Agenda and minutes
Venue: Committee Room 1, 1st 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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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: Councillors Clare Harrisson, Candida Ronald and Rubina Khan advised the Committee that Divest Tower Hamlets (Friends of the Earth) had visited their Surgeries. The Committee were reminded that Divest Tower Hamlets was an Environmental Group who advocates for Bodies to disinvestment in business/companies whose profits are derived from fossil fuels. The Pensions Committee received a presentation from the Organisation at their meeting on 7 December 2016.
There were no declarations of disclosable Pecuniary Interest.
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MINUTES OF THE PREVIOUS MEETING(S) PDF 124 KB To confirm as a correct record of the proceedings the restricted minutes of the meeting of the Pensions Committee held on 31 July 2017.
Minutes: The unrestricted minutes of the previous Pensions Committee held on 31 July 2017 was approved as a correct record. |
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PETITIONS To receive any petitions relating to matters for which the Committee is responsible. Minutes: None received |
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SUBMISSIONS / REFERRALS FROM PENSION BOARD Minutes: John Jones, Chair, Pensions Board advised the Committee that the Pensions Board had been deferred and would be meeting on 16 October 2017.
At the previous Pensions Board, members held discussions about the administration of Pensions Funds and the risks involved in working with complex data. The Board noted that there were going to be increased monitoring on performance on the above area and that they needed to ensure that they remain updated and also closely monitor how this will transpire.
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REPORTS FOR CONSIDERATION |
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Additional documents:
Minutes: The Committee considered a report which detailed an analysis and the results of the asset liability modelling study and the strategic asset allocation review carried out by the Fund’s advisers Mercer. This review follows on from the Fund’s 2016 Triennial Actuarial Valuation. This report presents the analysis and results of the asset liability modelling study and the strategic asset allocation review carried out by the Fund’s advisers Mercer. This review follows on from the Fund’s 2016 Triennial Actuarial Valuation.
The purpose of the review is to assess the ability of the current funding and investment strategy to close the deficit gap, as well as fund future benefits in an affordable and stable way. The review encompassed an asset liability study which assesses the suitability of alternative investment strategies for the pension fund’s liability profile.
This report also summarised the carbon and environmental footprint analysis carried out by Trucost, (Trucost is part of the S&P (Standard & Poor) Global family, operated by S&P Dow Jones Indices) for the Fund’s aggregate equities portfolio with holdings data as at 31st March 2017. Morgan Stanley Composite Index (All Country World Index) MSCI ACWI was used as a benchmark for this analysis.
The Committee received a presentation from Steve Turner, Fund’s Investment Consultant of Mercer, on the Investment Strategy Transition Summary and Next Steps. The presentation provided a recap on the proposed strategic changes suggested by Mercer, particularly in relation to the Scheme’s equity portfolio, detailed the rationale for making such changes and provided an analysis into the operational aspects of a transition exercise to implement the recommended portfolio changes that have not been agreed to date.
The Committee during a question and answer session: Noted:
· Members raised questions about their carbon footprint and how it compared to the Benchmark and also how Benchmarks are reached. Benchmarks are given to Fund Managers (Morgan and Morgan – Global Contact) and a carbon and environmental footprint analysis are carried out. An analysis was carried out on the Fund equity holdings with LGIM, GMO, BG (GEA), Ruffer and BG (DGF). · The Carbon footprint for GMO portfolio is 340.71 compared to the benchmark of 468.68. The portfolio is 27.30% less carbon intensive than its benchmark, MSCI ACWI. The current benchmark is 468.68.tonnes CO2e per £1m of revenue. · Members noted that there was no clear indication on how the Fund’s carbon footprint fared in particular in comparison to other LGPS. The meeting was advised that the market in the Europe Index were less carbon intensive and that the whole market is considered rather than just low carbon incentives. At current there is difficulty with comparing carbon output and this due to there being limited data. Members requested that the London Boroughs of Hackney and Waltham Forestbe approached and be requested to share their carbon footprint. · Members welcomed that the LGPS TH was in the forefront in relation to reducing their carbon footprint and noted that this affected 15% of their total assets and third of their ... view the full minutes text for item 5.1 |
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Minutes:
Raymond Haines, Independent Advisor presented a report which detailed the views of the Fund Independent Advisor on markets and the performance of the Fund pension fund managers and the overall performance of the Tower Hamlets Pension Fund.
