Joint Pensions Committee - Tuesday 26 March 2024, 7:15pm - Wandsworth Council Webcasting

Joint Pensions Committee
Tuesday, 26th March 2024 at 7:15pm 

Agenda

Slides

Transcript

Map

Resources

Forums

Speakers

Votes

 
Share this agenda point

Good evening, everybody and welcome to this meeting.
my name is Councillor Marshall and Chair of the Joint Pensions Committee of Richmond and Wandsworth members of the Committee, I will now call your names, please switch on your microphone to confirm your attendance, and once you've confirmed your attendance, please remember to switch off your microphone Councillor Craigie.
present.
Councillor Caddy has sent apologies Councillor Crookdake, present Councillor Gasser.
present
Councillor Dick Adam is not here and Councillor Pridham present.
we have received apologies from Councillor Ireland and Councillor Sarah.
the following officers are present, Mr DeLacy, Ms Baxter, Mr. Doyle and Mr. Khushal.
and we also have an attendance, Mr English, who's just been talking to us.
it was our pension fund adviser from Mercer.
agenda item 1, can I ask the committee to agree that the minutes of the Joint Pensions Committee meeting held on the 5th of December 2023 are an accurate record?
a great thank you.
tender item to do Members have any disclosable pecuniary interests and or other relevant personal interests in any of the matters to be considered at the meeting.
none indicated agenda item 3 minutes of the local pension Sport.
members to receive the minutes of the Local Pensions Board meeting, held on the 7th of November 2023 of those being received and noted.
very good, thank you.
so then, onto the substantial business agenda item for the pension fund, external audit update, and I'd like to ask as to jealousy to introduce the item. OK, thank you Chair. So for those of you that are a relatively new to to the fund, it's slightly unique in the sense that the Council's has an overriding main set of accounts, that, if it gets approved through Audit Committee and other channels, but the subset of those is the pension fund and they are audited independently, they all did it separately and they have our own set of accounts, but we unfortunately are caught up in some of the long wider issues
impacting on the Council's main set of accounts, namely that
there is a backlog of work that relates to them being signed off and one of the challenges that we have been faced is potentially for the 22 23 set of accounts may not necessarily be audited, and there'd be a disclaimer, we've got a representative for me why he will be able to explain much more details and in depth but the issue from my perspective as the officer in charge of the overall fund 3 billion pounds worth of assets is probably the largest asset that any authority he was ever going to own.
and you would probably want to have some comfort in knowing and accepting and knowledge and have an ISP and an assurance from the external audit.
that, even if the main set of accounts cannot be signed off formally and that will impact on what exactly they can say in relation to the set of accounts that you get as much as you possibly can.
because I am not comfortable myself as the, as the officers of just providing you with my should say, OK, I'm the Head of Audit as well, which can give it can help, but it still, I'm puzzled with 3 billion pounds that we would not be in a situation where you can have that that level, given so work has been undertaken. That's as well. I am trying to say yes', but we need to value and somehow get something documented to recognise the work that is being done rather than a general disclaimer. So that's really the tone really fought for this, and I'll hand over to
to e, why, in order to explain much better than I can on that and obviously why we are in the position, I would say this isn't unique to our funds, so it is not something that that is a has any issue in relation to the work that any officer has done but similarly the challenges that we face are not they're not unique to them alone.
and it's not just in the end, either the EU or entity, a lot of the
in the major audit organisations are going through, it are in the same position so.
just put that into context, so over to you thank you so, hello everyone, my name is Ben Lazarus and partner E Y really pleased to be here this evening to talk through this matter and just say you're aware my predecessor was a lady called Helen Thompson, she's retired and I've been integrating into the the the core team since that point so.
thank you. For that summary, I I mean, I think there's there's a couple of things to note first. So yes, there are a lot of complicated reasons why there's a local government audit backlog which I'm happy to go into and which will have been covered at the main Borough Council committee, but absolutely happy to have that discussion and go over some of that ground. But before we do that I think it's important to know that one of the key areas that we are prioritising as a firm at the moment is pension fund audits, as well as value for money work. So there is no proposal to disclaim the pension fund audit. There is a key plan in place that we are agreeing and on track with with management to get back on track, with pension fund sign-off. So just to give you an update on that, we signed the 21 22 pension fund or debt last week
there is a key piece of the puzzle around coupling with the council audit that we're looking at, but ultimately the main Council audit was signed last week for 21 22 and I signed the pension fund audit. Alongside that, you may rightly say that's been a long time coming in that 21 22 work has been completed for a while. That's absolutely the case, so at the moment we weren't able to decouple the signing of those two parts of the puzzle, but we did, you may remember, bring to you an audit results report around 21 22 at a time ago that gave you some assurance that there weren't any significant findings, so the piece of the puzzle around the pension fund was really a case of just bringing those procedures up to date and me signing once I had the assurance that the main council had been signed, so that's 21 22 22 23 again, I think it says in the paper that the external audit work around the 22 23 pension fund is substantially complete, and I don't have any matters to bring to your attention. We will bring an audit results report on that set of accounts to the June version of this committee.
at the same time, as you mentioned, there is a piece around the main Council Audit for 22 23, going through a likely disclaimer process for all of those backlog reasons, so one of the things that is being explored is whether we could decouple those two things and sign a clean set of pension fund accounts and a disclaimer set of Borough Council accounts.
