Agenda and minutes

The Chair welcomed all present to the meeting and read out the Building Evacuation Procedure.

To receive any declarations of interest.

Name of Member	Type of Interest	Item/Nature of Interest
J Bell	Non pecuniary	Member of Teesside Pension Fund
Councillor C Massey	Non pecuniary	Deferred Member of Teesside Pension Fund

 

The minutes of the meeting of the Teesside Pension Board held on 13 November 2023 were taken as read and approved as a correct record.

 

It was highlighted that the At Ease Newsletter had not been published due to unresolved issues with the printing provider as previously minuted.  The Head of Pensions Governance and Investments agreed to prioritise this with XPS and inform Board Members when the next issue would be published.

 

NOTED

A copy of the minutes of the meeting of the Teesside Pension Fund Committee held on 27 September 2023 was submitted for information.

 

NOTED

Verbal Report

The Head of Pensions Governance and Investments provided a verbal update on agenda items considered at a meeting of the Teesside Pension Fund Committee held on 13 December 2023.

 

Following a lengthy debate in relation to the Fund transferring its property portfolio to Border to Coast, from which press and public were excluded,  the Committee had agreed, on a vote being taken, not to pool its property investments at this time.  It was noted that if the Government forced the Fund to pool at a later date there would be a tax charge and the Fund would have to justify why its property assets had not been transferred.

 

It was noted that Board Members were unable to access exempt reports online that had been submitted to the Committee.  The Head of Pensions Governance and Investments agreed that exempt reports could be provided to Board Members on request.

 

At the end of September 2023, the total value of all investments, including cash, was £5,100 million.  The Fund’s equity weighting at 60% was slightly above the long term target and £100 million in equities had been sold during the last quarter.  The Fund Advisers had raised concern in relation to the percentage of illiquid asset holdings which was at 36%.  The Advisers had suggested that the Fund might need to de-risk and put money into bonds at some point in the future.  It had also been highlighted that the Fund had low risk assets that produced low returns and needed a higher return from higher risk assets.  The Teesside Pension Fund had lower employer contributions than a lot of other Local Government Pension Scheme Funds and therefore needed to generate higher income.

 

CBRE, the Fund’s property advisers, had informed the Committee that the Fund had bought an industrial unit in Washington, let to BAE for £50million and this was now the largest asset in the portfolio.  The Fund had also built an industrial unit in Yeovil which would be rented out as a warehouse for helicopter parts for Leonardo, and would produce significant returns.

 

Border to Coast had provided an annual refresh of its Responsible Investment Policy, Corporate Governance and Voting Guidelines and Climate Change Policy which were noted by the Committee.

 

A Member queried whether, for example, 150 redundancies could have a significant impact on employer contribution rates.  The Head of Pensions Governance and Investments explained that the Actuary considered such events as part of the valuation every 3 years and that a relatively small number of redundancies should not have a dramatic impact.

 

It had been reported that Middlesbrough Council was selling some of its assets and a Member asked whether the Teesside Pension Fund would consider buying any.  The Head of Pensions Governance and Investments confirmed that consideration would be given to any assets that met the criteria for inclusion in the property portfolio.

 

AGREED as follows that:

1.         The information provided was received and noted.

2.         Exempt Committee reports would be emailed to Board Members on request.

A report of the Director of Finance was presented to provide information on items scheduled in the work plan for consideration at the current meeting  which were: internal controls and managing risks and the Fund’s approach to cyber security.

 

Internal Controls and Managing Risks

 

The Pensions Regulator’s recently published General Code of Practice provided the following very broad definition of Internal Controls:

 

“Internal controls refer to all the following:

 

•           the arrangements and procedures to be followed in the administration and management of the scheme;

•           the systems and arrangements for monitoring that administration and

            management, and

•           arrangements and procedures to be followed for the safe custody and security of the assets of the scheme.”

 

The Fund’s Risk Management Policy (attached at Appendix B to the submitted report) detailed the risk management strategy for the Fund, including:

 

•           The risk philosophy for the management of the Fund, and in particular attitudes to, and appetite for, risk.

•           How risk management is implemented.

