Agenda item
LGPS - Current Developments and Update
To receive an update on the following: Pooling, London CIV, MiFID II, Fossil Fuel and Scheme Advisory Board Work
Minutes:
Ms Tobun Investments and Treasury Manager introduced the report which sought update board members on matters relating to:
· pooling of investments in the LGPS,
· EU directive - Markets In Financial Instruments Directive (MIFID II) to impact on LGPS and local authorities,
· fossil fuel divestments campaign,
· scheme advisory board work on separation of pension funds
The following information on the above matters were noted:
Pooling:
To make savings, the Government was steering towards pooled LGPS funds. More information was awaited in March 2016 in the form of draft regulations. These would indicate whether pooling of pension schemes would be mandatory. The Board noted that the arrangement, if implemented, was likely to permit pension funds to access other categories of investments such as infrastructure investments. However it would be necessary to consider how the risks of these types of investments would be balanced against financial returns. The Board was informed that 31 London Borough's had expressed an interest in investing in the London CIV pooled fund. The body had received approval from FCA and was now able to trade.
MIFID II
The Board was informed that Local Authority Pension Funds were required to comply with this EU directive but it would affect how councils would be able to undertake investments and increase costs. Therefore representations were being made by the Local Government Association to Department for Communities and Local Government (DCLG). DCLG in turn would make representations to the European Commission and the outcome would be reported back to local authorities in due course.
Fossil Fuels Divestments Campaign
The Board noted that the Council’s approach to this campaign was to manage its risks while identifying opportunities for investments through sustainable investment (by considering the financial impact of environmental social and governance factors on investments and by stewardship and governance -acting as a responsible and active investor through considered voting of shares and engaging with company management when required). It was noted that the Pensions Committee as trustee of the LGPS have a fiduciary duty to act in the best interests of their members as well as acting prudently responsibly and honestly. In this context, the Committee must aim to achieve the best realistic return over the long-term; for the (Tower Hamlets) Pension Fund this means that the long-term solvency of the fund must be ensured, so that sufficient funds are available to meet all benefits as they become payable and not to unnecessarily restrain the investment strategy so that returns can be maximised. Additionally Tower Hamlets LGPS is a member of the Local Authorities Pension Fund Forum (LAPFF) which does not support divestment but has chosen the approach of active engagement with companies as a means of achieving a move away from reliance on fossil fuels. Its approach is to encourage a carbon transition by requiring companies to identify and tackle carbon risks in their business models and has had some success. The Board noted the information provided and advised that, in their view, the Pension Committee’s role was to monitor how LAPFF delivered this outcome. Councillor Chesterton offered to act as a contact regarding queries on this matter.
RESOLVED
That the report be noted
Supporting documents:
- Pensions Board - LGPS Update Final, item 6.1 PDF 203 KB
- LGA MiFIDIIPaperOct2015, item 6.1 PDF 99 KB
- Presentation_on_Local_Authorities__LGPS_under_MiFID_II_-_LGA_-_151022 [Read-Only]2, item 6.1 PDF 321 KB