Councillor count, sorry, so we're exploring that decoupling for that to happen, that's going to need legislation to pass, and that is what all of these consultations with De Look, the Fossey, the NYO are looking at at the moment and even if you can't decouple them, we are making a decision to disclaim the main county council accounts before the end of September because a backstop date has been put in, so either way you will get a signed set of pension fund accounts that say the pension fund, we're comfortable with
whether that's coupled to a disclaimer sets of council accounts or is decoupled some way through the legislation is up for debate, and we will wait for guidance on that, but just for the assurance of this committee we will be bringing an audit results report on 22 23 to June that at this point in time I think will be a very clean audit results report the actual signing of the opinion is a bit technical and we are waiting for the legislation on that.
but either way, you will get a signed opinion before that backstop date in September, and then you may well ask Well, all of that is still quite historic. Shouldn't we be working on 23 24, because the whole point of all of these consultations is to reset the audit market, reset the local government market to get all of these audits back on track because no one wants to be in the situation where we're working to three years out of day, so the 23 24 work again is sort of underway in parallel with 22 23, because there is lots of overlap and why wouldn't we lean on and things that are irrelevant for both?
we've presented to you in our appended paper today some of the core risk areas that will focus on as part of that audit, so that will be things that you won't be unfamiliar with, so the Level 3 Asset evaluation is a really key area of our focus because it's very large numbers and there's a lot of judgement in that valuation there are key fraud risks that we have to think about with every audit that are relevant to this order, but our plan on that 23 24 audit is to get an audit results report to you by
the autumn, so we're looking at October for that and again the coupling of old opinion, I'd say there's a legislative piece that we have to wait for direction on, but by that time I'm fairly confident we'll have an answer on how we can sort that out and by the way, we're also getting back on track with the main council audit. So we've got a plan to deliver the 23 24 audit also by October, so that audit should be reset back on track. That is the the approach that we want to get to, so there is a bit of stuff to work through in the short term, but as a committee I need you to be assured that 2001 22 is now signed off as a full audit. 22 23 is all plans to report to you. In June this year there was a piece of the puzzle around the coupling with the council audit that we are navigating, but will get direction on 23 24 reporting by October, and certainly aiming to sign an opinion this calendar year on that one. All of that means that we're into what the kind of key players in this debate are calling the reform period where we move forward into 24 25, and it all feels a little bit more like it used to. There are other bits of that puzzle. It can get very technical happy to pause there and take that, but I want to really reassure you that pension funds are a really key area of focus for Rose's firm
I think over the course of the next few months you'll get some really important and positive assurance about where that work is.
thank you very much.
members, any questions.
Councillor Dick at him, this might be for our officers, but so in paragraph 5, where it says he why has not commenced many of the 22 23 council orders that is excluding Wandsworth where they have commenced.
22 23 from Maine, so let's put pension funds to one side from one and we are for the so again for Richmond 4 for Wandsworth for the main councils, we've been focusing on the value for money work, so there is value for money reporting that went to the ones with council committee in March and is going to the Richmond committee later in April.
the key thing that that is getting at is the financial statements audit work on the Council 23 23 accounts is highly likely to be a disclaimed audit because that's this reset process, so that will be a gap in assurance for the main Council.
but that's not the pension fund, sorry.
Councillor Cook taken then, Councillor Craig.
thank you, can I just ask it on page 32, there's a note there about the variations and scale fees and things like that, so can you just give us a quick update on whether you've issued any variations, what what's been agreed, what hasn't been agreed and then obviously there's a big uplift in price for 23 24 one, and it relates to the note which talks about having to comply with lots of these new regulations. So I'm assuming ye Y. Are you assuming that that's fully gonna be priced in the work for Felicia?
OK, that's a really good question. Thank you on on fees, so I mean the first thing to say, is the PSA or agree the fees, and we are there's a sort of middle party in that, so I don't want it to fully speak on their behalf but equally where a key player in deciding suggesting what those fees might be. So I don't want to shy away from the question 21 22 obviously we signed that audit last week, so there's a really key piece now to
to put forward to the PSA what we think any scale fee variations might be on that. That's still a work in progress, but management will have sight of that before it gets put in front of them, but there will, because that was on an old contract that didn't take into account lots of additional work and scope that we have to cover. There will be scale fee variations now. I wouldn't want to put a number on it, but there will be a scope for variation that goes through that PSA process. 22 23
again is on what we call the old contract with the PSA or so again, and as we work through that audit which is live now substantially complete, we'll get to a position, but again, because that's on an old contract sets of fees and didn't assume lots of scope, changes and technical bits of work that we have to do that weren't inbuilt into the initial contract again I suspect a scale fee variation.
23 24 is when lots of those chunky technical areas were then brought into the contract, and that's why you see that big shift there's loads of stuff that comes into that, it's not just technical changes, it's the whole landscape of audit, changing the regulatory scrutiny, etc etc and but even with that, there are things that have changed since in scope, so ISA 3 1 5 I think, is mentioned in there. That's an audit update. That's happened since we agreed that contract, so I think you'll see fewer scale fee variations, because there's been a significant uplift, but there are still things that come in and change in audit regulation that aren't built into the initial contract. I'd like to think they are much more marginal and incremental rather than what you've seen in the past, but to an extent we're slightly beholden to what happens with auditing standards and what happens with any potential scope. Changes coming out of these consultations that I mentioned in the paper
thank you, I'm just a historical question, really what was it, that was the roadblock, the whole order industry that causes amazing headache and how has that been remedied, so we can understand that it won't just reoccur.
it is a good and a very.
difficult question to answer, simply or with a silver bullet, I mean, there are a number of things that that led to what was referred to in the papers as a backlog, so some of them were, I'll look at them as technical order issues, so the four main Councillor councillors that there was a really significant and difficult technical issue around how to value infrastructure assets, for example that took a long time to bottom out and, ultimately,
we got to a resolution as a sort of across the firms across, for example, the Farc who regulate our audit, but it took a long time to get to a resolution on that technical matter and until we have that resolution and that was causing a delay and when I think coupled with that we had the COVID environment which came in and created some issues around,
ability to to to order in the way that we had done previously, so that came into the mix and then there was a, I suppose, a resourcing challenge across many local authorities and many audit firms, including our own, that
it essentially didn't keep up with the level of audit requirement that that that became necessary in the last two to three years, and that, again is some technical changes around infrastructure.
and pension valuations, but also changes in the audit regulatory landscape, so it's a culmination of lots of things, some technical issues, some resourcing issues across firms and local authorities.