The Committee was advised that the Market and Economy continued to perform well despite their being a snap election, Brexit and strained relationship in the international political arena. At the end of June the FTSE All Share was up 3.3% (c.5% total return), the S&P IS + 8.2% and gilt yields are below the level at the start of the year. This is attributed to governments creating cash by buying first government bonds then corporate debt. The main beneficiary has been capital markets both bond and equity. Equity markets have raised more on the basis of valuation than economic growth.
The absence of demonstrable value in bonds investors has been continuing to support equity markets. The UK equity market has a number of conflicting influences; sterling’s depreciation is positive for overseas earning and exporters but negative for domestic companies and importers. Brexit uncertainty is negative for most quoted equities and rising inflation and failing economic growth for none.
The market were ‘well behaved’ in Q2 and Q3 and moved up and down by c.1%. Where markets move from here is dependent on exogenous influences such as Brexit negotiations and the USA political leadership, there is enough concerns both external and fundamental to suggest caution. The current strategy in place for the Fund is appropriate.
RESOLVED
That the contents of the report be noted.
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Quarterly Investment Performance Review for June 2017 PDF 452 KB Additional documents: Minutes: Bola Tobun, Investment and Treasury Manager presented a report which outlined the performance of the Pension Fund and its Investment Managers of the first quarter of 2017/18.
During this quarter end, five out of the nine mandates matched or achieved returns above the benchmark. The four that did not reach the benchmarks were the mandates with LCIV Ruffer, Schroder, Insight and GSAM. Overall for this reporting quarter the Fund performance was ahead of its benchmark. For 12 months to end of reporting quarter, the Fund is ahead of its benchmark by 2.5%. One out of the eight mandates underperformed its benchmark. This was the mandate with Schroders which posted a return that lagged behind its benchmark by 0.4%.
The Fund is still in line with its long term strategic equity asset allocation and the distribution of the Fund’s assets amongst the different asset classes is broadly in line with the strategic benchmark weight.
The Committee was advised that Baillie Gifford had had a steady performance throughout and that the Group had cautioned their clients about their expectation that the Fund’s continual outperformance was indefinite.
Members thanked and commended Officers for their report.
RESOLVED:
That the contents of the report be noted. </AI8> <AI9>
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Risk Management Policy and Register PDF 123 KB Additional documents:
Minutes: Bola Tobun, Investment and Treasury Manager presented a report which set out the Risk Management Policy for the London Borough of Tower Hamlets Pensions Fund. The Risk Register and the approach to internal controls in respect of the Pension Fund was also outlined in the report.
The Policy sets out the aims and objectives for the management of risk. It also recognises that risks cannot be entirely removed from the management of the Pension Fund because of the very nature of the Fund itself and the environment in which it operates. The risk management process involves the identification of risk, analysing risks, controlling risks, where appropriate, and the monitoring of risk on an ongoing basis.
RESOLVED:
1. To adopt Risk Register; and
2. To approve the Risk Management Policy and note the key internal controls.
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Review of the Tower Hamlets Pension Fund Governance Policy and Compliance Statement PDF 93 KB Additional documents: Minutes: Bola Tobun, Investment and Treasury Manager presented a report which details the changes to and regulations guiding the Pension Fund Governance Policy and Compliance Statement. The Governance Policy and Compliance Statement have been prepared in accordance with the Local Government Pension Scheme Regulations. It sets out the governance procedures for the Fund and indicates where it is compliant with best practice as laid down in statutory guidance issued by the Secretary of State.
RESOLVED:
1. To approve the draft Pension Fund Governance Policy and Compliance Statement, and agree that officers may now proceed with the consultation with the Fund’s employers and Tower Hamlets Council union officials; and
2. To approve the Scheme of Delegation which is included as Appendix A of the attached draft Statement.
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MiFID II Opt Up Implementation Plan PDF 107 KB Additional documents:
Minutes: Bola Tobun, Investment And Treasury Manager presented a report which outlined the impact of the implementation of the Markets in Financial Instrument Directive 2014/65 (“MiFIDII”) and in particular the risk to the administering authority of becoming a retail client on 3 January 2018. The report recommends that the Committee decide that elections for professional client status should be made on behalf of the authority immediately.
