Agenda and minutes
Venue: Room MP702, 7th Floor, Town Hall, Mulberry Place, 5 Clove Crescent, London E14 2BG
Contact: Georgina Wills, Democratic Services. Tel: 020 7364 6695 E-mail: georgina.wills@towerhamlets.gov.uk
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APPOINTMENT OF VICE-CHAIR Minutes: The Chair invited nominations for the position of Vice-Chair for the Municipal Year 2018-19.
Councillor Shah Ameen proposed that Councillor Ehtasham Haque be appointed as Vice-Chair for the Municipal Year 2018 -19. This was seconded by Councillor Leema Qureshi.
The Chair proposed that Councillor Rachel Blake be appointed as the Vice-Chair; however the nomination was declined by Councillor Blake. There being no other nominations, it was
RESOLVED
That Councillor Ehtasham Haque be appointed Vice-Chair of Pensions Committee for the duration of the Municipal Year.
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DECLARATIONS OF DISCLOSABLE PECUNIARY INTEREST PDF 67 KB To note any declarations of interest made by Members, including those restricting Members from voting on the questions detailed in Section 106 of the Local Government Finance Act, 1992. See attached note from the Monitoring Officer.
Minutes: None |
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PETITIONS To receive any petitions relating to matters for which the Committee is responsible. Minutes: Members were advised that a Petition had been received from Adam Schneider (and others) regarding Divestment from fossil fuels. The Petition was considered at Council on 18 July 2018.
The Petition called for several actions to be undertaken by the Council, these include, the immediate freeze of any new investments in fossil fuels in particular in the top 200 publicly - traded fossil fuel companies and disinvestment from fossil fuel companies.
Officers advised the meeting that the Pensions Committee had received a presentation from Friends of the Earth at a previous meeting. Members were reminded that they had held discussions about reducing their Carbon Footprint. The LBTH Pensions Fund has the lowest investment in Carbon in comparison to other LG Pensions Funds and aims to reduce the carbon exposure of their Portfolio by around 70%.
The Pensions Committee agreed that their Carbon Footprint should continue to be monitored and reviewed on annual basis.
RESOLVED
1. To note the Petition submitted by Adam Schneider (and others) regarding the Divestment from fossil fuels and
2. That the LBTH Pensions Fund carbon footprint is monitored and reviewed annually.
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MINUTES OF THE PREVIOUS MEETING(S) PDF 98 KB To confirm as a correct record the minutes of the meeting of the Pensions Committee held on 14 March 2018.
Minutes: The minutes of the meeting held on 14 March 2018 were approved as an accurate record.
Matters Arising
Item 6.1 Revised Investment Strategy Statement And Investment Options Considerations.
Members were advised that LBTH Pensions Fund Investment Strategy on long lease and infrastructure had been placed on the Pensions Committee Forward Plan.
Tower Hamlets Youth Sports Foundation (THYS) application for Admitted Body status has been withdrawn and this was due to set criteria being unmet.
Tower Hamlets Community Housing (THCH) has converted from a company to a community benefit society. Members were advised that a Funding Agreement is in place which will ensure that the pension deficit is recouped. This is to ensure that the Fund is not adversely affected.
Members were advised that Councillors Andrew Wood and Candida Ronald had assisted in the interviews for the Independent Advisor to the Pensions Fund and this position had now been filled. The Global Custodian Contract has been awarded and all necessary transfers have been undertaken. |
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SUBMISSIONS / REFERRALS FROM PENSION BOARD Minutes: The Committee received an update from John Jones, Chair of the Pensions Board.
The Pensions Board met on 19 July 2018 and received a presentation from the London CIV on progress in implementing the asset pool across London. Tower Hamlets was noted as having the largest percentage of assets either managed through the CIV or in the passive pooled. There concerns raised around the lack of independence in the CIVs Audit Committee and the lack of BME representation on the Shareholders Committee. The Board also raised issues on Ruffer’s investment performance, the CIV responsible investment policy and its approach to disinvesting from fossil fuels.
Members were advised that Stephen Stratton a long standing member of the Pensions Board had resigned. Mr Stratton was thanked for his hard work and dedication to the Board since its inception. There is currently a recruitment drive to fill the vacancies on the Board.