and and sort of a Covid environment that made auditing trickier and different, and that sort of was a bit of a perfect storm. Really, there are other parts to that, but I'd say they're the sort of the driving three, I wouldn't say here is a local authority, has particular resourcing challenges on your side, but I'm talking about the whole market and there are lots of local authorities who have found the ever-growing sets of local authority accounts that are required harder and harder to
to complete to the timeframes that we've been used to in the past to your second point around, how can you be reassured it won't occur again, Well, the three consultations that are talked about in the paper, I just talk about those for a minute so,
we've responded on all of those, one of them is with De La one of them is with the National Audit Office, and one of them is with CIPFA who, who are obviously a key player in local audit accounting, we hope and expect that the outcome of those consultations will mean changes to scope in key areas, so some of those technical areas becomes simpler and we hope that over the reform period that's being talked about in those consultations that develops further and increasingly asks the question.
what to the users and the key stakeholders these accounts really need to say, does it need to be a 200 page that have a council, could that be distilled, and could some of the really highly technical areas be distilled because, ultimately, what assurances that providing really key stakeholders?
so we are lobbying quite hard for some really sensible answers on some of those consultations to reduce those technical areas where we don't think it adds a really important value to stakeholders members, etc
so I don't you know, I think there's there's still a really important piece in this reform section, which is all about making sure this doesn't happen again, but internally, as a from the really key part for us is let's get back on track and use this reset period really meaningfully, and then we've, for example, recruited heavily over the last year to ready ourselves for this new contract 23 24 and beyond. So we're doing lots of stuff that's within our gift, as a firm to make sure that we're really well ready for 23 24 and beyond, but there are keep it's not all about what we do as a firm, it's lots of really key players in this and we can lobby quite sensibly, but we do essentially need guidance from the likes of the look in the NYO NFC around this, so that
audits are made simpler where that's appropriate.
how many audit firms are there? What's the operating in this sort of local audit market? I think there's around eight on the PSA contract so and yeah there's a number, there's a number, and they range from the very large big four firms like ours, to much smaller audit firms who are relatively new in the market. So again, it's a good point because actually one of the key points here is making sure there's bandwidth across the audit market to deliver one each and every firm has had their own challenges with that, so one of the pieces of the new contract and going forward may well be expanding the number of parties in this market because not every audit families in that, and that was going to be my follow up, which is that where there are some firms that didn't face this historic challenge,
and is it a challenge of that? They're just you know, if there are a big four that fall behind for a certain reason, then everyone has a contract with them and it becomes a snowballing effect and then you don't have the resource and the contracts aren't costed in a way that to prepare you for this backlog and then you just everyone, panics, a bit like what has happened in building contractors over the last year, is it a problem of competition? Is it a problem that there's not enough people doing this work or as it was at this unique circumstances of COVID and yeah? It's a good challenge and
I mean, I think it's fair to say I don't want to speak on behalf of other firms, but it's fairly well documented that every firm in this market has had challenges with some form of backlog, it's differential across the firms.
films are taking slightly different approaches to how they navigate this in the absence of really clear guidance, which is where we are at the moment.
but I think there's a real kind of focus from the powers that be, as well as from the firms themselves, to say once this reset happens, we all want to get back on track and we need to will be working cross-sector to do that where the part of that is into the future expanding the number of firms on that contract that's really for the PSA to kind of talk to you bit but that may well be part of the answer.
I have a question, which is what can once was enrichment, learn from situations where other authorities have successfully completed all their audits is not the case, I understand that every single authority across the country has not been able to reach conclusion, so what what can we learn, what is the difference between our situation and those of authorities that have successfully completed their audits?
I mean, it's a good question, I think some of that will be down to the dynamics of very particular circumstances with where individual firms are with what they can and can't deliver at a point in time, so that's more on the firm side, so I won't talk to that point I mean I think it's also fair to say that,
I think that the pension fund aside, the main Council order, was delayed and we signed 21 22 last week, that's not where we wanted to be and I think both parties, management and auditors would step back and they have done, because I've been privy to those conversations,
and say there's quite a lot. We can learn in terms of a lessons learned in terms of the audit approach going forward in terms of quality of working papers in terms of project management in terms of on-site off-site, getting that dynamic correct, so there is a really detailed plan in place into 23 24 on both sides of the of that of that conversation, to make sure there's a very streamlined plan of action to deliver the audit. So again there's lots of things, Councillor, I know that's a bit of a generic answer, but it's it's important to say there's a really granular detailed plan on both sides of the table. That's quite collaborative to get it back on track and I think we'd both put our hands up as audit, firm and management and say there were things around
technical sampling that we could have been clear around, there were things around papers that management provided on key judgments, that you could have been clear around, so there are, there are things that I think we want to straighten up as we go forward and they're being discussed at the sort of management order to level day in day out really.
Councillor Gasser, can I just double check with Mr Julia Ochi, then are you also comfortable that the right plans are in place for next time? I'm sunny for the pension fund. Obviously yes, I mean, the work has already been done for 22 23, and it's all working well. I can't speak for the wider element. If Fenella Murray was here, I think she would be stating that in her view, the papers have been quite strong and everything else, so I don't want to enter into that debate, but I was not here in order to comment on the wider context, but certainly from the pension funds working papers from what I've seen they are adequate and they've been enabled us to be able to deliver on time, which is why we've got the 22 23 in the position that it is that it is in.
from the discussion that we had with the
the reason why this paper has come up is because, from the understanding of the Committee was that.
we could submit as much as we could, but there was no empirical penalty for it.
he wanted to just have, for whatever reasons you know.
technical or otherwise, that there is no kind of break clause, there's no, fine, there's no, there's just it's an open-ended thing, and so if the the audit firms struggle because of whatever marketplace reasons, that councils are kind of over a barrel because we don't have any powers to,
to speed up the process and the contracts aren't written like that and.
you know I.
