Agenda and minutes

To approve as correct the minutes of the meeting held on 30 October, 2013 and authorise the Chairman to sign them.

The minutes of the meeting of the Committee held on 30 October, 2013 were agreed as a correct record and signed by the Chairman.

To consider the attached report.

Officers advised the Committee that the net return on the Fund’s investments for the quarter to 30 September, 2013 was 3.3%. This represented an out performance of 1.1% against the combined tactical benchmark and an out performance of 1.2% against the strategic benchmark.

The overall net return for the year to 30 September, 2013 was 16.1%. This represented an out performance of 3.7% against the annual tactical combined benchmark and an out performance of 17.9% against the annual strategic benchmark.

1.    Hymans Robertson (HR)

HR advised that the quarter contained a mix of positive economic news and more nuanced financial events. The Eurozone had emerged from recession, although there remained a wide divergence in the performance of individual members. In the UK, data published in July indicated strong economic growth, prompting the Chancellor of the Exchequer to comment that the economy was ‘turning a corner’ and to cite ‘signs of a balanced, broad based and sustainable recovery.’ Positive economic developments were also evident in the US and, to a lesser extent, in Japan.

Notwithstanding positive economic data, action by central banks tended to reflect a more cautious attitude. Short-term interest rates in the UK, Eurozone and US were held at record lows. In the US, the Federal reserve indicated there would be no immediate unwinding of monetary support (currently $85bn a month) a step back in tone from the preceding quarter. In addition, both UK and European central banks provided forward guidance on monetary policy for the first time. The underlying message from the major central banks was, and remained, that economic conditions, whilst improving, still needed very careful management.

Global ten year bond yields rose (Prices fell) but then stabilised. At the end of the quarter, investors were unsettled by concerns that the US might not renew its debt ceiling by the mid October deadline.

The key events during the quarter were:

Global Economy

·         Forecasts for UK economic growth were revised upwards by the Bank of England and IMF;

·         Global economic growth forecasts were revised down by the IMF;

·         China announced a series of measures to boost economic growth;

·         Short-term interest rates were unchanged in the UK, US and Eurozone; and

·         The Eurozone economic recovery from recession, after four consecutive quarters of economic contraction.

Equities

·         The best performing sectors relative t the ‘All World’ Index were Basic Materials (+3.9%) and Industrials (+2.8%); the worst were Utilities (-3.6%) and Consumer Goods (-2.2%);

·         Barclays Bank announced a £5bn rights issue (and a £2bn bond issue) to meet new capital requirements;

·         Vodaphone sold its 45% stake in Verizon for $130bn (one of the largest deals in corporate history).

Bonds and Currencies

·         UK government bonds (All Stocks) returned +0.5%;

·         Corporate issues outperformed government counterparts by a comfortable margin; and

·         Sterling strengthened against all major currencies.

The Committee were given details of the performance of the Fund Managers, a summary of which is given in the Exempt minutes. State Street Global Advisors, Baillie Gifford and UBS Triton attended the meeting and presented  ...  view the full minutes text for item 28.

To consider the attached report.

Officers submitted a report concerning the proposed admittance of two Transferee Admission Bodies to the London Borough of Havering’s Pension Fund. Under the terms of the Local Government Pension Scheme (Administration) Regulations 2008 where a transferee admission body and the scheme employer undertake to meet the relevant requirements of Regulation 6, an administering authority must admit to the Local Government Pension Scheme (LGPS) the eligible employees of the transferee admission body, and where it does so, the terms on which it does are noted in the admission agreement for the purposes of these Regulations.

Officers advised that investigations had been made to ensure that each body falls within the definition contained in Regulation 6 (2)(a)(i) of the Local Government Pension Scheme (Administration) Regulations 2008 and as such would be eligible to become a transferee admission body. Legal engrossment of the admission agreement is subject to the service transfer taking place.

1.     Sodexo UK and Ireland Ltd.

Sodexo are to be appointed Catering Services Contractor to Oasis Pinewood Academy, with the contract due to commence on 1 January, 2014 to 31 August, 2015, with the option to renew for a further 5 years.

When the contract starts two employees are to be transferred from the London Borough of Havering to Sodexo. The Transfer of Undertakings (Protection of Employment Regulations (TUPE) apply.

Sodexo intends to allow continuity of LGPS membership for the employees through a transferee agreement with the London Borough of Havering Pension Fund. The agreement will be a closed agreement. Sodexo will be required to provide a bond of £26K. The employer rate will be set at 22.4%.

This contract is impacted by the New Fair Deal Policy published by HM Treasury on 4 October, 2013.

The admission of Sodexo UK and Ireland Ltd as transferee body into the London Borough of Havering Pension Fund be noted subject to:

a.    All parties signing up to an Admission Agreement; and

b.    An Indemnity or Insurance Bond in an approved form with an approved insurer or relevant institution, being put in place to protect the letting authority/pension fund.

