Agenda and draft minutes

Pensions Committee
Monday, 9th September, 2019 10.00 am

Venue: Chamber, Civic Centre, Hanbury Road, Pontypool, NP4 6YB

Contact: Geraint Thomas  Senior Business Support Officer - Democratic Services

Items
No. Item

1.

Attendance and Apologies / Presenoldeb ac Ymddiheuriadau

Minutes:

1.1       Apologies were received from Councillor Peter Jones.

2.

Declarations of Interest / Datganiadau o fudd

Minutes:

2.1       Members confirmed the following declarations of personal interest as read by the DMO&S:

 

Councillor

In Receipt of Pension

Contributor

Huw Bevan

NONE

Self

Glyn Caron

Self

Self and son-in-law. Wife is a deferred member

Joanne Gauden

NONE

Self and daughter

Jon Horlor

NONE

Self

Raymond Williams

NONE

Partner and daughter

 

2.2       The DMO&S left the meeting.

3.

Minutes 10/6/19 / Cofnodion 10/6/19 pdf icon PDF 444 KB

Minutes:

3.1       The minutes of the meeting held on 10th June 2019 were confirmed as an accurate record.

4.

For information: draft minutes of the Pension Board meeting of 24/7/19 / Er gwybodaeth: Cofnodion drafft cyfarfod y Bwrdd Pensiynau 24/7/19 pdf icon PDF 466 KB

Minutes:

4.1       The Committee noted the minutes.

 

4.2       Councillor Huw Bevan entered the meeting.

5.

Quarterly Investment Performance Report to 30/6/19 / Adroddiad Perfformiad Buddsoddi Chwarterol 30/6/19 pdf icon PDF 1 MB

Additional documents:

Minutes:

5.1       The HoP highlighted the following key headlines from the report:

  • Markets had been generally rocky in Quarter 1; however some recovery had been seen in Quarter 2.
  • The trade wars and relations between the US and China had an effect on the markets, as did issues around Brexit.
  • At the end of June 2019 the value of the Fund had increased by £130 million to £3,058 million. At the end of August 2019 the value of the Fund was £3,077 million, which was a fair way ahead of the value of the Fund at the start of the year.
  • Investment performance was marginally below the benchmark over 1 year; however performance was healthy and ahead of the benchmark over 3 years, 5 years and 10 years respectively.
  • Healthy investment performance over 3 years was helpful and positive in terms of the 2019 Actuarial Valuation.
  • The investment performance by fund managers could be seen in paragraph 9 of the report; however it was important to note that Aberdeen Standard had come back strongly in recent months. The DIIA added that a change in senior manager at Aberdeen Standard had resulted in positive changes to their whole process, including their short-term tactical decisions.
  • The first full quarter of results from the Wales Pension Partnership (WPP) was available, where Global Equities investments had outperformed the benchmark, as well as providing more competitive fee rates.
  • The Fund was looking to invest in UK Equities within the WPP within the next month.

 

5.2       The IIA provided the following headlines from Appendix 1 of the report:

  • Markets had more than recovered their May 2019 losses; however an up and down summer had taken place.
  • The US Federal Reserve had cut interest rates for the first time in 10 years, which suggested growth concerns.
  • Risk aversion could be seen by the strong demand for Government Bonds and the fact that UK Gilts had delivered 3.8% in August 2019.
  • Sterling was weak in July 2019 and flat in August 2019, largely due to the uncertainty around Brexit.
  • Growth in the Eurozone was quite slow, leading to the phrase Euro-fication being adopted.
  • Currencies, commodities and equities investments were all becoming more volatile. As a result, the Fund needed to keep abreast of what individual investment managers were doing and make sure that diversification existed in terms of the Fund’s investments.

 

5.3       Following questions from the Committee, the IIA made the following points:

  • In the long-term, it was not a good idea to make too many tactical changes to the Fund’s Strategic Asset Allocation (SAA) and in the short-term this could be expensive.
  • More diversification of investments was needed along with global exposure and changes around equities investments needed to be staggered over time.
  • Investments in property and infrastructure should improve once issues around Brexit had become clearer.
  • It was important to have investments within the Fund’s portfolio that could perform well during a recession.
  • A broad-based approach to currency exposure would be her recommendation and it was  ...  view the full minutes text for item 5.