I guess, going forward, it's like the council can continue to try and duly po boy, you're saying we submit our staff and there are you know, that's the best that we can do.
is it kind of the position of the firms that there are certain things that just make this process very difficult for a firm the contracts don't like what's the?
because I can imagine this could happen again, I mean I can imagine them being exogenous shocks that happen again, and if there's already a backlog, then.
we're working on it at the moment, but is there a way of reforming it so that there is a bit more tightness on a contract? I mean from the council's perspective, you know it, it is, it is difficult, this isn't the first time we've had these discussions, I mean there has in in in the past there was a talk about, can you replace the or you know, the external auditors to get someone who can deliver, but there's what Ben alluded to there's only a handful of people that can actually do it, and it's not just linked to the PCSOs, he's actually statutorily there's any similar money that certain types of individuals who can actually deliver on local government audit, which is always going to be a challenge there's a limited resource available. You know that even with an internal audit, we've struggled to attract auditors and retain auditors because when you've got a buoyant employment market in order to keep hold of individuals. It is difficult, so I do have some sympathy that, but you know we are restricted a by that framework that we operate within. This point is doing around because she's still going to be using the same end. Entities in ineffective can undertake the these sort of areas and then not have
the broader comfort that you've got other authorities, helping you and try and push for that change. That's why I was trying to emphasise at the beginning about the the breaking the link, in my view, for asking for my thing. Having the the pension fund, directly linked to the council's accounts and not being able to be completely independent, does require that legislative change that will free up and help at least give the assurance on certain areas where we know it's all done, but the firms themselves are not able to, so it's no, it's not on them, they're not able to give anything more than what they can do because of this direct link with the council's accounts and, hopefully part the consultation process that would allow us able to some of it to get
moved forward, even if other relevance of the accounts on I don't know whether he wanted to add to that no, I mean a.
again, it's a good challenge and I can totally see that viewpoint, I mean the one thing I would say just as a firm we are incredibly invested in, I don't even want to call it this market in local authorities and the public sector and,
it's something my I'm the chief people officer for 300 people that work across our department and we work in the sector because it means something to us, as you know, he why works across many sectors and his corporate sector, etc. But the people in our government and public sector audit practice work in the sector because they care about it ultimately so.
that is, we are genuinely trying to navigate this very difficult set of circumstances, that's why we are prioritising things like pension funds and value for money because of the profile they have across the public sector and what they mean to people.
and we're committed to kind of getting these back on track as best as we can. We're not the only player in that conversation and it is tricky and you've seen that from across the broader market, with local authorities and auditors and people who set the regulations. Ultimately, but I suppose I don't want to frame as well we've got you over the barrel because I don't think it's quite like that in practice and we're genuinely trying to work through a difficult set of circumstances and give you the assurances that you need on time and there's a plan to do that and we're doing whatever is in our gift to to get back on track with that because we think it's important to do so, so no one's where we want to be sitting here today but I'm optimistic and I think over the next year there's a really kind of key set of milestones and things that need to happen that will keep reporting to you on.
that will get us back on track.
Councillor Pridham, thank you very much, I think you touched on it a little bit earlier, but would you be able to clarify when you when you see the backlog being cleared and when things will be sort of back to back to normal as it were?
yeah, I mean it, as you can imagine, with this sort of set of circumstances, it doesn't happen overnight and there's a kind of reform period that goes sort of three four years into the future, so it was really happening across the course of this this PSA contract phase.
and you'll see in one of the consultations there are various backstop dates to various years of audit that get increasingly closer to what we'd expect, which is the end of September, really, so that happens over three or four years, I would actually say, for the pension fund,
you can kind of see a world in which we get there, but there or thereabouts by 23 24, because I am saying to you, I think we're going to report to you an audit results report in October and hopefully by that time will have some form of legislative answer on how we add a couple or decouple with the main Council, but actually by 2003 24 we were back on track with the Council anyway, so that that should work quite well, but there are all sorts of technical funnies that happen and kind of keep into the future. So, for example, for the main Council, the fact that we disclaim 22 23 that doesn't just totally disappear in 23 24, there's a sort of brought forward element that takes time to to roll out and there's a sort of piece of the conversation with the NIO, for example, around how we build back assurance on that brought forward balance. So I think for the pension fund. It feels relatively short term. For me
Over the course of the next year or so I think, for the broader market we're talking 3 4 years and the extent of this PSA contract to fully unwind some of those disclaimer impacts and, as I say, back to something which we would see as typical and where we want to be.
Councillor cryptic, thank you, I just wonder, is it possible for local authorities to lobby the PSA to approval auditors to work in this market instead of relief relief pressure across the industry?
I think that, as already in innocence been done, because it is an open framework for those bodies that are able to bid for it because, like I say, not all firms are eligible to to apply, but the PSA framework is has the main individuals already on there, so I think,
the real challenge really is the thing that everything that has really been discussed at the moment, it is actually hopefully understanding the scope of the work.
and the grab a task that that is has been learnt lessons and built into it now, so rolling forward we shouldn't be in that same sort of position.
but for me that, combined with that decoupling element
because it is not just on this says there's a load of other issues, and the good governance code which have made reference to this committee in other areas is trying to look to see how can you look at some of the issues because we do have conflicts of interest policies and things like that but there are wider conflicts when it comes to the issue of a pension fund and a general fund and the implications between the two.
sorry, I think we've had a good discussion on this, I also sit on the Audit Committee, and it's very, very clear that we Members take this extremely seriously, it's very.
I think I think it's very reassuring to hear from Mr Lazarus and Ms Dawson, who leads 3 E Y on the main audit that measures are being taken to address these things, and they are taking them very seriously, and I welcome your comments about working in partnership with us.
and being committed to the sector, I think that's very, very important.
