head of Accounts and Pensions.

37.2         In reference to Item 9: Investment Strategy Statement (ISS), the Chair invited representatives of Divest East Sussex to speak about their document titled "Managing Climate Risk: Proposed Additions for ESPF's new Investment Strategy".

37.3         Councillor Kevin Allen (KA) and Angie Embury (AE) questioned why under the section “How social, environmental or corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments” the fund appears to be excluded from divesting, boycotting or sanctioning foreign governments or UK defence industries when the funds’ members may object to investing in UK defence industries. OO said that the wording was in line with the requirements of the LGPS Management & Investment of Funds Regulations 2016  which prohibits funds from being able to disinvest from UK defence industries and foreign governments for non-financial reasons.

37.4         KA said that the Pension Committee should consider acting as a front runner in reducing investment in fossil fuels if it can be done whilst upholding its fiduciary duty.

37.5         Sue McHugh (SM) said that the Pension Committee’s fiduciary duty towards the ESPF means it cannot take a blanket decision to not invest in an any industry without strong enough evidence that it will not impact negatively on investment returns. The financial risk sits with the ESPF and employers rather than individuals, so the Committee members should not take a decision that they might do in their capacity as an individual if it causes financial risk to the pension fund and its employers.

37.6         OO explained that the investment managers working on behalf of the ESPF will invest according to the Fund’s beliefs as set out in the ISS. The Local Authority (LAPFF) has a strong ethical stance and also helps to guide where investments should be made on behalf of other local government pension funds.

37.7         SM asked, in reference to the section “Investment of money in a wide variety of investments”, how much of the total value of all investments was in entities which are connected with East Sussex County Council (noting that the legal maximum was 5%). OO confirmed that no investments were in entities connected to the Council. He added that the viability of local investment had previously been looked at but none were found to yield a reasonable return.

37.8         AE asked how ACCESS fund pooling would affect the varied investment strategies of individual member funds. OO explained that all 11 funds will retain their strategies and invest in the same asset classes as decided by their respective Pension Committee. The difference will be that each asset class, e.g., absolute return or property, will be managed by a single investment manager – instead of 11 individual managers – who will invest on behalf of all of the ACCESS members that allocate funds into that asset class. This will deliver  ...  view the full minutes text for item 37.

38.1     The Board considered a report on the External Audit Plan for East Sussex Pension Fund for 2016/17.

38.2     The Chair commented that a materiality of 1% of net assets seemed very high given that this equated to £27 million. He said it would make more sense to make it 1% of the pension administration costs. OO said that although the materiality level was high, non-trivial and trivial errors would still be recorded and reported by the external auditors. Furthermore, the materiality is classified as “creeping materiality”, so the £27 million trigger would be a cumulative figure of all errors discovered in the accounts, at which point the external auditor could issue a qualified opinion.

38.3     SM asked whether the external auditor was in a position to comment on investments and not just accounts. OO said that there were statutory requirements for the external auditor to discuss concerns about investments with pension fund officers, the Committee and the Pension Board.

38.4     The Board RESOLVED to note the report.

39.1     The Board considered a report on the Pension Board Insurance Arrangements.

39.2     The Chair explained that although the Board did not take decisions, it could still be considered negligent if it failed in its duty to report breaches of the law to the Pension Fund Regulator. However, only two of 89 pension boards had so far opted to acquire an insurance premium to cover potential liability. He recommended that the Board defer this recommendation to the Committee until such time as more pension boards had opted for the insurance premium.

39.3     SM observed that as only Aon Risk Solutions was offering this insurance policy, the value of the asking price could not be verified against a market average. This made it more prudent to wait until the market matured.

39.4     The Board RESOLVED to:

1) note the report; and

2) defer the recommendation to the Pension Committee to approves the Pension Board Insurance premium for payment until the next meeting on 26 June 2017.

40.1     The Board considered a report on the Reporting Breaches Policy.

40.2     The Chair observed that, in light of the legal advice about the potential risk to pension boards for failure to report breaches, all breaches, even those that the Monitoring Officer and Chief Finance Officer do not consider material, should be reported to the Board.

40.3     The Board resolved to:

1) note the report; and

2) recommend that all material and non-material breaches are reported to the Pension Board.

41.1     The Board considered a report providing an update on the effectiveness of the current LGPS administration system used by Business Operations and market alternatives.

41.2     The Chair asked for confirmation that, in line with the Pension Committee’s decision in March 2016, there was still an opportunity to activate the 3-year break clause in the contract with Heywood if necessary. . BS confirmed that with the assistance of procurement, who will provide an independent view, a review of the alternative LGPS administration system provided by Civica would be completed by December 2017, allowing time for a procurement process to be completed before the 3-year break clause period is reached in March 2019.

41.3     The Board RESOLVED to note the report.

·         GMP Reconcilitation

42.1     The Board considered a report providing an update on the work of the Business Operations Team.

42.2     Graham Devenish (GD), Pension Operations Manager, said that the Pension Regulator is recommending GMP reconciliation tolerance level of £2, although the impact this will have on individual scheme members will vary. There is also the possibility that scheme members may owe the Fund and in theory this money could be clawed back. The cost of pursuing individual cases to the nearest penny may cost ESPF more than accepting a tolerance level of £2. GD added that HMRC’s deadline for closing their GMP records in December 2018 is very unlikely to change and only a limited service will continue after that date.

42.3     BR asked for clarity about whether the budget of £120,000 for 2017/18 will be sufficient to cover GMP reconciliation costs. GD said that ITM provided a stage 1 report for both Surrey and East Sussex at a lower cost due to the benefits of scale. The report compared a database of scheme members against HMRC records to find where there were mismatches; 15-20,000 people may be liable for GMP reconciliation but it is not clear yet the cost of this liability to ESPF. ITM’s involvement in the process is expected to cost £160,000 for both funds, which is well within the ESPF budget for 2017/18 or £120,000.

42.4     BR asked why the audit, actuary and ICT costs were around 60-70% higher than the benchmark. BS clarified that the CIPFA ICT benchmarking was a year behind and did not account for the reduced costs realised by the new pension administration system procured in April 2016. The Chair said that the audit fee was only £19,000 and so the fact it was comparatively higher did not have a significant impact.

42.5     BR observed that the overall cost of actuarial work was considerable when taking into consideration the work performed by the actuary on the behalf of specific employers, which is recharged to the Fund. SM said that the process of having the actuary produce bespoke financial statements for employers that are then independently checked was inefficient and there was no national discount rate. OO said that the ongoing savings at district, borough and unitary authorities involved redundancies that might have pension implications and so it was necessary for the actuary to check for these.

42.6     The Board resolved to note the report.  

43.1     The Board considered a general update on pension issues.

43.2     The Board RESOLVED to note the report.

44.1     The Board considered its forward plan.

44.2     The Board RESOLVED to note the report.

To consider excluding 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).

45.1    The Board RESOLVED to excludethe 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).

46.1     The Board considered the exempt report of the Pension Committee agenda: LGPS Asset Pooling – ACCESS Inter Authority Agreement.

46.2     The Board RESOLVED to note the report.