The Board also received an update on the Pensions Administration Team and noted. The Committee were informed that the Pensions Regulator was increasing monitoring the governance of LGPS Pensions Funds and were advised of the importance of the administration and investment functions being properly resourced.
Members were advised that the Board had considered their training and development arrangements for the year and had requested for a joint training to be held with the Pensions Committee. The Board had also raised concerns over the low attendance record of Committee members during 2017/18 and commented that good governance was important and that Members should be fully engaged.
RESOLVED
To note the update. |
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UPDATE ON EQUITY PROTECTION PROVIDER SEARCH The Committee to receive a verbal presentation from Mercer. Minutes: The Committee received a presentation from Sam Wreford, Alex Pearce and Ciaran Madine of Mercer, on Equity Protection Strategy. At the meeting in February 2018, the Committee agreed to pursue an equity protection strategy. The aim of the Strategy is to protect funding gains and reduce the risk of funding level deterioration which could lead to an increased contribution. The Protection will focus on the period up to December 2019 or March 2020 and would be likely to protect against losses of between 10% and 25% of the value of the equity portfolio. The Committee noted the following
· That Equity Markets were close to all-time highs and also at present the largest risk. The purchase of Insurance will ensure that the Fund is protected from Markets such as 2008. · That there were several factors to be taken into consideration when designing a strategy and these include how much downside protection is desired and how much upside is required to be given up to pay for the downside protection. Members were advised that the proposed Protection Strategy was set at a middle range and this was to ensure the capture of some upside in equity markets. · That on Mercers assumptions, there is a 13.5% probability of a fall in equities worse than 10% and a 5.9% probability of a fall worse than 25%. · That the Actuary’s valuation and the setting of the contribution rate take place every three years and potentially equities could come down at the date of the valuation but recover during the subsequent 3 year period. Members were advised that 3 years was a relatively short period in the context of the fund’s liabilities. Taking out protection to December 2019 or March 2020 would cover the period of the valuation and contribution setting. · That three Managers were approached to undertake the mandate and these were Insight Investments, Legal and General Investment Management (LGIM) and Schroders. A number of areas were looked when selecting the Managers which included fees and value for money, experience with dealing with similar mandates and current infrastructure. Schroders was noted as being able to offer a bespoke fund. Members noted that Investment Banks were traditionally resistant to trade with Local Authorities. · Members raised questions about bankruptcies and were advised that Investment Banks in these instances collateralized the contract so that money moved back and forth between the two parties to the contract according to daily movements in markets. · Members agreed that consideration of an Equity Protection Strategy should be ongoing and be part of their Investment Strategy Review and be added onto their Work Programme. · Members noted that they had a large Equity Portfolio and that the Strategy was a good method of reducing equity market risk. · Members noted that the Equity Protection Strategy was to be implemented and that the Pensions Committee had delegated to the Chief Finance Officer and Monitoring Officer
Sam Wreford, Alex Pearce and Ciaran Madine were thanked for their presentation and left the meeting.
RESOLVED ... view the full minutes text for item 6. |
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REPORTS FOR CONSIDERATION |
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Pensions Committee Terms of Reference, Membership, Quorum and Dates of Meetings PDF 82 KB Additional documents: Minutes: The Clerk presented a report which set out the Terms of Reference, Membership and Quorum of the Pensions Committee for the Municipal Year 2018/2019. The Committee agreed that 6.30pm was the preferred start time for their scheduled meetings.
RESOLVED:
1. That the contents of the report be noted.
2. That all scheduled meetings start at 6.30pm.
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Draft Pension Fund Annual Report and Statement of Accounts 2017/18 PDF 132 KB Additional documents:
Minutes: Kevin Miles, Chief Accountant, presented a report which updated Members on the arrangement for the preparation of the Pensions Fund Annual Report and Accounts 2017/18 in accordance with the regulations and the arrangements for the separate audit engagements, opinion and certificate for the Fund.
Members were advised that the Annual Report presented was in a draft form. A foreword from the Chair is to be drafted. The final report will include information on the Funds governance arrangements, attendance at Pensions Board and Pensions Committee, outline how knowledge and skill gaps are being addressed and also examine ‘risk management’.
The financial statement of the Pension Fund has been approved by Audit Board and this includes value of the Fund, value of investments and the Pensions Fund’s Accounts. The Annual Report also contains a Strategy Statement which explains the roles and duties of Councillors, include a document on Reporting of Breaches Procedures and also one which outlines the Management Policy.