I wonder what members think, though, about next steps, in terms of a report back at our next meeting, about how those next steps are playing out, so that we can have some comfort, that this incredibly important issue is being addressed, and it has been mentioned that this is the biggest asset at 3 billion.
but it's also 40,000 people, we have 40,000 members who are affected by this, what did what do members think about hearing back at the next meeting as to progress on this?
seeing some nods on that, so I think I think we'd very much like to hear further on this at an early opportunity as to how things are going, that's going to fit with the plans you got yeah I mean I was going to suggest so obviously, as I say, the 22 23 Audit, we plan to have an audit results report with you at that next committee. Anyway, I wonder whether we bolt on to that any sort of progress update a on the 23 24 pension fund audit because that, as I say, is happening in parallel, and there's a plan to report that to October. So I think you'd want assurance that that's on track and is it still for October and but also there's then space to perhaps give a sort of broader update on anything that may have happened with the legislation by then anything that's happened
we've put our sort of responses into those three consultations, but obviously we need to see the output of the months. They've all been sort of merged together and there's an output. So again you may well see some of that through the routes, but I wonder whether there is a sort of audit lens on that that we can bolt on to that report, and that's already going to come to you. Thank you very much. She ascended officer. Yes, we make the very valid point that we are looking as well to the legislative framework to
be more favourable to this situation, so I think, unless there are any further comments, let me move to ask you to consider and comment on the progress of the audit of the pension fund, 21 22 22 23, and the planning for the 23 24 audit, as summarised in the report and detailed in Appendix A and this discussion or we agreed, thank you very much, thank you very much, Mr. Lazarus.
agenda item 5, the Wandsworth pension fund budgets 2023 to 2027, Mr jollity.
thank you, thank you Chair.
so the paper before you is an annual paper. It sets out our best estimate of where we think that the relevant inflows and outflows of the fund would always be the challenge that we always get is that we never really know exactly what's going to happen and then people when I would normally say Well, how can you not know, it's a budget and you got you've reasonably got expectations as to what would is likely to happen now you can, for the core active individuals who roughly know how many people you've got, it doesn't normally change significantly, but when it comes to transfers, when it comes to death in service, when it comes to other factors, there is no norm. So hence why you can always get some wild variations within each year on year. So I wouldn't draw your attention too much to that, but the main reason why we end up doing this and look to it
is that it helps us to forward plan our cashflow requirements, we are a cashflow negative.
fund without what that means is that our current active on pensioners, sorry, members are paying in less than what we currently pay out to our members and that gap will only grow, so we use this as a sort of a long term for we're planning to know do we need to look to potentially look to change our allocation, to try to get more income, generating assets to help us build in that longer term. So what this report is showing you over the next few years is when we add in those contributions combined with that income that we're expecting, we're comfortable, so that's really the main use of this tool rather than turning round and saying whether you overspent or you underspend or you underestimated your income and expenditure because, like I say, we use historical data but because it's historical no two years are the same, and that's why you get wild variations, so the my name, Emma Robert, is that forward planning tool
to ensure that you have got comfort, that our assets are going to generate enough income, to make sure that we're paying pensions every month.
thank you, Mr. Craig.
thank you for that. Do you have a target like number you're aiming at, I note that kind of total positive cashflow to be around 2 million projected each year for the next couple of years is that what you are aiming at because we've been generating income from the investments just thinking about asset allocation in the future are we now happy that that's a sufficient income is even excessive?
it would depend how you look at how you do your income, a lot of the income we reinvest, so it isn't quite light like that, but what it would normally be looking at is if I was if we were seeing one on one if we go back and a number of years ago what it highlighted when we were looking at 1.00 of these.
this sort of set-up and it was pre the merger between the two funds, so we wouldn't have involved the Richman element, but certainly the ones with element we were pretty much had a very large allocation to equity and a chunk towards investment grade bonds which was showing that the therefore that the income element that we're gonna get might cause us some some challenges. So we moved it down down. The securitisation level within the bonds and Monet moved money out of things like gilts and investment grade and moved into more subordinate, and through the the multi-ethnic credit, to help bring in the extra income to do that buffer. So we're not that sophisticated in trying to pr and work out exactly how much we want to get in any one given year. It's just at this present moment in time, it's showing you that we've got that comfort, that we don't need to go down to that granular data
Councillor Gasser yeah, I've just got a couple of questions in the movie stupid questions bit, because I'm new to all this, so I just wondered what an employer's strained fund cost was voice drain, what the custody costs are, I'm just looking at the budgets.
the bottom line. There are normally around 25 million, but this year we had a very much lower estimate and even the projected outturn is still very much lower than all the other years and I just wondered why that several months and that'd be to try and take it one of the terms of the employers strain, so if someone retires or was made redundant, normally if you'd only retire of your own free will, so it's voluntary in that scenario, any reduction in pension because you're going earlier is met by yourself as an individual
if you are made redundant and you're aged over one and it's on a tapering scale, so it used to be 55 graduate going up, it will eventually be 57 when you could actually take your retirement if it's done via redundancy.
the Member is entitled to their full benefit, so don't make any additional years, but that reduction in what they would isn't doesn't impact the individual, the Council or the relevant employer will have to pay that additional amount of money.
custody fees are we use Northern Trust to overseeing and actually holding a little of our assets, and that's the fee that they charge.
and I can't remember the last question that you had.
there's a sort of bottom line in the total 25 around 25 million most years projected, but this year seems very much out of kilter.
that there are.
I I.
what we have this year is that the transfers in so what happens is when we have people move between employers, they can take their pension with them, so the most significant difference this year from the the trend that we've had over the last few years is the transferring amount is a lot lower than it has been in recent years and we think that this year is a blip.
Even if it's not, as Paul said, we've got quite a significant, about 25 million is sufficient to cover our cashflow needs and we're not going down to the overlay detailed approach to it, but that is what's happened, I know that I don't know if it's to do with the economic environment or the number of people who are,
coming to work here or that the amount of pension that they are entitled to bring with them.
because it depends how many years of service you've got, how much would come with you when you transfer, but that's the most, there's a lot of smaller differences, but that's the main one.