6.

Responsible Investment Working Group Update / Diweddariad Gweithgor Buddsoddi Cyfrifol pdf icon PDF 146 KB

Additional documents:

Minutes:

6.1       The HoP highlighted the following key headlines from the report:

  • The report provided an update in respect of the work of the Responsible Investment Working Group (RIWG) and specifically asked the Committee to consider and approve the draft Policy documents put forward by the Group for proposed adoption by the Fund, in respect of the Fund’s Responsible Investment Policy Framework and Climate Change Policy.
  • The UK Government had set a net zero CO2 target by 2050 and also given the Pensions Regulator a climate change oversight role. On top of this, Welsh Government had set up more specific targets in this area.
  • He highlighted the work of the RIWG over the past 12 months, as shown in paragraph 5.1 of the report.
  • The draft Responsible and Sustainable Investment Policy Framework was attached as Appendix 1 of the report and was an overarching document. The aim was to make the document user friendly and improve the message that the Fund was taking this area seriously.
  • The Fund wanted to reduce the carbon footprint of its investments, which included trying to influence companies that the Fund invested in to reduce their carbon footprint in order to make them sustainable in the longer-term. A collective influence could be achieved via the Fund’s membership of the Local Authority Pension Fund Forum (LAPFF).
  • Previous estimates around Climate Change focused on the estimated damage if average temperatures were to rise by 2°C; however in 2018 the UN Intergovernmental Panel on Climate Change (IPCC) issued a report which showed that many adverse impacts of climate change would come via an increase of 1.5°C of global warming. As a result, the Fund wanted to be well below the 2°C target.
  • As seen on page 74 of the agenda, Scope 1 Emissions and Scope 2 Emissions needed to be acted upon; however Scope 3 Emissions required further development work. The Chair added that LAPFF was encouraging companies to improve their data around carbon emissions and this would hopefully help regarding Scope 3 Emissions.

 

6.2       The Committee agreed with the IIA’s suggestion that the reference to lowering the financial risk on page 65 of the agenda was amended to ‘stabilise’.

 

6.3       Cllr Bevan congratulated the RIWG and officers on this piece of work and stated that the UK needed to lead by example around Climate Change, despite being a small net contributor to it. He added that many companies were “doing their bit”; however some were trying to look greener than they actually were. He suggested that ‘green’ infrastructure investment opportunities such as forestry should continue to be sourced for consideration.

 

6.4       The Pensions Committee agreed:

(i)   The draft Responsible Investment Policy Framework and Climate Change Policy subject to any final revisions/amendments that members of the Pensions Committee may wish to make; and

(ii)  That officers bring forward further reports in due course in respect of the ongoing work of the Responsible Investor Working Group and any further investment proposals for improving the Fund’s Responsible Investor status.

7.

Low Carbon Investment Opportunity / Cyfle am Fuddsoddiad Carbon Isel pdf icon PDF 225 KB

Additional documents:

Minutes:

7.1       The HoP highlighted the following key headlines from the report:

  • The Pension Fund as part of its wider Investment Strategy had an objective to lower its carbon footprint in a controlled and objective manner and in accordance with Government Policy, which included the identification of suitable investment opportunities to support this.
  • Any investments made by the Fund needed to be consistent with the Fund’s SAA and considered within the context of the WPP.
  • In order to expedite the process, the Fund looked at low carbon investment opportunities that were available via the Fund’s existing investment manager arrangements. As a result of the above, the proposal within the report was to use Blackrock.
  • The Blackrock World Low Carbon Tracker factsheet for July 2019 could be seen in Appendix 2 of the report, with performance almost matching the index return.
  • If this investment proposal was to be agreed, the source of funding would logically have to be from existing passive investments already held with Blackrock, which included both UK Equities (14% of the Fund) and US Equities (8% of the Fund). These holdings amounted to approximately £420 million and £240 million respectively.
  • The Fund’s carbon footprint within these areas of investment could reduce by approximately 80% if this investment proposal was agreed.
  • The proposal had the support of the RIWG and was in line with the Fund’s principles. The Chair added that he totally supported the option of investing £660 million (22% of the value of the Fund) into the Blackrock Low Carbon Tracker Fund.