RESOLVED
1. To note the contents of this report and the Annual Report for 2017/18 attached as Appendix A to this report;
2. To note the Tower Hamlets Pension Fund position and outcome of the Pensions & Investment Research Consultants Ltd (PIRC) UK Local Authority League table for 2017/18, set in section 3.5 of this report; and
3. To note the Tower Hamlets Pension Fund Funding Level as at 31st March 2018, prepared by the Fund actuary as set in section 3.6.
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Training & Development Policy For Pension Committee Members PDF 341 KB Minutes: Bola Tobun, Investment and Treasury Manager presented a report which set out the need for a training and development programme for Members of the Pensions Committee. The report explained the requirement for good governance of the Pensions Fund and the framework of legislation, regulation and guidance which the Fund must comply. The Chartered Institute of Public Finance and Accountancy (CIPFA) has provided a ‘Knowledge and Skills Framework (2010) which provides a framework for the training and development of Elected Members and other representatives on public sector pensions scheme decision making bodies
Members noted that Councillor Andrew Wood was the only returning Councillor from the previous Pensions Committee. Councillor Wood was requested to provide input and guidance on the training for new Members. Officers advised Members that they were required to attend training in order to meet the MIFID requirements which would allow them to be classified as Investments Managers. There are three scheduled evening training which are to be held during the year.
RESOLVED
1. To note the assessment and training resources provided by the Pensions Regulator (paragraph 3.21 – 3.24);
2. To note the adoption of the CIPFA Local Pensions Boards Technical Knowledge and Skills framework (paragraph 3.25 – 3.32), including the self-assessment matrix (attached as Appendix 2)
3. To agree the training policy and programme for 2018/19 set out within the report (para 3.33 and 3.35) and
4. That Councillor Andrew Wood provide comments and guidance on the Pensions Board Training And Development Programme
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Market and Economic Outlook by the Independent Adviser PDF 104 KB Minutes: Colin Robertson, Independent Advisor presented a report which detailed the views of the Independent Adviser in respect of the performance of markets for the quarter ending 30 June 2018 and the investment outlook.
The Committee was advised that the performance of markets in the latest quarter was very broadly the opposite of performance in tthe previous quarter. Equities were strong, Sterling was weak and gilt yields went down. During the 1st quarter of 2018 there were concerns regarding ‘Trade Wars’ between China and the USA and while these have not gone away, investors now perceive the situation to be more manageable and markets have recovered and become more stable.
Emerging markets have not performed well and this includes China. The changing political climate in Turkey with an ever more autocratic leader and the Argentine peso falling have contributed to above.
There were concerns that Inflation was too low (although not in the UK); however this is changing as economies continues to grow at moderate rates. There are currently several risks and one of the main concerns is international trade wars. This in particular will have an effect on ‘supply chains’; the tariffs will also have an effect on the prices of goods. Geopolitical risks remain and North Korea continues to remain a big concern. Other areas of concern are the valuation of the ‘FANGS’ technology stocks (which include Google, Amazon and Facebook) and the reversal of central bank policies of low or negative interest rates and ‘quantitative easing’. The Committee was advised that how the ‘unwinding’ is implemented will affect both equity and bond markets.
Members were advised that in these circumstances it was quite reasonable to have an Equity Protection Strategy in place. Following questions from Members, the Independent Advisor commented that the Pensions Fund was in a broadly suitable position and noted that there was a drive to reduce exposure to market movements and increase dependency on the ‘skills’ of Fund Managers. The Fund was noted as having a good ‘Asset Strategy’ for the future; it was advised that the implementation of long term planning should be undertaken at the ‘right time’ from a markets perspective.
RESOLVED
That the contents of the report be noted.
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Equity Protection Strategy Investment/Manager Search PDF 123 KB Minutes: This report provided an update on the action taken in relation to the Equity Protection Investment. Work was carried out supported by the Fund Consultant Mercer, and the Independent Adviser to put in place an Equity Protection Investment for the Fund. The aim of the investment being to reduce the risk to the Fund of its exposure to investment in equities.
Members noted that they had received a presentation from Mercer regarding Equity Protection Investment and this included the procurement of Equity Protection Investment Managers.
