75.1 The Board considered a report on the Additional Voluntary Contribution (AVC) scheme arrangements for the Pension Fund. PP outlined that the report had been requested following concerns about the administration performance of the existing AVC provider Prudential.
75.2 The Chair asked what proportion of the Fund’s members are paying into the AVC scheme.
75.3 PP responded that around 3% of members are paying into the AVC scheme. This relatively low figure may be due to the relatively high level of the main scheme contributions.
75.4 The Board discussed the performance of the AVC scheme and the range of funds available for members to invest in under the scheme. There are around ten funds that members of the AVC scheme can choose from which include an environmental, social, and governance fund. In addition, there are two lifestyle funds. Each fund has different levels of investment risk and potential return. It was noted that most AVC members invest in the default (with profits) or multiple funds, which suggests they understand risk.
75.5 TD ask for clarification on the relationship between the ESPF and the AVC provider and asked whether the service issues had been cushioned by the Fund.
75.6 PP responded that the contract for the provision of the AVC scheme is between the ESPF and the AVC provider who deals with all enquiries, benefits, and transfers etc. Any contributions are paid directly to Prudential by the employers. As such, the ESPF has a fiduciary duty to monitor the performance of the AVC provider. The Fund has sought to cushion the service issues experienced by members and has helped to ensure members have not been affected financially. Prudential have committed to ensure late contributions are invested at prices on the day they should have been invested if in the members best interests and late settlements are being compensated.
75.7 The Chair asked what the Board is being asked to recommend.
75.8 PP responded that he is satisfied that most of the administration performance issues and complaints about the current provider have been resolved. The Standard and Poors rating of the provider remains at A+. Therefore, there is no need to change provider at this point in time, but both administration and investment performance should be monitored regularly by the Committee. There is also a need to consider the suitability of the fund choices being made available and particularly the default fund.
75.9 TI asked for more details of the performance of the AVC fund investments against benchmarks.
75.10 PP outlined that that the performance of AVC investments is generally good, and more detailed information could be provided at the next meeting.
75.11 LW agreed that the performance of the AVC provider should be monitored regularly as this would be best practice in terms of governance and oversight. As Prudential had acted to resolve the complaints and service issues, there would appear to be no reason to change AVC provider at the moment.
75.12 The Board RESOLVED to:
1) advise the Pension Committee that the administration performance issues with the AVC provider have been resolved and there is no need to undertake a full market review of AVC providers at this point in time; and
2) recommend that the performance and investments of the AVC provider are monitored regularly through an annual report.