Tower Hamlets Pension Fund will not able to access the wide range of assets needed to implement an effective, diversified investment strategy when the Markets in Financial Instrument Directive 2014/65 comes into force on 3rd January 2018 unless it applies for a change in status from a retail client to a professional client. Remaining as a retail client will significantly restrict the range of financial institutions and instruments available for effective and efficient management of the Fund because many institutions currently servicing the LGPS are not authorised to deal with retail clients and are unlikely to choose to undergo the required changes to resources and permissions in order to do so.
The Committee held a discussion about the Professional Clients status and noted that this classification group was entitled to fewer protections under the UK and EU regulatory regimes in comparison to Retail Clients and requested that this be recorded in the minutes. There will be a number of areas affected following the change in status and these includes, Communication with clients (including financial promotions), Information about the firm (its service and remuneration) and services offered by the Financial Ombudsman Service.
The Committee noted that they had a number of long standing members on their committee and commented that they may experience some difficulties if their current membership changes The Chair advised the meeting that Political Group Leaders will be written to and asked to re-appoint the same returning councillors back onto the Pensions Committee.
RESOLVED:
1. To note the potential impact on the Fund of becoming a retail client with effect from 3rd January 2018;
2. To agree to the immediate commencement of applications for elected professional client status with all relevant institutions in order to ensure it can continue to implement an effective investment strategy;
3. To acknowledge and agree to forgo the protections available to retail clients attached as APPENDIX 1; and
4. To delegate responsibility to the s151 officer to complete the applications and determine the basis of the application as either full or single service.
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Pension Contribution Prepayment PDF 87 KB Minutes: Bola Tobun, Investment And Treasury Manager presented a report which considered the potential economic benefits to the Council from the pre-payment of the Local Government Pension Scheme (LGPS) deficit contribution for the three years 2017/18 to 2019/20 by being able to access potentially higher investment returns in the Pension Fund.
The Council pays a contribution towards the pension deficit as a lump sum figure calculated by the Actuary. As the pension fund has scope to invest in higher risk investments earning potentially a higher return, there is scope for the Council to prepay the 3 deficit contributions due for 2017/18, 2018/19 and 2019/20 in 2017/18 but at a lower net present value amount of £520,000 per year.
RESOLVED:
1. To approve the principle of accepting the prepayment of pension deficit contributions into the Pension Fund for the three years 2017/18 to 2019/20 in principle.
2. To delegate to the Corporate Director, Resources, the determination of the actual amount to be pre-paid to equate to the £15m annual instalments per the Actuary’s report.
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Pension Fund Administration Update PDF 88 KB Additional documents: Minutes: Bola Tobun, Investment and Treasury Manager presented a report which updated the Committee on issues affecting scheme members and employers
There have been several changes to the Pensions Management Team. Tim Dean has been appointed as the Senior Pensions Team Leader and Sue Grimstead has been seconded from Surrey County Council. Ms Grimstead will be providing support to the Pensions Team Leader and also to the various Projects. The activity levels and level performance against service standards indicates that 87% of activity met target dates. There is one outstanding IDRP, which relates to the award of a lump sum Death Grant payment. There is one new employer, Wettons Cleaning Services Ltd. Staff transferred to Wettons on 31 July.
The Committee were informed that the March 2017 Benefit Statements had been printed and dispatched on 17 September. There was a slight delay with dispatching the Statement; this was due to difficulties with the reprographies. The Statements were scheduled to be sent to active members at the end of August. Members were advised that the Benefits Statements sent in the previous year were wrong and also several months late. The Committee was advised that there were concerns about the current addresses of active members; overall the Services have received positive feedback about the statements.
Members commented and commended officers about the improvements on the timetabling and data accuracy of the Statements and asked what measures were being put in place to ensure that next year’s deadline is met. In reply; officers advised members that there were to be regular meetings and that resources were to be put in place to ensure that the Service meets its deadlines. The Pensions Team and the Human Resources will continue to work collaboratively. The HR Interface will also reduce printing.