RESOLVED
To note the process undertaken to select an Equity Protection Investment Option to offer some protection against a fall in the value of the fund at the next valuation date of March 2019 and the decision made by the CFO under the authority that was delegated.
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Pension Fund Business Plan, Pensions Committee Work Plan for 2018/19 PDF 132 KB Additional documents: Minutes: Bola Tobun, Investment and Treasury Manager presented a report which set out a business plan for the Pensions Fund, which outlined the Funds goals and objectives in delivering the Council’s statutory function as the administering authority of the London Borough of Tower Hamlet’s Pensions Fund.
Members were advised that the report was considered and agreed at the last Pensions Committee in March 2018 and was for information only. The Business Plan will cover a three year period. Officers were advised that Kevin Cullen, Client Relations Manager, London CIV (LCIV) had recommended that Individual Managers Performance be reviewed on a quarterly basis. The Committee agreed that the LCIV should be a standing item and stressed the importance of developing requisite skill sets.
The Chair advised that he had attended the LCIV AGM on 12 July 2018 and would provide feedback at future Pensions Committee. Member commented on the importance of being represented and maintaining local intelligence. The Committee noted that there were concerns regarding the LCIV governance structure and representation on their committees.
RESOLVED
1. To note the Business Plan as Appendix 1 to this report and
2. To approve Work Plan for 2018/19 attached as Appendix 2.
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Investment and Fund Managers Performance Review for Quarter Ending 31st March 2018 PDF 208 KB Additional documents:
Minutes: Bola Tobun, Investment and Treasury Manager presented a report which informed members of the performance of the Pensions Fund and its investment managers for the fourth quarter of 2017/18. The Fund marginally outperformed its benchmark return of -1.2% by 0.1%. For this quarter six mandates matched or achieved returns over the benchmark. The four that failed to reach the benchmarks were LCIV RF, (TR), LCIV BG (DGF), Insight and GSAM bond portfolios. The value of the Fund (£1.485bn), decreased over the quarter by £38m.
The Independent Advisor advised that he approved of the Benchmark being used as the primary measure of performance for the Fund but suggested that the Peer Group comparison which was produced should also be considered. The Committee was advised that PIRC, a private sector organisation, produced the peer group comparison for a large section of the LGPS universe while State Street currently produce the performance of the Fund relative to the benchmark. Members noted that the LBTH Pensions Fund performance had improved and had better standing and was rated as the 5th best in the PIRC universe for 2017/18. This position has also improved when measured over 3 years and the fund is now above average in the PIRC universe when measured over 3 years.
Members noted that their Absolute Bond Portfolio was dependent on the skills and strategies of Managers. Members also noted that Bonds returns were more predictable as the returns are based on interest rates. The Independent Advisor noted that Multi Asset Credit (MAC) were not classified as high risk and commented that a high reliance on Managers skills was also present in this area. The purchase of vehicles which have exposure to a wider range of markets (not just bonds / credit) was recommended.
RESOLVED
1. To note the contents of the Report and
2. That a peer group comparison is considered when looking at the performance of the Fund; this will be produced by PIRC
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Pension Scheme Administration Update PDF 90 KB Additional documents:
Minutes: Tim Dean, Pensions Team Leader presented a report which covers the activities and performance of the Pensions Administration Team. Overall in the first quarter of 2018/19, the Pensions Team has completed 89.43% of its workload in line with service standards measured by the performance indicators. This is an improvement from the 85.66% completed in line with service standards during the 2017/18 year.
There have been some changes to the statutes of employers that are admitted to the fund, Green Spring Academy Shoreditch will be joining Mulberry Schools Trust from 1 September 2018. The Pensions Team have identified just over 1200 deferred members that could potentially claim payment of their benefits with immediate work. Further work will be undertaken to look at potential impact on the Fund.
RESOLVED.