2.     Breyer Group PLC

Breyer Group PLC is to be awarded the contract with the London Borough of Havering to provide responsive repairs and maintenance services to Council owned and managed housing stock. The service transfer was scheduled to take place from 6 January, 2014. The contract is initially for a five year period with the option to extend for a further two years.

The arrangement will involve a second wave TUPE transfer of 30 employees of Morrison Facilities Services, of which 16 are currently members of the LGPS.

Breyer intends to allow continuity of LGPS membership for the employees through a transferee agreement with the London Borough of Havering Pension Fund. The agreement will be a closed agreement. Breyer will be required to provide a bond of £1,494,000. The employer rate will be set at 23.8%.

The admission of Breyer Group PLC as transferee body into the London Borough of Havering Pension  ...  view the full minutes text for item 29.

To consider the attached report.

On 2 July, 2013 the Secretary of State for Education, Michael Gove, presented a Written Ministerial Statement and laid a Parliamentary Minute in the House of Commons, and the House of Lords, setting out details of a guarantee that any outstanding Local Government Pension Scheme liabilities on an Academy’s closure would be met by the Department of Education. This guarantee, in the event of an Academy failure, would have a positive impact on other employers in the Fund as it would mean that there was a method for recovering liabilities rather than passing costs on to other fund employers.

The need for the guarantee had arisen as many Academies employer contribution rates were significantly higher than the rate which they were previously paying when under Local Education Authority (LEA) control.  This increase might be accounted for by the age and other profile factors of each Academy’s membership, but could also be impacted by variations in salary scales.

Some LGPS funds had introduced shorter deficit recovery periods for Academies to reflect that funding from the Department of Education is only guaranteed for 7 years.

Havering Academies have been granted the same pooled assumptions and deficit repayment terms as the Council (over 20 years), the impact of this is to reduce the employer contribution rate for the academies.

Officers advised that the Department of Education and HM Treasury have reserved the right to ‘withdraw the guarantee at any time.’

We have:

1.    noted the ministerial statement and the positive impact it has for other employers in the fund; and

2.    agreed that there should be no changes to the current academy arrangements for assessing the employer contribution rates.

To consider the attached report.

We have been advised that the HM Treasury had published, on 4 October, 2013, new guidance setting out a reformed Fair Deal policy. This was a non-statutory policy which set out how pension issues were to be dealt with when staff were compulsorily transferred from the public service to independent providers delivering public services.

Where Best Value and Fair Deal obligations exist – the outsourcing Employer should ensure that staff who were either current members of the Local Government Pension Scheme (LGPS), or who had an entitlement to become a member, on being transferred under TUPE had access to either:

·         Continuing membership of the LGPS; or

·         A Government Actuary’s Department-certified Broadly Compatible Pension Scheme (the outsourcing contract would normally be expected to include a bulk transfer arrangement for accrued LGPS membership), or

·         Where Fair Deal only was applied the provisions allow for:

o   Membership of the LGPS through an admission agreement;

o   A Final Salary Defined Benefit pension scheme; or

o   A Defined Contribution/Stakeholder pension scheme where members contributions were matched by the employer up to 6%.

The question for us was what was the likely impact of the New Fair Deal?

·         Previously two Academies, neither of whom were Best Value authorities, had outsourced public sector employees to private sector contractors. In the first case the Academy did not seek to tender with the provision of providing the LGPS for transferred public sector employees and it was not known what pension provision had been put in place for the staff who were TUPE’d from the Council. The former council employees were moved to deferred status in the pension fund, which means that the fund liabilities for the former scheme employer are growing, although without increased years, but there is a cash flow impact on the fund due to the loss of the employee and employer contributions.  Due to pension increases being greater than salary increases deferred benefits could potentially be greater than continued earned benefits.

·         The second Academy had sought an Admission Arrangement, which we had approved, but this had not been fulfilled by the admission body to date.

The future impact of the New Fair Deal guidance, which came into immediate effect, would be to increase the volume of smaller admission bodies to the fund.  Managing admission bodies was resource intensive, together with managing the admission process to ensure correct compliance by contracting authorities.  Any potential increase in smaller admitted bodies would impact on the costs of administering the fund, although recent system improvements and future plans to move to self-service should release resources to mitigate any additional resource requirements arising from the guidance.

We have noted the new Guidance setting out a reformed Fair Deal Policy published by HM Treasury.

To consider the attached report.

The Local Government Pension Scheme (Miscellaneous) Regulations 2012 were made on 27 July, 2012 and came into force from 1 October, 2012 but there was a provision made in Regulation 1 for various sub-sections within the regulations to have effect from different dates.