•           Risk management responsibilities.

•           The procedures that are adopted in the Fund's risk management process.

•           The key internal controls operated by the Administering Authority and other parties responsible for the management of the Fund.

 

Effective risk management was an essential element of good governance in the LGPS.  By identifying and managing risks through an effective policy and risk management strategy, the Fund could:

 

•           Demonstrate best practice in governance.

•           Improve financial management.

•           Minimise the risk and effect of adverse conditions.

•           Identify and maximise opportunities that might arise.

•           Minimise threats.

 

In relation to understanding and monitoring risk, the Administering Authority aimed to:

 

•           Integrate risk management into the culture and day-to-day activities of the Fund.

•           Raise awareness of the need for risk management by all those connected with the management of the Fund (including advisers, employers and other partners).

•           Anticipate and respond positively to change.

•           Minimise the probability of negative outcomes for the Fund and its stakeholders.

•           Establish and maintain a robust framework and procedures for identification, analysis, assessment and management of risk, and the reporting and recording of events, based on best practice.

•           Ensure consistent application of the risk management methodology across all Fund activities, including projects and partnerships.

 

To assist in achieving these objectives in the management of the Fund, the

Administering Authority aimed comply with:

 

•           The CIPFA Managing Risk publication.

•           The Pensions Act 2004 and the Pensions Regulator's Codes of Practice as they relate to managing risk for public service pension schemes.

 

The Fund’s risk management process was in line with that recommended by CIPFA and was a continuous approach which systematically looked at risks surrounding the Fund’s past, present and future activities.  The main processes involved in risk management were identified as Risk Identification, Risk Analysis, Risk Control and Monitoring.

 

Progress in managing risks was monitored and recorded on the risk register, which would be provided at least annually to the Pension Fund Committee.  A copy of the Risk Register was  ...  view the full minutes text for item 23/25

A report of the Director of Finance was submitted to provide Members of the Teesside Pension Board with details of the Government’s recently published response to a consultation exercise: “Local Government Pension Scheme (England and Wales): Next steps on investments” which indicated the Government’s proposed direction of travel in relation to investment pooling on the Local Government Pension Scheme (LGPS).

 

The final consultation outcome (attached at Appendix A to the submitted report), confirmed that the Government would produce guidance and/or regulations to enact most of the changes proposed in the consultation document.  The Government would progress its reform of the LGPS to accelerate and expand pooling, and to increase investment in levelling up and in private equity.

 

The consultation response set out a number of expectations for LGPS Funds and Pools, the main outcomes were summarised in paragraph 9 of the document as follows:

 

“After having considered the responses, the government will now implement the proposals that we set out in the consultation to accelerate and expand pooling, and increase investment in levelling up and in private equity. We will:

 

•           set out in revised investment strategy statement guidance that funds should transfer all assets to their pool by 31 March 2025, and set out in their Investment Strategy Statements (ISS) assets which are pooled, under pool management and not pooled and the rationale, value for money and date for review if not pooled.

 

•           revise pooling guidance to set out a preferred model of pooling including delegation of manager selection and strategy implementation.

 

•           implement a requirement in guidance for administering authorities to set a training policy for pensions committee members and to report against the policy.

 

•           revise guidance on annual reports to include a standard asset allocation, proportion of assets pooled, a comparison between actual and strategic asset allocation, net savings from pooling and net returns for each asset class against their chosen benchmark.

 

•           make changes to LGPS official statistics to include a standard asset allocation and the proportion of assets pooled and the net savings of pooling.

 

•           amend regulations to require funds to set a plan to invest up to 5% of assets in levelling up the UK, and to report annually on progress against the plan.

 

•           revise ISS guidance to require funds to consider investments to meet the government’s ambition of a 10% allocation to private equity.

 

The Government also confirmed that pools should seek scale and should reduce in number in the medium to long term from the current 8 to probably around 4 or 5.   This number of pools was implied in the document through reference to a Government Actuary’s Department (GAD) projection that the LGPS in England and Wales could have assets of around £950 billion, at which point the expected pool size would be around £200 billion. The Government wished to see greater collaboration between pools in the meantime.

