Agenda and draft minutes

Pension Fund Sub-Committee
Tuesday, 9th July, 2019 7.05 pm

Venue: Committee Room 3 - Hammersmith Town Hall. View directions

Contact: Amrita Gill  Tel: 020 8753 2094

Items
No. Item

1.

Minutes of the previous meeting pdf icon PDF 78 KB

To approve as an accurate record and the Chair to sign the minutes of the meeting held on 26 March 2019.

 

 

Minutes:

RESOLVED –

THAT, the minutes of the meeting held on 26 March 2019 were approved and signed by the chair

 

2.

Apologies for absence

Minutes:

Apologies for absence were received from Councillor Rebecca Harvey, Mathew Hopson and Tim Mpofo.

 

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 Audit, Pensions and Standards Committee.

 

 

Minutes:

There were no declarations of Interest.

 

4.

Quarterly Update Pack pdf icon PDF 88 KB

This paper provides the Pension Fund Sub-Committee with a summary of the Pension Fund’s overall performance for the quarter ended 31 March 2019.

 

Additional documents:

Minutes:

The Chair welcomed Heather Brown and Ian Berry (Aviva Investors) to provide a presentation, relating to the performance of the Aviva Fund. The following points were noted:

 

-        In December 2017 the Council made a £30m investment in the Fund.

-        The Fund invested in low risk assets for regular long-term incomes.  Majority of the fund was invested in small scale solar PV and utility-scale onshore wind sectors.

-        An overview of the Fund’s characteristics was provided.

-        The Fund provided a stable level of regular income of 7-8% yield per annum. It was noted that past performance was not a guide to future performance and the value of an investment in the Fund could decrease as well as increase.

-        Aviva had excellent Environmental, Social and Governance (ESG) credentials and worked together with an independent consultant to develop a ‘carbon calculator’ tool to measure the carbon equivalent savings associates with the portfolio.

-        Approximately 20% of the Fund’s portfolio was installed on social housing properties, with an expected higher rate of individuals experiencing fuel poverty than average.

-        An overview was provided of the total transaction value held across Aviva’s managed portfolios.

 

Councillor PJ Murphy, referring to the market sectors slide in the presentation asked if the Fund would face any challenges in terms of long-term sustainability after taking into consideration any potential changes to the government legislation. In response Ian Berry explained that all of the sectors were sustainable in the longer-term. There was always a potential of risk, but this took place very rarely. In addition, Aviva investors were not concerned about any legislation changes as all the portfolios were well regulated and contracted.

 

Michael Adam, Co-opted Member asked for further clarification to be provided around the asset split between the different market sectors. Ian Berry explained that the investments were structured to provide stable value across the market. In addition, the current assets would last for 25 operational years. The Fund was expected to grow as it stood, subject to any variation to the valuation. Council officers would be provided with regular updates of any potential changes made to the Fund. In addition, the Fund would operate using an open-ended scheme after the first 5 years and regular developments would take place ensuring that the rate of yield was being maintained.

 

Councillor Matt Thorley commented that the presentation was very useful and was impressed with the Fund’s performance to date.

 

The Chair thanked Aviva investors for the presentation and the contributions made to the meeting.

 

Jonny Moore (Deloitte) provided an update of the overall performance for the quarter ended 31 March 2019. It was noted that the Fund was overweight to equities and inflation protection relative to the strategic benchmark.

Over this quarter, the total Fund returned 5.5% on a net of fees basis, outperforming the fixed weight benchmark by 0.3%. In addition, the total Fund underperformed the benchmark by 1.7% on a net of fees basis over this year to 31 March 2019, returning 6.3%.  ...  view the full minutes text for item 4.

5.

McCloud, Cost Cap and Valuation pdf icon PDF 87 KB

This paper provided the Pension Fund Sub-Committee with background information on the LGPS cost cap in public service pensions and recent developments.

 

Additional documents:

Minutes:

Phil Triggs, Director of Treasury and Pensions introduced the report and provided an update on the cost cap in public service pensions and recent developments. Whilst the cost cap/floor mechanism would normally be underway at this time, the Government Actuaries Department (GAD) had suspended the process, pending the outcome of the McCloud Supreme Court case.

It was highly unlikely that there would be any resolution before the 2019 actuarial valuation was complete. However, there were several possible ways of treating the outcome of the McCloud appeal and the cost management process. The LGPS Scheme Advisory Board (SAB) was due to issue guidance to funds and actuaries on the preferred approach.

 

RESOLVED -

THAT, the Sub-Committee noted the report and potential implications for the Hammersmith & Fulham Pension Fund and the consultation on the actuarial valuation process at Appendix 1.

 

 

6.

Exit Cap Consultation pdf icon PDF 87 KB

This paper provides the Pension Fund Sub-Committee with a summary of the background of the proposed £95,000 cap on exit payments in the public sector.

 

Additional documents:

Minutes:

David Coates, HR and Payroll Consultant provided an overview and summary of the background of the proposed cap on exit payments in the public sector. On 10 April 2019, HM Treasury opened a consultation, and this would close on 3 July 2019.

The exit cap covered redundancy payments (including statutory redundancy payments), severance payments, pension strain costs, and all other payments made as a result of the termination of employments. The statutory redundancy element of an exit payment cannot be reduced. If the cap was exceeded, other elements that made up the exit payment must be reduced, to ensure that an exit payment not above £95,000 was achieved.

The general feeling amongst stakeholders was that the exit cap would apply beyond those considered by the Government to be ‘high earners’ and would now be likely to include middle and lower management salary grades with long service in the LGPS and whose employment was being terminated prior to their normal pension age. In addition, the Council could only override the cap in certain circumstances, these include GP considerations, whistleblowing or discrimination claims and discretionary grounds.

