Agenda item

The Head of Pensions Governance and Investments presented a report to provide Members of the Teesside Pension Board (the Board) with an update on current issues affecting the Pension Fund locally or the Local Government Pension Scheme (LGPS) in general.

The following issues were highlighted:

•           Review of the Cost Control Mechanism.

            The Government Actuary had provided a final report to HM Treasury, which             had issued a consultation document proposing three changes to the cost             control mechanism:

-           Moving to a reformed scheme only design: to remove any allowance for legacy schemes in the cost control mechanism, so the mechanism only considered  past and future service in the reformed schemes. This ensured consistency between the set of benefits being assessed and the set of benefits potentially being adjusted;

-           Widening the corridor: to widen the corridor from 2% to 3% of pensionable pay. This aimed to achieve a better balance between stability and responsiveness of the cost control mechanism; and

-           Introducing an economic check: currently the mechanism did not include changes in long-term economic assumptions and therefore could not consider the actual cost to the Government of providing the pension benefits. The Government proposed introducing an economic check so that a breach of the mechanism would only be implemented if it would still have occurred had the long-term economic assumptions been considered.

            The impact on the LGPS if these proposals took effect was currently             unclear and at the current time there was no detail on whether the Scheme             Advisory Board mechanism would be amended in line with any of the             consultation’s proposals.

•           Climate Change Disclosures

            The government published a response to its January 2021 consultation on             “Taking action on climate risk: improving governance and reporting by             occupational pension schemes” on 2 July 2021.  The outcome of the              consultation confirmed that by 1 October 2021, private sector schemes      with assets in excess of £5 billion, and by 1 October 2022,         private sector schemes with assets in excess of £1 billion, will need to have appropriate     governance arrangements in place to identify, assess and manage        climate-related risks and opportunities and be preparing to publish annual      reports setting out climate-related metrics, targets and transition plans in line    with the Task force on Climate-related Financial Disclosures (TCFD). 

            Whilst none of this directly applied to the LGPS, the government had             indicated that a consultation would be issued soon (followed by regulations)             to bring the LGPS into line with private sector schemes in this area.  The   Fund was in ongoing discussions with Border to Coast and with its partner          Funds in Border to Coast to investigate whether there was an opportunity for           collaboration or joint working in measuring carbon exposure and meeting the      TCFD reporting requirements. The Fund had also made initial contact with all          its investment managers to understand what reporting details would be     initially available in respect of each of the Fund’s investments.

Further updates would be provided to the Board on both issues as appropriate.

AGREED that the information provided was noted.