Agenda and minutes

To approve as correct the minutes of the Special meeting held on 27 November 2012 and of the meeting held on 12 December 2012 and authorise the Chairman to sign them.

The minutes of the Special meeting held on 27 November, 2013 and of the meeting held on 12 December, 2013, including the exempt minutes for both meetings, were agreed as a correct record, and signed by the Chairman.

Report attached.

Officers provided the Committee with an update on progress in implementing the new pension reform legislation covering automatic enrolment. Previously the Committee had been advised that the staging date for Havering was 1^st March, 2013 and it was anticipated that the Council would be able to meet the deadline. Unfortunately the Council’s Financial system (Oracle) had to be updated with a required legislative system patch to ensure that it complied with the complexities of automatic enrolment, in identifying those employees meeting the necessary criteria and reporting accordingly. The patch had been applied and tested, unfortunately it did not deliver the desired results, and a decision had been made to delay the staging date until 1 May 2013.

The Committee were given an assurance that testing on the patch had now given positive results and therefore officers did not anticipate any problems with meeting the revised date.

The Committee were aware that some local authorities had taken the decision to defer implementation until 2017 and officers were asked why the Council had not taken that decision. Officers explained that in deferring the implementation other Councils were only reducing the impact of the implementation. Deferment only affected current employees, authorities still needed to introduce auto enrolment for new employees. Other authorities have made the decision because the system imposes an administrative burden and they believe that by 2017 the issue of auto enrolment will be removed from the statute book.

The Committee noted the report.

Report attached.

The Committee received a report setting out the Pension Fund’s communications priorities and the proposed revised Communication Strategy for 2013-2015. Officers had reviewed how well the Council had adhered to the existing strategy and what had been achieved and what was outstanding. Officers confirmed that all the Communication Responsibilities set out in the 2010/12 Communication Strategy had been achieved.

The proposed draft strategy covered three key areas which would allow the Pension Administration Team to ‘Get ready for new challenges’ in order to meet four areas of significant challenge during the period of the strategy. These four areas were:

·         Automatic Enrolment;

·         The introduction of the new CARE pension scheme from April 2014;

·         The Triennial Valuation; and

·         Procuring new pension software in readiness for the 12014 pension changes.

The Committee agreed the revised Communication Strategy 2013-2015 as attached to the report, including the communication priorities identified.

Report attached.

The Committee considered a report on the draft Public Service Pensions Bill which was progressing through Parliament and which could have significant implications for the London Borough of Havering Pension Fund and the Pension Committee.

Officers identified a number of key risks, including:

·         Valuations: There was an overall risk to scheme affordability and the setting of contribution rates, which could be flawed due to the Treasury setting the specification on data, methodology and assumptions to be used in valuations. The problem is that by everything being set centrally the local implications will be lost.

·         Scheme closure: The Bill lacked clarity on how the closure of the existing schemes would operate. Closure of a Local Government Pension Scheme could lead to demand for deficits to be paid off immediately, leaving some employers in severe financial hardship.

·         Retrospective changes: The bill did allow for revaluation to lead to a decrease in the level of benefit for scheme members, although controls around this had been included in the Lords amendments.

·         Communications: The communication challenge of explaining the impact of moving from a final salary linked pension scheme to a Career Average Revalued Earnings (CARE) scheme with deferment of existing benefits.

Officers advised the Committee that the Bill sets out new, stronger, provisions for the overall governance and regulation of public sector pension schemes. Each scheme would have its own ‘manager’ with responsibility for scheme administration. That manager could be an individual, e.g. the Group Director of Finance & Commerce, or it could be the Pensions Committee or the Council as a whole, the legislation left a substantial degree of latitude which would probably be defined more by guidance and regulations. There would also be a Pension Board whose task would be to assist the manager. Half of the members of the Board would be representatives of the employer(s) and half would be representatives of scheme members.

The Committee asked officers to prepare a briefing for the borough MP’s on the issues raised particularly, valuations and scheme closure.

The Committee were advised that the Government was calling for evidence to support a proposal for a Collective Investment Fund. In London there were already talks of merging individual schemes into 5 large schemes. A report would be submitted to the next meeting.

Additionally the Committee noted the report and agree to receive further updates as and when the Bill is enacted and further guidance was issued, together with a briefing report on the proposed new Local Government Pension Scheme and its impact.

