Minutes for Pension Fund Committee meeting, Sep 3 2009, 10.00AM official page

Apologies were received from Jackie Yates and Anwen Owens.

The Chairman welcomed to the meeting Jo Holden from Mercer Investment Consulting, who attended in place of Anwen Owens.

To declare any personal and prejudicial interests

There were none.

of the meeting held on 4 August 2009 to be confirmed.

The minutes of the meeting held on 4 August 2009 were confirmed as a true record subject to the following amendment:

Item 7 Annual Accounts

Second paragraph, second word, delete ‘next’ and add ‘net’.

Members were reminded that they had asked for a paper to be brought to this meeting with regard to possible losses from the Council’s Treasury investment in Landsbanki Bank.  The Assistant Head of Finance stated that the Pension Fund has no exposure to Landsbanki Bank.

Report from Julie Edwards, Pensions and Investment Manager

Members received the report of the Pensions and Investments Manager, the purpose of which was to present the performance of the Pension Fund’s fund managers for the second quarter of 2009.

As at 30 June 2009, the market value of the fund had increased from £1,004m to £1,069m which is the first positive return since December 2007.  BlackRock, Blackstone, LGIM and Mirabaud outperformed their benchmarks.  However, the combined Fund underperformed by 1.5% in the last quarter against the benchmark.  Over one year the gross return was -13.3% and the Fund underperformed by 0.7%; over three years the Fund generated a gross return of -2.9% and underperformed by 0.3% compared to the benchmark.  Mirabaud, L&G and Aviva continue to outperform their benchmarks.

The WM local authority universe data for the second quarter of 2009 has not yet been published.  However, in quarter 1 the Fund achieved a ranking of 29 and the annual, three years and five years ranking are 42, 38 and 45 respectively, which showed an improvement overall compared to the previous quarter.

The Committee was informed that officers would be reviewing the format of this report for the next meeting and members’ comments were welcomed.

Benchmarking was discussed and members were informed that the benchmark for fund managers is set over a five year period. 

In answer to a member’s question, it was noted that the investment strategy is formally reviewed at least every three years.  It is also being continually reviewed over the course of each cycle, and recommendations are brought to Committee regarding any changes to the asset allocation.  Portfolio flexibility is built in, in order to deal with market conditions.  Whilst variances will occur, they also occur through good and bad performance, so those fund managers doing well may be rewarded by being given more funds for investment.

The Committee noted the report and commented as appropriate.

Report from Clive Palfreyman, Assistant Head of Finance.

Members received the report of the Assistant Head of Finance, the purpose of which was to outline how the Fund’s Investment Strategy will be monitored and also outline the roles assigned to the Committee, Officers and Advisers.

The Committee was informed that most of the arrangements for the Investment Strategy are already in place but need to be formalised. 

The following was noted:

• The Quarterly Performance Report will be updated to meet members’ requirements
• Future Committees will meet within eight weeks of each quarter end.  It was unsure how this would affect the newsletter.
• The Committee Adviser and Investment Advisers will be asked to provide a verbal response to performance reports.
• The structure of the regular meetings with Fund Managers will be improved.
• Trigger points will be discussed with Mercer Investment Consulting, based on performance thresholds, reliance on key individuals in the investment companies and the reason for appointing fund managers in the first place.

Members discussed performance and risk.  Some Pension Funds are prepared to take more risk and appoint fund managers dealing in high risk, which can generate a greater as well as a lesser return.  Some Pension Funds are large enough to have their own investment professionals and therefore are able to move quickly in the market. 

The BCC Pension Fund has appointed three new global equity managers.  In appointing the fund managers, this is not based solely on past performance, but also the managers’ key strengths and styles. The experience and research from the Advisers will also support decisions. 

With regard to diversification, Local Authorities are developing a more scheme specific asset allocation benchmark to decide the risk/reward pattern for comparison in future, which may not be the mean average because Pension Funds are each operating in different ways.  Some Pension Funds are also taking a longer strategic view and over the long term funds are more consistent.  It also gives time for Fund Managers to gather information on the market which prepares them for future decisions on where to place funds in the market.  Governance also differs in each authority.  The new format for providing information should help the Committee in making decisions.

Discussion took place with regard to training for Committee Members.  It was suggested that specific trainers should be used rather than Fund Managers.  It was noted that a specific trainer would be providing the session at Aviva, even though he works for Aviva.  It was suggested that the Committee Adviser could also give training but the Fund Managers are really the most knowledgeable people.

With regard to the Local Authority League Table members noted that the top five authorities are not necessarily the same every year, although the larger LA Pension Funds appear to do well.  The BCC Pension Fund is one of the mid-sized Funds and has a large number of employers in the scheme.  Each of the London Boroughs has their own fund which are usually relatively small. The London Pension Fund Authority is is one of the largest Local Government Pension Schemes (LGPS) in England and is responsible for ex-GLC and ILEA pensions. LPFA also carries out third party pension administration and other LGPS services.  However, accountability remains with the Pension Funds.

The BCC Pension Fund performed reasonably well in the Local Authority League Table for 2008 the first quarter of 2009 has shown a marked improvement and it was hoped this upward trend would continue and that the new managers will improve performance.

The Committee Noted the Fund Manager Monitoring Arrangements.