The Council had responded formally to the consultation and a copy of the response was tabled during the meeting.

The chair asked for further clarification to be provided on how these changes would be implemented. David Coates explained that the LGPS regulations would need to be amended to allow the cap to be implemented. It was not clear how benefit calculations would be calculated and how the cap would be introduced. In addition, the government had not yet carried out an equalities impact assessment and a precise future timing for this had not been established.

 

Councillor PJ Murphy asked how these proposed changes would impact staff contractually. In response David Coates explained that the contract of employment would be overridden for the staff members who would be affected by this change. Statutory redundancy payments were protected but contractual payments were not covered under the new arrangements.

 

RESOLVED –

-        THAT, the Sub-Committee noted the report.

 

7.

Accounts and Annual Report pdf icon PDF 88 KB

This report presents the draft Pension Fund Annual Report and Statement of Accounts for the year ended 31 March 2019.

 

Additional documents:

Minutes:

 

Phil Triggs, Director of Treasury and Pensions introduced the report which included the Pension Fund Accounts 2018/19. This was a regulatory requirement and needed to be approved by the Pension Fund Sub-Committee by 30 September following the year end.  In addition, the external audit was currently underway, beginning on 1 July 2019. The Pension Fund investments returned 5.0% over the year, although this was 2.5% below the benchmark for the year. The Fund suffered poor performance from its UK Equities allocation and poor returns from its diversified growth fund.  The Fund remained ahead of its benchmark over a ten-year time horizon and since inception.

 

Members expressed their disappointment of the Fund’s underperformance in comparison to the London average.

 

RESOLVED -

THAT, the Sub-Committee approved the Pension Fund Annual Report for 2018/19 and noted the Pension Fund Accounts for 2018/19.

 

 

8.

UK Equity Mandate Review pdf icon PDF 92 KB

This paper summarisesthe current allocation to UK Equities and the risks and benefits of holding this allocation.

Minutes:

Kevin Humpherson, Deloitte introduced the report and noted that the Partners Group Fund was in wind down, therefore recommended that the Committee explored other alternatives to reallocate the investment.

 

It was noted that Majedie Asset Management had run the UK Equities mandate since 2005, outperforming the market by around 2.6% on a since inception basis (annualised). The main points to note from the report were:

 

-        Majedie had experienced poor performance in the last two years, with significant underperformance in 2017 when compared with the FTSE All Share Index.

-        Majedie had suffered particularly from a small part of its portfolio that had significantly underperformed.

-        Long term performance did however still remain positive.

-        The portfolio invested primarily in stocks with high percentages of earnings generated overseas, providing less currency risk diversification.

-        There were no long-term concerns with Majedie Asset Management in continuing to manage the mandate if the Committee wished to maintain an allocation to UK Equities

 

Michael Adam, co-opted Member asked for further clarification to be provided around the Fund’s positioning. In response Kevin Humpherson said that the Council would need to review its total UK equity portfolio. Majedie had not positioned the Fund on the basis of a particular Brexit outcome and as such held a mostly balanced portfolio. The UK Equity Fund had always used stock selection and sector views as opposed to relying on the macroeconomic views. The UK Equity Fund had less exposure to UK companies with global revenues in comparison to the wider market, therefore should be less affected by a sterling rally should Brexit developments prove favourable. However, this position would lose out if sterling depreciated further as a result of a no deal Brexit.

 

The Chait asked how quickly the Council could exit the Majedie fund, should the Committee consider an alternative asset class within Equities. In response Kevin Humpherson said that a plan would need to be agreed and this could be effectively implemented very soon. A redemption request would be made to the LCIV. There would be no redemption fees, however a standard transition cost would apply.

 

Members asked whether the Fund’s performance was collectively monitored. Kevin Humpherson said that this had been monitored and views were based on the track record and past performance of the active manager when dealing with this type of investment in equities.

 

Phil Triggs, Director of Treasury and Pensions noted that all the other local authorities in this sub fund had withdrawn and only two still remained invested in the Majedie fund. In addition, should the committee decide to withdraw, they should consider reallocating the portfolio to the passive global markets due to the risk faced with UK equity markets. For example, the MSCI low carbon global index would be worth exploring as a short-term investment.

 

The Chair requested that a breakdown of the Fund’s asset allocation, including interim valuations be brought to the next meeting for a further review.

 

RESOLVED -

THAT, the Sub-Committee noted the current performance of Majedie  ...  view the full minutes text for item 8.

9.

Cash Management pdf icon PDF 80 KB

This paper provides the Pension Fund Sub-Committee with a summary of the Pension Fund’s current cash managers and future recommendations for the effective management of cash for the fund.

 

Minutes:

Phil Triggs Director of Treasury and Pensions provided a summary of the Pension Fund’s current cash managers and future recommendations for the effective management of cash for the fund.

 

RESOLVED -

THAT, the Sub-Committee noted the key details of each of the fund’s existing cash managers and approved the transfer of the cash in the LGIM Sterling Liquidity Fund into the Northern Trust custody account and use of the Northern Trust as the main account for any future asset transitions.

 

10.

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:

The Chair requested for any members of the public and press to leave the meeting room, as all the public reports had been heard and the Committee were then moving onto exempt items.

 

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.

 

11.

UK Equity Mandate Review - Exempt Elements

This report contains the exempt elements of item 8.

Minutes:

The exempt elements of this item were noted and discussed in conjunction with item 8.

 

RESOLVED -

THAT, the Sub-Committee noted the exempt elements.