1. To note the information provided in this report in respect of the scheme administration and the performance metrics;
2. To note the changes to the Local Government Pension Scheme regulation set out in Appendix 2 and
3. To note the Statement of Policy for the payment of lump sum Death Grants as set out in Appendix 3.
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The Pensions Regulator Compliance Checklist For Tower Hamlets Pension Fund PDF 90 KB Additional documents: Minutes: Tim Dean, Pensions Team Leader presented a report which covers an updated Compliance Checklist for the London Borough of Tower Hamlets Pension Fund. From 1st April 2015 the Pensions Regulator (TPR) assumed responsibility for public service pension schemes and put in place codes of practice for public service pension schemes covering a number of areas relating to the management of schemes. The Code of Practice for Public Service Pension Schemes came into force from 1st April 2015 and all schemes must now consider whether they comply with the Code.
Members noted that the LBTH Pensions Fund was generally able to demonstrate good level of compliance with the Code and these were highlighted in green. There were two areas which needed further attention and was highlighted in red in a previous report was items in respect to Internal Dispute Resolution (IDRP) which relate to the need to update IDRP notes and applications form to ensure they include all required and helpful information. These documents have been updated. The other was Section H, Providing Information to Members and Others, the principal concern related to the content of Annual Benefits Statement, A review of the content of this year’s statement will be completed before being issued.
RESOLVED
To note the Code of Compliance Checklist and where further work is required and being undertaken.
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THCH FUNDING AGREEMENT REQUEST To receive a verbal report from the Divisional Director Finance, Procurement and Audit. Minutes: This item was covered in other sections of the Agenda. |
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TRAINING EVENTS · Roles and Responsibilities in Management of LGPS
· Training Events Minutes: Bola Tobun, Investment and Treasury Manager gave a presentation which outlined the roles and responsibilities of Actors and Bodies who are involved in the Local Government Pensions Schemes (LGPS). The Committee noted the following
· That there are a number of Actors Involved in the LGPS and this includes Regulation Makers such as the Ministry of Housing, Communities and Local Government (MHCLG). The Statutory and Professional Boards, provide direction and oversight, e.g. The Pensions Regulator; other Bodies include the National Advisory Groups and Regional Groups. · That the Pensions Regulator (TPR) role had been extended since April 2015. The Body aims to promote good administration of work-based pension’s schemes, to educate and enable, resolve internal disputes and acts as a regulator. Members were advised that the TPR had attended their Pensions Board and requested that the Body be invited to a future Pensions Committee. · The LBTH Pensions Fund includes an Administering Authority; which has Scheme Managers of the LBTH, a Pensions Fund Committee and a Pensions Fund Board. · That there were a number Key Policy Documents which oversees the Funds; these include Statement of Accounts, Training and Development Policy and Risk Management Policy. · That the primary duty of the Fund was to pay member benefits as they fall due (Fund liabilities). To undertake the above enough assets are required in order to pay liabilities. A shortfall will lead to a funding gap; this is prevented by generating investments returns, increasing employee contribution or changing the benefits. The generation of investment is regulated within a framework which ensures assets are safeguarded. The Investment strategy will take into account both liabilities and assets and the Funding ratio provide an assessment of the Fund’s abilities to pay pension liabilities. · There are four ‘core’ asset classes, these include, Equities, Fixed Interest, Cash and Property. All have different levels of expected returns and risk factors and have an effect on the Funding levels. · That the Actuaries evaluate the Fund and will examine various areas which include Age, employer’s contribution, funding level and the deficit. Investment Consultants look at Investments and this includes looking at risk. One of the main objects of the Pensions Administrating Authority is to reduce the deficit.
Members thanked Ms Tobun for her presentation,
RESOLVED
To note the Presentation.
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DATE OF FUTURE MEETINGS To note the scheduled Pension Board dates which are also set out at Agenda 7.1.The dates are:
· 24 July 2018 · 18 September 2018 · 29 November 2018 · 13 March 2019
Minutes: · 29 November 2018 · 13 March 2019 |
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ANY OTHER BUSINESS CONSIDERED TO BE URGENT Minutes: Neville Murton, Director, Finance, Procurement and Audit advised Members that Barry McKay had left Hymans Actuaries. Mr McKay has provided advice on the LBTH Pensions Fund for a lengthy period and will be replaced by Mr Douglas Green. Mr Green will be attending the next Pensions Committee and will be accompanied by Mr Barry Dodd.
The Chair advised the meeting that Suzanne Jones, support to Neville Murton, Resources, was leaving the Council. The Chair thanked Ms Jones for her hard work and support to both the Pensions Board and Pensions Committee and wished her well in her new role and requested that this be recorded in the minutes.
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