and just to put some of the other things into context to show you how you, it's very difficult to predict, I think we made reference in the past that one of the ecologists was was merging with another one that would have an outflow, so that's now been completed last week or this week all rolled into one and but it wasn't in cash we did that as an interspecies transfer so we're using assets because we both share
LGIM
by being passive, it seemed to be. It was most economically advantageous for both parties to do it in an asset transfer, the not selling and then buying, and a movement that's 45 million pounds. So that show shows you how why these can be completely wiped out. It doesn't sit there because it's not in cash and this is not a cash budget type scenario. How why? I don't get heavily worried about those changes because I had hoped he shows you the context why it's purely for the bottom line, for my prediction, can we do? We need to do anything drastic on our asset allocation to try to get any extra income coming through, because the rest of it is is a bit finger in the area
there are any further questions we are recommended to note the estimated outturn on the pension fund revenue budget for 23 24, approve the pension fund budget for 24 25 and note the projected budget for 25 26 and 26 27 required for medium term cashflow planning where we all agreed, thank you very much item 6 pension fund, quarterly investment performance
OK, I won't say too much on it, it's an hour ago open to questions, but again, obviously the report highlights and shows you how each individual manager has done on a quarterly, annual and 3 yearly basis overall, the challenge that we are faced with is we, we know that certain funds had an atrocious year.
not too long ago, and so they're still in that three-year number still playing catch-up to to a large degree, and that's why, if you look at the fund overall, the quarterly performance is outperforming the local authority average, the annual performance is significantly above the local authority average but we're still playing catch-up on on the three yearly element.
I don't get overly worried about how we compare with peer groups because each peer group will have their own investment strategy, their own approach and everything else in the past were probably not looking to target to be in higher than the average if I'm honest with you because we have been funded very well and therefore we've not looked necessary to go as aggressively on the growth element we've focused more on the income because we mentioned the other paper we got cashflow negative so income is more important to us than it would be to other funds who is still in a in a surplus situation.
and similarly, our risk appetite is may be different to to others, however, when you look on how you know that each individual managing themselves or comparing with their peer group for the style, that is something that, potentially, is always going to be something of note.
and our ability to as to what we can do is hindered by pollen, we set the strategy, the pool sets and other points and fires those individual managers, so it does make it more difficult, I had mentioned very recently things other than the last Committee or the Committee before that there are two of our active global.
equity managers who suffered I suffered that that torrid one year of blip but are still struggling to to come back.
and we would ought to and should monitor them. I mean the challenge we've got is we don't have the ability to to hire and fire, then we do have the ability to exit from that strategy and reposition that money, and that is something that we would want to look to focus on, and we've said to the CVA in our one option maybe you can't have faith in their ability to pick suitable managers on an active front. Should we want to take the risk and the extra costs of having active management rather than switching to passive. Now, if you'd look to advisers
I look to Mercer to put a comment on this historically and generally they will say that, in their view, active management is worthy access fee, but that very much is dependent on the manager that you select, and so we have got those challenges, so that would probably be it for me in the summer. I don't know whether or not there's anything actually wanted to add on that particular point to yeah, I mean I mean, obviously I'd. Ultimately, whilst Mercer does have its own investment, beliefs mean we obviously respect that our clients may have different beliefs to us, so we have some clients who have full passive management of all their assets where that's possible, obviously some asset classes. You can't do pass it. Family property, for example. You clearly have to own buildings
but we have other clients who are fully active on everything most clients are in between, they have a mixture, as you do, and yes, we set descent, certainly we could show you empirical evidence that in certain markets even the average active manager outperforms so certainly the last time I looked.
for example, the Asia X Japan universe there is a persistent bias towards active management outperforming, but if you look at, for example, US equities, the average manager, often performance is roughly in line with the index, perhaps a bit behind, so I'm sorry I think it's kind of horses for courses but yet means that certainly that I think a key issue that a number of clients of recent experienced in equities is where they've had perhaps unintended value but,
style biases, and so a number of your managers, particularly Baillie Gifford ABC, have got quite strong growth biases, long view has a bit of a value bias to offset that, but on the whole I think if we did a value or style profile of your equity portfolio it is biased towards growth and growth has struggled of late so that those as some other considerations you can look at.
I just wondered if any of the big commercial property sorry, Councillor Crookdake, if you could just move the microphone closest yours, thank you, then we can all say thank you I just wondered not maybe even in relation to us but just more widely thinking about the market if you could just comment on whether some other commercial property funds or infrastructure funds are writing down asset values just given the change in interest rate environment and whether you're at all worried about that.
that might be a question you might want to ask later run on the agenda, be gotten, even outside, who are coming in who are one of our commercial property managers, so I would defer to them properly if that's OK.
if there are no further comments, we are recommended to note the investment performance of the pension fund shown in Appendices A and B.
b note that the London SIF global focus fund is above 15% of the fund para 18 and cashes above the higher benchmark threshold para 2, but I believe that neither of these are matters of concern.
no, I mean what one want may argue that you'd want to rebalance some of the the the the equity into the other managers, because it's one where we've set the 15% it was made, it put it inability to do it with my head of audit type style, saying No, you know not to have more than 15% accurate with one active manager, there's no, it was purely just to try to
not allow us to have an overly concentrated portfolio, bearing in mind what we've just been talking about, how do we have faith in the performance of Baillie, Gifford and?
LBC, do we really want to put them extra money into them at this present moment in time, which is why we are probably saying just to leave it where it is for now?
and the final item, then, is to decide which, if any managers we want to attend the next meeting of the Committee suggestion from Mr DeLacy, has given our BCS performance that we might ask them to come back and give us some reassurance thoughts.
Councillor Craig, did we not hear from them?
we did, but their performance has been quite.
subpar
I recall him saying they'd had a couple of specific misses, there was that bank in the US that went under Silicon Valley.
I mean, if there are other issues, if you've forgotten the thoughts, Councillor Craig, to no, I haven't heard better suggestions so yeah, your point is well made.
Councillor Critchley,
I would, I think I would quite like to hear, from survivors of the private debt or the infrastructure of the commercial property, the the the sort of riskier current riskier type.
investments, given the current landscape. If that's okay, I mean we've got commercial property here today, Latin even are coming coming in, so from that aspect of of the hope that that sphere is covered. If you wanted someone from said, either private debt angel let you say we mean normally was speaking with on that particular aspect. They will normally be floating rate so they can help and gain from this. The rising interest rates may not necessarily be as as bad, but obviously defaults might be increasing as a result of the ability in order to do it. So if you're happy just to leave it to us to try and find an appropriate one from that market, we'll we'll have some conversations up offline and bring someone from the private market here next time, if you prefer
Monday, members think would you like to see or be sealed, you want to take up Councillor Mr George's offer to look for somebody in the private markets.
an average private market, just because a global equity manager they need a bit more to they are performing, but either in the service, so we can't really fix it and they we did see them relatively recently, so we need to get him probably 12 months at least since we last saw them.
are you happy for me to talk with Councillor Gill or team between the next meetings and I can circulate a recommendation to you once we've arrived at that in a month or so something like that, and let you know that again.