The Miscellaneous Regulations affect the following legislation:

·         The Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006;

·         The Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007;

·         The Local Government Pension Scheme (Transitional Provisions) Regulations 2008; and

·         The second set of regulations, the Local Government Pensions Scheme (Administration) Regulations 2008.

The Miscellaneous Regulations covered a wide range of mainly unrelated amendments to the Local Government Pensions Scheme Regulations.  Whilst some amendments were necessary to remove old provisions and align with legislative changes (automatic enrolment), there were some key changes to the provisions relating to admission agreements in particular.

We were informed of some key changes. The key changes arising from the Miscellaneous Regulations 2012 that required policy change decisions were:

·         Early release of benefits;

·         Third tier ill health pension; and

·         Changes to admission agreements.

The Funding Strategy Statement would need to be reviewed in line with the regulatory changes to ensure that any future approved Funding Strategy Statement was fully compliant with the regulations.

The proposed policy changes relating to admitted bodies would be set out in a new guidance document to be produced for scheme employers.  The guidance document would ensure all policies relating to the process for admission to the London Borough of Havering pension scheme were clearly set out, which would aid regulatory compliance by scheme employers and improve administrative procedures.

(a)  Early Release of Benefits.

These regulations required the administering authority to introduce a discretionary policy for instances where a scheme member wished to apply for the early release of their deferred benefits but their former employer was no longer an active scheme employer, and there was no successor body.  A draft policy would be developed and brought back to the next Committee meeting. The policy would be based on the premise that no costs would fall upon other employers in the Fund, unless there were special factors that justify a departure from this policy.

(b)  Third-tier ill Health Pensions.

Previously when someone was awarded a third-tier (temporary) ill-health pension and this pension was stopped, if that individual wanted to bring their benefits back into payment they would suffer full early retirement reductions even if they have enough pensionable service to meet the ‘rule of 85’.  The Miscellaneous Regulations corrected this unintended unfairness.

Deferred and suspended third-tier ill health retirement members who were aged between 55 and 60 and who wished to opt for early payment were required to obtain the permission of their previous employer.  If the employer no longer existed then the member’s request could not be considered.  To address this, the regulations would now allow the administering authority to exercise the employer discretion where the member’s former employer had ceased to be a  ...  view the full minutes text for item 32.

Report to follow.

The Local Government Pension Scheme (LGPS) 2014 was due to come in to effect on 1 April, 2014. The main design of the new scheme was as follows:

• To be a Career Average Re-valued Earnings (CARE) scheme;
• The accrual rate to be 1/49^th  for the main section;
• Each members Normal Pension Age (NPA) to be in line with State Pension Age (SPA);
• New salary bandings to be introduced extending the current 7 bands to 9, with an increase to the % paid for those earning over £43,000 per year;
• Employee contributions to be paid on all salary received, which would include additional hours for part timers, and any non-contractual overtime for full timers;
• Part time scheme members would also only pay contributions on their actual pay and not the whole time equivalent;
• There was the introduction of a 50:50 sectionfor those members thinking of opting out;
• Retirement benefits for all membership prior to 1 April 2014 were protected, including any remaining “rule of 85” protection; and
• Scheme members outsourced under a TUPE arrangement had the right to stay in the LGPS on the first and any subsequent transfers. Currently this was the choice of the new employer.

We have noted:

1.    The report and its contents, and the potential financial impact the scheme could have on the Havering Pension Fund;

2.    That some final details of the scheme were awaited; and

3.    A further report will be brought forward regarding impact and implications when further guidance was released.

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.

Officers in formed the Committee that matters had changed with regard to the third organisation seeking admission to the London Borough of Havering’s Pension Fund. Further details are contained in the minute of the exempt part of the meeting.

We have be advised of the details of an insurance product developed by Legal and General in association with Hymans Robertson to offer Ill Health Liability Insurance that seeks to minimise the impact of an Ill health Early Retirement costs on participating employers in the Havering Pension Fund.

In 2008 the Local Government Pension Scheme introduced new rules that changed the level of enhancements paid to employees when they retire due to ill health. The new rules meant that benefits were targeted to those whose needs were greater, criteria and levels of benefit are shown below:

a)       Tier 1 – If there was no reasonable prospect of being in gainful employment before the age of 65 employees would receive an immediate payment with service enhanced to Normal Pension Age.

b)       Tier 2 – If it was unlikely that an employee would be capable of gainful employment within three years of leaving they would receive an immediate payment with 25% service enhancement to Normal Pension Age.

c)       Tier 3 – If it was likely that an employee would be capable of gainful employment within three years of leaving they would receive a temporary payment of pension for up to three years.

Should any of the other employers who are members of the Pension Fund wish to take up this insurance they should be reminded that the Council are not involved in this venture and do not promote its use.

We have agreed not to adopt the proposed Ill Health Liability Insurance.