Agenda and draft minutes

Pension Fund Sub-Committee - Tuesday, 23rd June, 2020 6.30 pm

Venue: Meeting Room 1 (2nd Floor) - 3 Shortlands, Hammersmith, W6 8DA. View directions

Contact: Amrita Gill  Tel: 07776 672845

Link: View live stream on YouTube

Items
No. Item

1.

Minutes of the previous meeting pdf icon PDF 246 KB

To approve as an accurate record and the Chair to sign the minutes of the meeting held on 11th February, 9th March and 22nd April.

 

 

Additional documents:

Minutes:

RESOLVED –

THAT, the minutes of the meeting held on 11th February 9th March 22nd April were approved by the chair

 

2.

Apologies for absence

Minutes:

There were no apologies for absence.

 

3.

Declarations of interest

If a Councillor has a disclosable pecuniary interest in a particular item, whether or not it is entered in the Authority’s register of interests, or any other significant interest which they consider should be declared in the public interest, they should declare the existence and, unless it is a sensitive interest as defined in the Member Code of Conduct, the nature of the interest at the commencement of the consideration of that item or as soon as it becomes apparent.

 

At meetings where members of the public are allowed to be in attendance and speak, any Councillor with a disclosable pecuniary interest or other significant interest may also make representations, give evidence or answer questions about the matter.  The Councillor must then withdraw immediately from the meeting before the matter is discussed and any vote taken.

 

Where Members of the public are not allowed to be in attendance and speak, then the Councillor with a disclosable pecuniary interest should withdraw from the meeting whilst the matter is under consideration. Councillors who have declared other significant interests should also withdraw from the meeting if they consider their continued participation in the matter would not be reasonable in the circumstances and may give rise to a perception of a conflict of interest.

 

Councillors are not obliged to withdraw from the meeting where a dispensation to that effect has been obtained from the Standards Committee.

Minutes:

There were no declarations of Interest.

 

4.

H&F Pension Abatement - proposed abolishment pdf icon PDF 207 KB

This report recommends to the Pensions Sub-Committee that from 1 July 2020 the council should cease operating the abatement of pension benefits for certain H&F pensioners who are re-employed by an employer that operates the Local Government Pension Scheme (LGPS).

Minutes:

Trevor Webster, (Human Resources) introduced the item and explained that this report recommended that from 1st July the Council should cease operating the abatement of pension benefits for certain H&F pensioners who were re-employed by an employer that operated the Local Government Pension Scheme (LGPS). This would bring the Council inline with most other London local authorities and would eliminate all current discrepancies in the treatment of pensioners who may be re-employed following their retirement.

 

Until 31 March 1998 abatement was mandatory in the LGPS.  From 1 April 1998 until 31 March 2014 it was discretionary. Trevor Webster also explained the reasons why this policy was no longer relevant to the Council and the rational for ceasing the abatement.

 

Trevor Webster (Human Resources)noted that currently the Council had four pensioners whose pension was abated.  The responsibility fell on the re-employed pensioner to inform the Surrey Pensions Team of any re- employment to which abatement may be applied. 

 

Councillor PJ Murphy asked if there was any financial impact on the four pensioners whose pension was abated. In response Trevor Webster explained that the four pensioners would receive their full pension from 1st July, however they wouldn’t be entitled to any backdated pension if the recommendations were agreed by the Pension Fund Sub-Committee. Contact would be made with the pensioners and their pension would be increased by a relatively small amount to bring it inline with the changes. For these pensioners, the estimated increased pension costs were under £50,000 a year.  The longer-term impact would depend on the number of LBHF pensioners with pre-2014 service who had re-employed, however the impact was expected to be insignificant compared to the total liabilities of the Fund.

 

 

RESOLVED -

THAT, the Council from 1st July ceased the abatement of pension benefits for eligible H&F pensioners who were re-employed by an employer that operates the LGPS.  

5.

Investment Strategy Update pdf icon PDF 142 KB

 

This paper provides an update on the London Borough of Hammersmith & Fulham Pension Fund’s investment activity since the Pension Fund Sub-Committee approved the delegation of all decision-making to the Chair, in consultation with the Director for Treasury and Pensions in April 2020.