OK thanks very much, so we agreed that on these three points now, thank you.
7 general pensions matters.
it cases its traditional thing on this one up we do.
chunk by chunk and answer any questions as we go, so I'll start with Member training as, as your own are aware, there is within the terms of reference and that there is a need for individuals to undertake training policy, that's why we raised it quite heavily here and soon it's gonna be statutory requirements for individuals.
we are in a position whereby no, not everybody has completed the required level of training, we are in consultation with everybody, and progress needs to be made.
originally, the deadline date for having that was this committee obviously has spoken with the Chair and with others and will look into to try to move it forward to the next one, but everyone must complete the training boiler is requirement to be on the committee in addition to that, we'd really do need the self-assessment forms returned back to you when we are under an obligation to try and put a training plan for the Committee together we only can really develop that training plan if we know where the gaps are, so we need those those returns back urgently so that we can actually put an effective training policy in place for this.
oversight over 3 billion pound asset.
the Chair wants to say anything else.
well, I'm having just to say that I am pleased to reach out to me if the
you are encountering difficulties, this is just something we we we have to comply with, we'll have to talk to relevant whips if we can't comply, because we just simply can't go forward unless we've actually got everybody fully signed up on this, so please, please, please take this seriously and if you are struggling please get in touch with me and we can have a chat offline about this now. Thank you very much
yeah, thank you, so the next bit is the general code.
so the pension regulator has tried to bring together the private and the public groups cows under one umbrella, and that is this the single code of practice they we don't envisage there being anything substantial extra, there's some tweaking at things and they're talking about making sure there's effective governance in place and I think we do have it already.
we used to be under what was known as bossa say this 10 codes, with the one that the main impact analysis was actually code of practice 14, which I don't quite add up, adds up, but within that we've done self assessments against those and we held,
out quite favourably, we've got a lot of the that the structures in place and it is things like having a training policy, having a conflict of interest policy or those types of things about the governance element which we're already doing there's a lot on risk registers but the risk registers are already in place, they will go through the Local Pensions Board.
and is also having the role of what they have as well. However, whilst we think there isn't going to be anything that's likely to come back
and be of significant concern for us, I am commissioning an audit so they can do the gap analysis go through and to try to see whether or not there is anything that extra that we, we ought to be doing, that we're not currently doing and I'll bring the findings of that at a future date.
I don't think there's any queries on that particular section.
thank you very much.
so the next one is well when I first started writing the paper, it was going to be a big problem and then it sort of resolved itself, as we were dealing with it, so we talked about private market, we talked about the commercial element and the risk profiles. One of the way, reasons and how we assess that normally is is obviously using the benchmark which is MQM, Northern Trust or our custodian, but normally will have a licence that enable us to use it within any existing costume framework, and we were advised that that was no longer going to be the case and we were going to be charged 20,000 dollars for the privilege of using that benchmark. You probably wouldn't be overly surprised, determined and said to you whether or not paying that, because what's the point, we don't know the benefit that you get from. It is minimal in reality, so we look to try to explore other options. I went to the rest of my London peers to find if others were there had things similar and what else they they would use, and there could be a combination of we could have a fixed rate of return. We could try to to see, is there another benchmark that we potentially could use this cheap or whatever, but ultimately for infrastructure, which is a similar type of asset, we do it on a cash plus basis so that seemed to be the most.
pragmatic solution, and again it will be free, and that is what other funds, what I was chatting to, were considering the same option, it's resolved itself now anyway, but that's not to say that that won't come back at a future point, so it's worth just keeping here just to hear your views as to whether or not that my logic that I was applying you agree with or whether you have any queries or alternative approaches that you would
want us to consider if this comes back future date.
I think all the rely on your
investment acumen and this particular matter.
thank you next, finally, then.
just lost it, there is this at new bill that's coming in, it's a mouthful dream to say, so I wish to say this, this is the economic activity and public bodies overseas matters bill.
so this is so it has gone through parliament, I am, where what it's trying to say is it is it's going to restrict individual authorities?
in their ability to put exclusions on certain types of geographical investments and not enable you to to disinvest from it.
I don't think necessarily, we are have a major concern with the approach and the style with our investment strategy statements, we don't have a disinvestment policy.
you know, we, we look at everything, its own merits.
we use investment advisers whenever we've looked to do any style, biased type investments, a good example of that is when we, I've done all of our.
HD style investments with a ruby, sustainable infrastructure or visual renewable infrastructure or sustainable equity. We've looked at the impact of how that would address it and we've consulted with the members of the small them through the Local Pensions Board, so I think we'd be able to defend anything that we have and again because we had the open governance framework where everything is documented, the minute the challenge that you really get, though, is that this is potentially an open invitation for people to challenge and that would lead to significant additional officer time, and I think that's one of the concerns in the within the peers within the industry that's been raised by pause
and by a advisers.
as well, including those who used to be quite senior in the LGA, who highlighted that some of these issues with with government, so that's why it sat here in front of you today as part of the general matters paper. It's just to give you a heads up that it's their right to say. I don't think we need to necessarily change anything, that we do personally in the way that we approach how we decide our asset allocation, because I do think we're not doing anything that would breach it, but what it does mean is that obviously certain individuals, when we are making any decisions, may will seek to use this Bill as a method to challenge any decision. That's made
yes, Councillor Dick Adam, Councillor Dickens yeah, so I've got, I've got a few questions on this, the first is, I thought we did have an ethical policy on things like arms trade, and I know it says that we've got no exclusions and the policies in place, but my understanding was
I mean, maybe we couch it in a less.