The Committee were reminded that there would be increased monitoring on the administration of Pensions Fund and that fines were being levied at Local Authorities. Members agreed that the Pensions Committee and Pensions Board should continue to receive information about Monitoring and that their Board should monitor whether set targets were being met. Members agreed that the proposed division of work would be good use of both the Pensions Committee and the Pensions Board.
JTL Employee Benefits have been commissioned to trace individuals whose current address is unknown to the Local Authority. The projects to introduce member self-service, payroll data-interface (iConnect) and GMP Reconciliation were delayed as priority was given to the issuing of benefit statements.
RESOLVED:
1. To approve the admission of Wettons Cleaning Services Ltd as an employer within the pension fund.
2. To note the contents of this report in respect of the update on the administration of the pension fund
3. That the Pensions Board receives reports about the administration of the Pensions Fund and be delegated to closer monitor set targets.
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Additional documents: Minutes: Bola Tobun, Investment And Treasury Manager presented the final Pension Fund Annual Report for 2016/17. The draft version of the accounts was presented to the Committee in July 2017 together with the 2016/17 Audit Report of the Pension Fund (ISA 260 Report) following the audit by KPMG.
The Statement of Accounts has been prepared under International Financial Reporting Standards (IFRS) rules. This report also presents the finding of the review of the adequacy of internal control measures put in place by the fund managers that hold the Fund’s assets. Officers and Advisers have reviewed the SAS70 and SSAE16 (which signifies that a service organisation has had its control objectives and control activities examined by an independent accounting and auditing firm).
The reviews of fund managers, internal control reports, have identified no significant changes in the internal control environment from last year. The Fund managers’ internal control reports have been audited and approved by external auditors and six out of the seven fund managers received unqualified opinion from their managers with the exception of Schroder. This means the auditors are satisfied that adequate controls are in place for managing and reporting of the Fund’s assets.
The Chair thanked the Chief Accountant and the Pensions Team for their work on the Pension Fund Annual Report.
RESOLVED:
1. That the report be noted;
2. That the draft ISA 260 (Annex 2) be noted;
3. To approve the Pension Fund Statement of Accounts (Appendix 5 of Annex 1);
4. To approve the Pension Fund Annual Report and to give delegated authority to s151 to finalise and publish this in order to meet the statutory publication deadline of 1 December 2017 (Annex 1); and
5. To approve publication and distribution to interested parties.
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TRAINING EVENTS Minutes: None. |
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ANY OTHER UNRESTRICTED BUSINESS CONSIDERED TO BE URGENT Minutes: None |
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DATE OF FUTURE MEETINGS To note the scheduled Pensions Committee dates.
· 29 November 2017 · 14 March 2018 Minutes: Scheduled Pensions Committee dates for the remainder of the Municipal Year.
· 14 March 2018 |
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EXCLUSION OF THE PRESS AND PUBLIC In view of the contents of the remaining items on the agenda the Committee is recommended to adopt the following motion:
“That, under the provisions of Section 100A of the Local Government Act 1972, as amended by the Local Government (Access to Information) Act 1985, the press and public be excluded from the remainder of the meeting for the consideration of the Section Two business on the grounds that it contains information defined as Exempt in Part 1 of Schedule 12A to the Local Government Act, 1972.”
EXEMPT SECTION (Pink Papers)
The exempt committee papers in the agenda will contain information, which is commercially, legally or personally sensitive and should not be divulged to third parties. If you do not wish to retain these papers after the meeting, please hand them to the Committee Officer present. Minutes: The Chair moved and it was
RESOLVED
That press and public be excluded from the remainder of the meeting in that under the provisions of Section 100A of the Local Government Act 1972, as amended by the Local Government (Access to Information) Act 1985, the press and public be excluded from the remainder of the meeting for the consideration of the Section Two business on the grounds that it contains information defined as Exempt in Part 1 of Schedule 12A to the Local Government Act, 1972.” which relates to information relating to a particular employee, former employee or applicant to become an employee of, or a particular officeholder, former office-holder or applicant to become an office-holder under, the authority.
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RESTRICTED MINUTES To confirm as a correct record of the proceedings the restricted minutes of the meeting of the Committee held on 31 July 2017.
Minutes: The restricted minutes of the Pensions Committee held on 31 July 2017 were approved as a correct record. |
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ANY OTHER RESTRICTED BUSINESS Minutes: This item was discussed in closed session.
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