The Committee resolved to excluded the public from the meeting during discussion of the following item on the grounds that if members of the public were present it was likely that, given the nature of the business to be transacted, that there would be disclosure to them of exempt information within the meaning of paragraph 3 of Schedule 12A to the Local Government Act 1972 which could reveal information relating to the financial or business affairs of any particular person (including the authority holding that information) and it was not in the public interest to publish this information.

Report attached.

Officers advised the Committee that the net return on the Fund’s investments for the quarter to 31 December 2012 was 3.0%. This represented an out performance of 0.7% against the combined tactical benchmark and an outperformance of 2.5% against the strategic benchmark. The overall net return for the year to 31 December 2012 was 10.5%. This represented an out performance of 1.3% against the annual tactical combined benchmark and an out performance of 4.4% against the annual strategic benchmark.

The Committee were advised that the global economic data showed signs of stabilisation, particularly in the US and China; the Eurozone economy remained mixed. The re-election of President Obama in November offered some clarity politically but markets fell sharply in the immediate aftermath as the focus shifted to the approaching ‘fiscal cliff’ debate. The fourth quarter was positive for UK equities.

Index linked gilts returned 4.3% during the quarter, reflecting increased demand for longer dated bonds and outperformed fixed interest gilts.

1.    Hymans Robertson (HR)

HR advised the Committee that despite unresolved difficulties associated with the financial crisis, in particular the debt ‘overhang’ in the US and Europe, equity markets performed well during the quarter. This positive tone contrasted with notes of caution regarding the global economy.

Forecasts for global economic growth in 2013 were cut by a number of respected agencies. Policy makers made conciliatory comments and prepared for the worst. In the US, the central bank announced its intention to keep short-term interest rates at close to zero until specific economic criteria were met and extended the programme of asset purchases which started in November 2008.

In the UK, Chancellor George Osborne had presented the autumn statement in early December. Due to lower than expected economic growth, austerity measures were to be prolonged to at least 2018 and the timescale for debt reduction extended. During the quarter, both the Bank of England and the Office for Budget Responsibility had cut their forecasts for economic growth for both 2012 and 2013. The Governor of the Bank of England had forecast a period of persistently low economic growth, citing problems in the Euro zone as a contributory factor.

Key events during the quarter were:

Global Economy

·         UK had emerged from recession, as the economy expanded during the three months to end September, although the Euro zone returned to recession;

·         The pace of growth of Chinese economy had edged higher after nearly two years of slowdown;

·         Short-term interest rates in UK, US and Euro zone were held at current levels;

·         European finance ministers had agreed a new supervisory regime for Euro zone banks;

·         Standard and Poors had placed UK’s AAA credit rating on negative outlook.

Equities

·         Rosneft (Russia) had replaced Exxon Mobil as the world’s largest publicly traded oil producer;

·         The strongest sectors relative to the ‘All World’ Index were Financials (+5.4%) and Industrials (+2.9%);

·         the weakest were Telecommunications (-6.7%) and Technology

(-6.0%).

·          

Bonds

·         The ECB announced a bond purchase programme to assist countries struggling to raise funds;

·         Index linked gilts (+4.3%)  ...  view the full minutes text for item 35.

Report attached.

The Committee were reminded that the LGPS (Management and Investment of Funds) Regulations 2009 state that an administering authority must prepare, maintain and publish a written statement of the principles governing its decision about the investment of fund money (this is known as Statement of Investment Principles).

Further to decisions taken at earlier meetings officers had produced a revised Statement of Investment Principles for approval by the Committee. In addition officers had produced a report on the Fund’s compliance against the Myner’s Investment principles. The main changes in the Statement related to allocation across Asset classes. The proposed changes were as follows:

Officers informed the Committee that the Fund was 99% fully compliant with the Myner’s principles. The one exception was that the Annual Report did not include an overall risk assessment. This would be addressed at a later meeting when proposals will be brought forward to the Committee for consideration.

The Committee were provided details of a proposed timetable and a proposal to rebalance equity exposure. The decisions of the Committee are set out in the exempt minutes.

The Committee:

1.    Agreed to the proposed amendments to the SIP: and

2.    Agreed to the administrative authority’s position in respect of reporting compliance against the Myner’s Investment principles.