Report from Clive Palfreyman, Assistant Head of Finance

On 25 June 2009 the Department for Communities and Local Government published a paper on the affordability, viability and fairness of the Local Government Pension Scheme.  The consultation involved two papers.  The first paper focussed on governance and finance and the second paper on the benefits.  However, the second paper has yet to be published, even though it was promised in July 2009.  Therefore, it is difficult to provide an holistic response to the consultation.

A draft response on the first part of the consultation was attached to the report and members were asked to comment in order that the response can be sent to the DCLG by 30 September 2009.

The Assistant Head of Finance stated that only 18 months after the last consultation they were now going through another.  At the time of the first consultation, the Pension Fund was supportive of the Career Average proposal, but the LGPS remained a Final Salary Scheme and, while disappointing in terms of affordability, this is yet again being discussed under the current consultation.  The draft response expresses disappointment that the second paper has not been published and outlines the difficulty in writing a considered response on half a paper.  It was considered that the paper only deals with the short term and is focused on the recession, 2010 valuation and the next General Election – a view shared by other Local Authorities.

Whilst there is a need to make the Scheme affordable and viable, there is also the need to limit the impact on employer contributions.

Although there is some concern that the paper talks about not having a 100% funding target for Pension Schemes, there is logic in not being 100% funded today, only on the last day of the Scheme.  However, moving from a 100% funded target presents risks, but financial planning could be the way forward.  Investment reviews could set out a more robust plan, i.e. 80% to 90% to 100% within an agreed timeframe.  Again concern was expressed in the response around this being taken as a reason for employers to reduce contributions.  If authorities reduce liability today, this will mean higher costs in the future.

The employee contribution tariff changed in 2008 and in the current paper proposes increased contributions for higher earners.  It was considered that increased pension contributions could mean higher salaries.  A reduction in contributions for the lower paid scheme members will mean a saving of approximately 80p per week but this reduction is negligible with regard to encouraging others to join, and also reduces fund income.

If the Government is serious about affordability, viability and fairness for Pension Schemes, these plans will not change affordability.  The Government will need to look at Benefits.  Areas such as admitted bodies agreements, and pension transfers need to be looked at rather than how the Schemes are governed.

In discussion the following was noted:

• Employer contributions vary depending upon how the Scheme is funded.
• Members considered the response was well thought out and was appropriate.
• The HR Team are leading on the employer response from BCC.  Thames Valley Police are also sending a separate response.
• The penultimate paragraph of the response refers to Buckinghamshire Taxpayers.  However, the Thames Valley Police Fund covers a wider area and this needs to be reflected in the response.
• As more services are out sourced, the number of employees will reduce.  It is today’s employees who are paying for today’s pensioners.  Therefore contributions will need to rise as the Fund membership reduces.  Moving towards a revised scheme of benefits will help reduce contributions.

The Committee commented on the draft Fund Administrators Response and agreed it subject to the agreed amendments.

A copy of the up to date Forward Plan is attached.

In accordance with a request from members a copy of the Forward Plan was attached to the agenda for this meeting.  It was agreed that this will now be a standing item on the agenda.

The next meeting of the Committee will be held at 10.00am on Thursday 19 November 2009 in Mezzanine Room 2.

Members are reminded that there is a training day at Aviva in London, at 10.00am on Wednesday 16 September 2009.  Please note this date in your diaries.

Dates of future meetings - 2010

21 January

25 February

13 May

17 June

12 August

28 October

18 November

The next meeting of the Committee will be held at 10.00am on Thursday 19 November 2009 in Mezzanine Room 2.

Members were reminded that there is a training day at Aviva in London, at 10.00am on Wednesday 16 September 2009 and were asked to note this date in their diaries.

Dates of future meetings - 2010

21 January

25 February

13 May

17 June

12 August

28 October

18 November

To resolve to exclude the press and public as the following item is exempt by virtue of Paragraph 3 of Part 1 of Schedule 12a of the Local Government Act 1972 because it contains information relating to the financial or business affairs of any particular person (including the authority holding that information)

RESOLVED

That the press and public be excluded for the following item which is exempt by virtue of Paragraph 3 of Part 1 of Schedule 12a of the Local Government Act 1972 because it contains information relating to the financial or business affairs of any particular person (including the authority holding that information)

of the meeting held on 4 August 2009, to be confirmed

The confidential minutes of the meeting held on 4 August 2009 were confirmed as a true record.

Presentation from Louis Hill, WM Company

Enclosed with the agenda are the following:

• WM Performance Services UK Local Authority Annual Review 2008/09
• Buckinghamshire Pension Fund – Performance Review (to end March 2009)

Members received a presentation from Louis-Paul Hill on the Buckinghamshire Pension Fund Performance Review to the end of March 2009.  This included measuring investment performance of the Fund together with 87 others, and looking at the results of Pension Funds in relation to returns, risks, costs and asset allocation trends, as well as looking at the BCC Pension Fund specifically.

Members discussed the contents of the presentation.

The Chairman thanked Louis-Paul Hill for his presentation.

Verbal Report from Clive Palfreyman, Assistant Head of Finance

The Assistant Head of Finance gave members an update on the Investment Strategy.  

Report from the Chairman of the Pension Fund Committee.

The Chairman asked members to re-visit the decision made at the meeting on 4 August in relation to the Investment Consultant. 

The Committee further considered and agreed arrangements for the Investment Consultant role.