 

7.2       Following questions from the Committee, the HoP made the following points:

  • Blackrock was the current investment manager with a contract for all passive investment funds across the WPP, therefore money could be moved relatively quickly and fees were already in place. If the proposal was to be agreed, the fees for these assets would rise very modestly by less than £30,000 a year.
  • All eight Welsh pension funds were exerting pressure on the WPP regarding responsible investments; therefore more low carbon investments options should be available via the WPP in due course.

 

7.3       The IIA confirmed that should the proposal be agreed, it would send a strong message that the Fund was serious about Environmental, Social and Governance (ESG) issues.

 

7.4       The Pensions Committee agreed:

(i)        To invest approximately £660m (22% of Fund value) into the Blackrock Low Carbon Tracker Fund;

(ii)       To note that the source of funding would be from the Fund’s existing passive equity allocations, but that this source of funding is subject to the outcomes of the strategic asset allocation report elsewhere on this agenda;

(iii)      To request officers undertake the operational requirements to effect this investment as soon as practically possible; and

(iv)     That in line with the Fund’s wider Responsible Investment Policy framework and Climate Change Policy, officers continue to work with the RIWG to source suitable ways of further reducing the Fund’s carbon exposure.

 

7.5       The one member of the public left the public gallery.

8.

Administration Update / Diweddariad Gweinyddol pdf icon PDF 495 KB

Minutes:

8.1       The PM highlighted the following key headlines from the report:

  • 95% of employers met the deadline of 30th April 2019 for submitting their end of year data, which was an increase from 90% last year and meant that 99% of the Fund’s active membership data was received by 30th April 2019.
  • The number of employers who met the above deadline had increased year on year for the past five years and the improvement could be attributed to early engagement, employer engagement and monthly data submissions.
  • 28 out of 63 employers submitted monthly electronic data returns to the Fund through Employer Self Service during 2018/19 and this was up to 33 out of 63 employers during 2019/2020.
  • The number of members using My Pension Online was 19,595 as at 27th August 2019 and this had increased by 3,128 since August 2018.
  • A staffing update was given, as outlined in paragraph 8 of the report.
  • In terms of workload, the number of cases completed during 2018/2019 had increased compared to the previous year. An increase in Aggregation cases could be seen, which was in common with all Local Government Pensions Scheme (LGPS) funds and as a result a dedicated team was set up in July 2019 to deal with the backlog of cases.
  • Membership had decreased by 50 members between 31st January 2019 and 31st July 2019. The number of active and deferred members had decreased; however the number of pensioners had increased.
  • Between January 2019 and July 2019 three new employers were admitted to the Fund.
  • In terms of the Pension Regulator update in paragraph 13 of the report, it was important to note that the Fund was ahead of the average regarding data submission and was on track to meet the Pension Regulator’s expectations.
  • The Fund was currently reviewing the Good Governance Report, commissioned by the Scheme Advisory Board. A report regarding this would be presented to the Committee at a future date.
  • The next formal Valuation of the Pension Fund was being carried out as at 31st March 2019. The Fund submitted its data to the Actuary by the deadline of 15th July 2019 and the Actuary had commented on the very high quality of data received from the Fund.

 

8.2       Following questions from the Committee, the PM made the following points:

  • The Pension Support Officer would be replaced, following his appointment as the Pension Support Manager.
  • Approximately 30% of members were signed up to My Pension Online. The HoP added that approximately 47% of active members were signed up with pensioners understandably having the lowest take up.
  • Completed tasks had increased during the previous year and staffing levels were being monitored.
  • My Pension Online was regularly advertised amongst active members and the Fund would soon start to encourage pensioners to sign up to it prior to becoming pensioners.

 

8.3       The Pensions Committee agreed to note the content of the report.

9.

Local Government Pension Scheme (LGPS) Community / Cymuned y Cynllun Pensiwn Llywodraeth Leol (CPLlL) pdf icon PDF 87 KB

Additional documents:

Minutes:

9.1       The PM introduced the report and confirmed that the LGPS Community document (Appendix 1 of the report) explained the relationship between the different bodies that made up the LGPS and it was an interesting document to share with the Committee, and to use as a point of reference.

 

9.2       The Pensions Committee agreed to note the content of the report.

10.

