Agenda item

Councillor Clarence Barrett, Cabinet member for Financial Management, introduced the report

Cabinet was reminded that in 2013 the coalition Government in considering the future of Local government pension schemes (LGPS) expressed concern over the level of Investment fees paid by councils and suggested that by pooling schemes, funds could achieve significant savings in fees.

In an attempt to reduce pension fund investment management costs, the creation of a London LGPS Collective Investment Vehicle (CIV) had now been made through London Councils.  This vehicle would allow pension fund investments to be pooled for the purpose of reducing fund managers’ fees.

The report before Cabinet asked members to consider whether the Council wished to participate in joining the CIV in London.  This vehicle would enable pension funds in London - including the London Borough of Havering Pension Fund - to access fund managers through this platform should the Pensions Committee decide it was appropriate to invest and participate in the cost savings and other benefits associated with this vehicle.

Reasons for the decision:

The decision was required to enable the Pension Fund to participate in the development of the CIV in order to increase collaboration amongst London pension funds and to benefit from potential savings in management fees over the longer term.

Other options considered:

Although there was no compulsion to join the CIV, Cabinet needed to be mindful of potential changes in legislation which might impact upon the structure of the Fund.

The LGPS Scheme Advisory Board (The Board) had been established under the Public Service Pensions Act 2013 to advise the Secretary of State for Communities and Local Government on the development of the Local Government Pension Scheme.

In support of its work plan for 2015-16, the Board was inviting proposals from interested parties to assist it in developing options with regard to the increased separation of LGPS pension funds and their host authorities for consideration prior to potentially making recommendations to the Secretary of State.

It was expected that the Board would make recommendations to the Secretary of State during September.  The Board was likely to consider the following three options:

·                A greater separation of powers of the Pension Fund under a strengthened s151 role.

·                Joint Committees of two or more Pension Funds

·                Complete separation of the Pension Fund from the host authority

It was too early to suggest whether any of these or alternative options would be developed further.  The creation of the CIV might be viewed as a means of mitigating any further legislative measures to merge funds.

Cabinet agreed to:

1.            Participate in the establishment of the London (LGPS) Collective Investment Vehicle (CIV).

2.            Participate in the establishment of a private company limited by shares to be incorporated to be the Authorised Contractual Scheme Operator (the ‘ACS Operator’) of the London (LGPS) Collective Investment Vehicle (CIV), the ACS Operator to be structured and governed as outlined in the report.

3.            As recommendations 1 and 2 above had been agreed, Cabinet then agreed:

a)     That following the incorporation of ACS Operator, the London Borough of Havering would:

·      Become a shareholder in the ACS Operator.

·      contribute to the initial capital set up costs of the  ACS Operator :

·      appoint an executive member to exercise the Council’s rights as shareholder of the ACS Operator;

b)     That Under Regulation 11 of the Local Authorities (Arrangement for the Discharge of Functions) (England) Regulations 2012 to establish the Pensions CIV Joint Committee, pursuant to the existing London Councils Governing Agreement dated 13 December 2001 as amended, to act as a representative body for the Local Authorities participating in these arrangements; and

c)     To delegate to this Joint Committee those functions necessary for the proper functioning of the ACS Operator including the effective oversight of the ACS Operator and the appointment of Directors.