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67.1.      The Board considered a draft of the Pension Fund 2017/18 Annual Report.

67.2.      OO explained that the Annual Report was still in draft form and subject to the receipt of data from the East Sussex Pension Fund’s (ESPF) custodian, Northern Trust.  He said that the external auditors, KPMG, will audit the Annual Report prior to it being approved by the Pension Committee at its next meeting on 16^th July 2018.  

67.3.      Councillor Richard Stogdon (RS), Chair of the Pension Committee, asked whether the Fund actuary’s claim that there is a 66% chance the Fund will be fully funded in 20 years was overly pessimistic considering that the most recent triennial evaluation had concluded that it was nearly at full funding already.

67.4.      The Chair said that the funding level can vary depending on how it is calculated, for example, using the Government’s actuary’s figures would give the ESPF a funding rate of 114%.  He also said that the Fund could well be self-funding in 2 years but liabilities could outstrip contributions in the long term so that in 20 years it was no longer self-funding. OO added that the Fund’s actuary (Hymans Robertson) is very prudent and different actuaries may give a different funding figure.

67.5.      Stephen Osborn (SO) observed that the markets were in the midst of the longest ‘bull run’ in history and that when it comes to an end there could be a negative impact on the Fund’s assets.

67.6.      SO asked whether the £3m reduction in investment manager fees from £7.6m in 2017/18 to £4.6m in 2018/19 would be offset by transition costs and other one off fees. OO said that there are some transition costs but taking these into account still results in a net reduction in fees due to ACCESS delivering economies of scale.

67.7.      SO asked why some pension funds in ACCESS are looking at longer time periods before receiving savings through pooling. OO explained that some funds have lot more liquid assets that can be pooled immediately and see a reduction in investment manager costs, for example, the movement of ESPF £1.6bn of passive investments to UBS had seen ESPF costs for passive fund managers halved.  Those funds with greater illiquid assets such as infrastructure and private equity cannot pool them immediately and so will see less benefit in the short term. OO explained that the cost of investment managers would decrease from £7.6m to £4.6m during 2018/19 as a large part of fees would be paid through ACCESS rather than directly to fund managers, along with transition costs and operator costs.

67.8.      SO asked whether the fees deducted by some managers at source (and therefore not included in the £7.6m figure) would be similar following the transfer of those assets to ACCESS. OO said that fees deducted at source tend to be for managers of illiquid assets such as private equity, as they are not yet transferring into the ACCESS pool the fees deducted at source are expected to stay the same but could change in the future.

67.9.      Angie Embury (AE) asked whether there are any employers that are persistently paying pension contributions late. OO said that he would clarify which employers were making late payments.

67.10.   The Chair observed that it can be a sensitive and difficult task to reclaim overpaid pensions following the death of a scheme member, but the figure for 2017/18 of £1k of write-off showed that the process was being handled effectively.

67.11.   The Chair asked whether investment managers report back to ESPF about voting, governance and engagement activities with companies. OO said that the Fund has always empowered managers to vote in accordance with the Investment Strategy Statement (ISS) and they generally have let the Fund know how they voted. However, it will now be mandatory for them to report back to the Fund and make their voting decisions public.

67.12.   The Chair asked whether the fact that investment managers generally vote with companies’ management was an issue. OO said that the Local Authority Pension Fund Forum (LAPFF) provides Funds with its viewpoints on proposed votes. The Fund will then forward these viewpoints to investment managers ahead of the vote.

67.13.   AE asked for the number of scheme members over the age of 55 who withdrew their pension pot following a change in regulations. OO said that the ability to withdraw a lump sum was initially thought to become popular but most scheme members were advised to consider their options.  He thought the number who have done so was zero but would clarify. 

67.14.   The Chair asked what type of organisations the five new employers who have joined the ESPF were. Wendy Neller (WN), Pension Strategy and Governance Manager, explained that they were either admitted bodies or academies and that none of them have had financial difficulties as far as she was aware.

67.15.   The Board RESOLVED to note the report and request the following to be circulated by email:

1) a list of employers that were making late payments;

2) the number of scheme members who withdrew their pension as a lump sum at 55.