 

Much of the detail of implementing the proposals would be set out in guidance which was expected to be  ...  view the full minutes text for item 23/26

A report of the Director of Finance was presented to provide Members of the Teesside Pension Board with details of the Pensions Regulator’s (TPF) recently published General Code of Practice, which was expected come into force from 27 March 2024.

 

TPR had been through an exercise to merge its existing codes of practice into a single new code, the General Code of Practice.  Consultation on the creation of the general code took place on 2021 and the new General Code of Practice was laid in Parliament on 10 January 2024, expected to come into force after 40 days on 27 March 2024.

 

The General Code of Practice was a 171-page document that could be found on TPR’s website at the following link:

 

https://www.thepensionsregulator.gov.uk/-/media/thepensionsregulator/

files/import/pdf/general-code-laid-january-2024.ashx+

 

The following ten codes had been consolidated into the General Code of Practice:

 

•           Reporting breaches of the law

•           Early leavers

•           Late payment of contributions (occupational pension schemes)

•           Late payment of contributions (personal pension schemes)

•           Trustee knowledge and understanding

•           Member nominated trustees/member-nominated directors putting

•           arrangements in place

•           Internal controls

•           Dispute resolution reasonable periods

•           DC code

•           Public service code

 

The General Code of Practice was divided into five sections and several new modules had been included.  Some of these would not directly apply to the LGPS but where this was the case, compliance would usually be viewed as ‘best practice’ by TPR.

 

Although the General Code of Practice was expected to take effect before the end of March, TPR had indicated that it did not expect schemes to be able to demonstrate full compliance with all the provisions of the Code from that date. However, it was expected that schemes would have an awareness of where there were potential gaps in compliance and, ideally, a plan setting out how and when these gaps would be filled.

 

The Fund already had a good level of compliance with TPR’s governance and administration requirements set out in the existing ‘old’ codes of practice.  An exercise was underway to consider to what degree the Fund complied with the new elements of the code, including those deemed ‘best practice’ for the LGPS. A Board Member highlighted that an LGPS Compliance Checker was available to assist Funds but it was also noted that it cost approximately £12,000.   Updates, including a plan for achieving full compliance with all relevant elements of the General Code of Practice would be shared with future Board and Teesside Pension Fund Committee meetings.

 

AGREED that the information provided was received and noted.

A report was presented to provide an overview of administration services provided to the Teesside Pension Fund by XPS Administration.

 

The report provided information on the following:

 

• Overview.

• Member Movement.

• Member Self Service.

• Pension Regulator Data Scores.

• Customer Service.

• Completed Cases Overview.

• Completed Cases by Month.

• Complaints.

 

The following issues were highlighted:

 

Public service pensions and career average benefits within the LGPS would increase by 6.7% alongside the Consumer Price Index from the previous September.   Employers had been requested to submit a scheme and a financial return to allow XPS to capture data in relation to scheme Members.

 

The 2024/2025 Employee contribution bandings had been released which were effective from 1 April 2024.  Bands were updated in line with CPI so that members were not forced into higher bands due to pay increases.

 

The Finance Bill 2023 confirmed the lifetime allowance (LTA) would be abolished from 6 April 2024 and HMRC had issued a Lifetime Allowance guidance newsletter.

 

In relation to Membership movement there had been an increase in actives and a decrease in deferred.

 

There had been little change in the Self Service statistics.  XPS continued to encourage members to sign up and make sure requests were up to date in the system. 

 

An overview of the information collected from the website was included in the report.  Typically users searched for:  Opt Outs, When Can I Retire and Flexible Retirement.

 

With regard to the Employer Liaison Team, pension awareness sessions and employer training sessions continued with a positive uptake and response.   Sessions on tax would commence shortly now the Pension Saving Statements had been issued.  Processing of new admissions to the fund was ongoing with the new standardised passthrough approach being adopted.

 

Performance statistics for XPS for January and details of one complaint that had been processed were also included in the report.

 

AGREED that the information provided was received and noted.

It was confirmed that the Border to Coast Annual Conference was scheduled to be held on 18 and 19 July 2024.

 

NOTED