 

This report has two appendices that contains information exempt within the meaning of Schedule 12A to the Local Government Act 1972 and is not for publication. The appendix has been circulated to the committee members only.

 

Any discussion on the contents of an exempt appendix will require the Committee to pass the proposed resolution at the end of the agenda to exclude members of the public and press from the proceedings for that discussion.

 

Minutes:

Kevin Humpherson (Deloitte) provided an update and noted that the pension fund had been invested in the M&G Inflation Opportunities Fund (IOF) since 2015. As at 30 April 2020, the pension fund had £113.0m invested with the Fund. In February 2020, the pension fund approved an asset allocation of 10% to inflation strategies and 5% to property. To meet the inflation objectives of this mandate, the M&G IOF had a sizeable allocation to long lease property. This allocation effectively meant that the pension fund’s exposure to long lease property was around 9%, and exposure to UK commercial property (including income strips and ground rents) was around 13.5%. Whilst the Fund had outperformed its return objective since inception, it had largely underperformed its expected sector allocation. 84% of the Fund was exposed to UK commercial property compared with the expected 55% target allocation.  The Fund had a larger exposure to the office, hotel and leisure sectors which had been significantly impacted by the lockdown measures put in place earlier this year as a means to minimise the spread of the coronavirus disease. In addition, the Fund had faced some challenges in rent collection which had led to more rent deferrals from the tenants. As a result, the pension fund faced an increase to its cash flow risk which could lead to increased difficulties in paying out pension benefits if this was not addressed.

Therefore, the Pension Fund Sub-Committee was recommended to either partially or fully disinvest from the M&G IOF and commence the search for a replacement manager to achieve the Fund’s diversification targets.

 

The earliest point of redemption would be 1st September and monies would be distributed 30 business days after. The fund manager had discretion whereby they don’t have to distribute more than 5% in any one dealing date. The Council’s total holding within the Fund was 22% therefore a full disinvestment could be distributed over a 5-month period should this be necessary. In addition, there would be an option to keep the income strip allocation. However, it was felt that this wouldn’t be a viable option.  In addition, a dilution levy would be applied purely based on market pricing in September 2020. This would be 25 basis points as an estimate.

 

Kevin Humpherson explained that going forward the Council would need to explore alternative options to reallocate the investment. Some of the factors to consider when reviewing alternative options would be exposure to UK property, exposure to UK linkage and expected return on the Fund as a whole. A number of discussions had been held with some fund managers as a possible alternative to M&G. In the long term, the proceeds should be invested in assets which delivered inflation linked income while adding diversification to the Fund, such as infrastructure debt. Recognising this would take time to identify and select, and was not helped by the current market conditions,

 

Phil Triggs (Director of Treasury and Pensions), commented that officers agreed with Deloitte’s suggested  ...  view the full minutes text for item 5.

6.

Exclusion of the public and press

The Committee is invited to resolve, under Section 100A (4) of the Local Government Act 1972, that the public and press be excluded from the meeting during the consideration of the following items of business, on the grounds that they contain the likely disclosure of exempt information, as defined in paragraph 3 of Schedule 12A of the said Act, and that the public interest in maintaining the exemption currently outweighs the public interest in disclosing the information.

Minutes:

RESOLVED –

THAT, under section 100A (4) of the Local Government Act 1972, the public and press be excluded from the meeting during the consideration of the following items of business, on the grounds that they contain the likely disclosure of exempt information, as defined by paragraph 3 of Schedule 12A of the said Act and that the public interest in maintaining the exemption outweighs the public interest in disclosing the information.

 

7.

Exempt Minutes of a previous meeting

To approve the exempt minutes of the meeting held on 9th March 2020.

Minutes:

RESOLVED –

THAT, the minutes of the meeting held on 9th were approved by the chair

8.

Investment Strategy Update - Exempt Appendices

These appendices contain the exempt elements of item 5.

 

Additional documents:

Minutes:

The exempt elements of the report were noted.