Elected Members - Continuing Professional Development Update / Diweddariad Parhau Datblygiad Proffesiynol - Aelodau Etholedig pdf icon PDF 287 KB

Minutes:

10.1    In addition to the list of training that the Committee had undertaken within the report, the Chair confirmed that he had recently attended the National Grid Annual General Meeting in Birmingham.

 

10.2    Cllr Bevan highlighted the benefits of members of the Committee attending conferences and suggested that everyone should attend at least one conference per year.

 

10.3    The PM reminded members of the Committee to email her if they wished to attend the LGPS conference on 23rd and 24th January 2020.

 

10.4    The Pensions Committee agreed to note the training update provided within the report.

11.

Wales Pension Partnership Update / Diweddariad ar Bartneriaeth Pensiynau Cymru pdf icon PDF 190 KB

Minutes:

11.1    The HoP introduced the report and confirmed that Tranche 2 in paragraph 5.1.B of the report was due to launch on 23rd September 2019; however the decision to be made in agenda item 16 could impact upon investments in European Equities.

 

11.2    Following a question from Cllr Bevan, the HoP made the following points:

  • It was a Government requirement for ultimately 100% of investments to be made via pooling of investments; however there was no set timetable.
  • The Fund would need to invest outside off the WPP if the available investment opportunities did not match the Fund’s SAA.
  • Substantial progress had been made, with approximately 48% of the Fund’s investments being held under collaborative arrangements. He added that some other pension funds were nowhere near this figure.

 

11.3    Cllr Bevan suggested that it was unlikely that 100% of investments would be made via the WPP, due to levels of cash that would be required and investments in local infrastructure.

 

11.4    The Pensions Committee agreed to note the content of the report.

12.

Date of Next Meeting 16/12/19 / Dyddiad y Cyfarfod Nesaf 16/12/19

Minutes:

12.1    The next meeting is scheduled to take place on 16th December 2019.

13.

Exclusion of Press and Public / Gwahardd y Wasg a'r Cyhoedd

To agree the exclusion of the press and public from the meeting as presentations and meeting papers are not for publication because in accordance with paragraphs 12 and 14 of part 4 of Schedule 12a of the Local Government Act 1972 (as amended by the Access to Information Variation Order Wales 2007), it contains information about a particular individual and information relating to the financial and business affairs of particular persons including the Council and in all the circumstances of the case the public interest in maintaining the exemptions outweighs the public interest in disclosing the information.

 

Cytunogwahardd y wasg a'r cyhoedd o'r cyfa rfod gan nad yw cyflwyniadau a phapurau cyf arfod i'w cyhoeddi oherwyddyn unol â pharag raffau 12 a 14 o Ran 4 o Atodlen 12A Deddf Llywodraeth Leol 1972 (fel y'i diwygiwyd gan OrchymynMynediad i Wybodaeth (Amrywiad) Cymru 2007), ei fod yn cynnwys gwybodaeth am unigolyn penod ol a gwybodaeth ynymwneud â materion aria nnol a busnes unigolion penodol yn cynnwys y Cyngor a than holl amgylchiadau'r achos, maelles y cy hoedd o ran sicrhau'r eithriadau yn gorbwyso'r budd i'r cyhoedd yn nhermau datgelu'r wybodaeth.

Minutes:

13.1    The Committee agreed to the exclusion of the press and public from the meeting as presentations and meeting papers were not for publication because in accordance with paragraphs 12 and 14 of part 4 of Schedule 12a of the Local Government Act 1972 (as amended by the Access to Information Variation Order Wales 2007), it contained information about a particular individual and information relating to the financial and business affairs of particular persons including the Council and in all the circumstances of the case the public interest in maintaining the exemptions outweighs the public interest in disclosing the information.

 

13.2    The Chair invited the four members of the Pension Board to remain in the public gallery.

 

Items 14 to 16 were exempt from the press and public.

14.

Exempt Minutes 10/6/19 / Cofnodion Eithriedig 10/6/19

15.

Exempt Minutes of the Local Pension Board 24/7/19 / Cofnodion wedi eu Heithrio'r Bwrdd Pensiynau 24/7/19

16.

Strategic Asset Allocation Review / Adolygiad Dyraniadau Asedau Strategol