clear way, but we I mean the we clearly do have some kind of exclusionary policy based on the goals that we've set around DSG, so I just wanted to know how that fits, and obviously I think this is a ludicrous and outrageous Bill and if we're doing clever things to navigate the wording of the bill fantastic you don't have to sit on the record.
because there me an e-mail instead, my second question is.
who are we expecting to challenge if we do start making decisions? Is it the government itself, or you know, it'd be interesting to know which organisations would likely be going through our accounts and trying to challenge us on this, and then the third is doing, because I've read the bill inside out, I've written to you before on questions of boycott, divestment and sanctions on Israel because I'm a member of the Palestine solidarity campaign. The bill is quite explicit, while not expressive, but it basically is calling out the Palestinian solidarity campaign. Will I need to declare that as an interest at the start of meetings like how is this going to function in practice, because the Bill is quite explicit, about which territories it's trying to stop local governments from divesting from OK, so I'll try to do the three bits in the time, so the first one is we don't have any disinvestment policy that is outside of the government's main mind because we
do not do cluster bombs outside of that, our investments have had a style bias, they have not had a disinvestment, they've not had an exclusion and it's been done with we're so anything that we've done has been done for fiduciary reasons and evidence that had climate change scenario analysis, which has showed you that if we don't go on our pathway to try to achieve net 0, it will have a significant financial impact on our fund. So all the decisions that we've made have been done primarily for fiduciary reasons, and where there's been side benefit. That's an added benefit
to go with it, but the decisions that we'd be making, I've been in in relation to what is in the best financial interests of the fund, which is compliant with the Bill that there's any excuse to do it.
yeah, I mean, I think the key point is that you don't have any territorial exclusions, I do have some clients, it's not actually local government ones that do actually have some territorial exclusions which aren't political they've been one of my clients, for example that
has in terms of human rights, that they use an external from to assess different countries and human rights, and they decided from their emerging market debt mandate to exclude some governments from their mandates and as I read it if they were a local government scheme they did this Bill could potentially stop them from doing that, so obviously you are quite right.
it has certainly on its year, is very political, politically sensitive Bill which still, as I understand it in the House of Lords.
as it has gone back at its second reading in the Lords and the 20th gathering, so it's done right fine, so yet we wait to see what the final legislation looks like.
on the second point who may challenge anyone and everyone, the government, and then you've got lobby groups on all sides, so it could be anyone and everyone
can potentially challenge, and on the declaration or or defer to my colleagues in Democratic Services who probably be best advised to you, but I don't think necessary it will do because ultimately.
were not likely to have anything on the on the agenda. That would require us to explore the potential to exclude something like that, but if it were then obviously you needed to liaise with them, but it would, I don't think this bill means that every single time you come that you'd need to make that sort of standard, because I'm hoping that if we keep our current governance arrangements and our current approaches across the the way that the that we we were quite unique that we've got to borrowers
and we know we've got for political parties, but we don't bring political ideology or ideology to the meeting, it's all done for produce, re benefits for the ultimate thing, and standing by that that's why I felt quite comfortable that I would happily stand in front.
in a court of law saying how I can defend the actions that we take, but I can't do it stopped someone challenging and having to do the work that would then have to go if that happens.
I mean, I think it's worth drawing the parallel here with Liam McCloud and Goodwin controversies or the difficulties which involved some very, very intricate adjustments, depending on the age of people retiring, for example, and the issue wasn't the size of the liability, but the administrative effort that it would take us to comply with that was the major risk we were facing.
and that we just don't have the capacity to deal with the
as Mr DeLacy has pointed out, about people standing up in court.
if a jar is launched at us so that that is one aspect of this Members have quite rightly, raised the the moral and ethical issues as well, but I think it's just worth bearing in mind that that is a concern for us as well.
yeah, I know, because I wanted to come back on the point made around various different territories, will have various different reasons why at certain times it might not be enough dishy interest to make a decision and that kind of line, sometimes with an ethical policy, so I'm assuming that the organisations you were talking about might have a specific risk analysis or nervousness that is linked to a
political thing as well, so is it basically that in reality
pension funds will be basically legitimising their ethical decisions based on sorry, excuse me based on this, this kind of fiduciary claim, so, for instance, you know.
not making investments in Russia at the moment, because that is a risk, rather than framing it as a policy decision because of an illegal invasion, you know what, like what's the is it, basically, that we, local authorities, will be navigating the bill in the same way they had to navigate the Bill?
they had to navigate the fiduciary duty any way, or is it that they you see this as a kind of and a new-ball game in terms of restrictions on what local authorities can do, it's the latter.
so the Russian one government set that and basically said, you can't do certain things, if the government is saying it, the government says it's fine, you don't do it because the government saying it you can't add additional areas to it, so you know and in a bit it's how broad can they speak. Some people might say that actually using this is not my analogy, this is what one of the talks, that of, as I was saying, is that this is the length where people are of fretful of, I'm less fretful than this, but it was if you had
diversified from fossil fuels that you're excluded in the Middle East, which is where the majority of the fossil fuels come from someone who could put a claiming and saying that that is in breach of the spill, that's that's not one we really know until it's tested like with any Bill no one really understands until it goes through.
a test case to understand really what it actually genuinely means, but that's the level of concern that people in the industry have got, that it could be exploited to broader than where it is because, as I said in the main, I don't think that we've got anything to worry about because of what we do. We don't exclude on a geographical basis, we're investing on different types of asset classes that on a lower risk premium, may not naturally the manager's deciding that it's not worth investing in that for for where it's achieving, we actually don't have an active emerging market area, so ultimately some of those areas wouldn't naturally gravitate towards those type of investments, but we've not done it on the benefit, on the basis that we've done it for an exclusion element
our element is, we don't have remaining developed markets and remaining in more we've been able to, but we have diversified and we have got less within the type assets.
but again, the geographical area has been driven borrowed by a positive return rather than an exclusion approach.
thank you, I think, therefore, no further comments were asked to note all these matters.
thank you.
the next item exclusion of the press and public, the committee is asked to decide, having regard to the particular nature of the business, to be transacted whether or not to exclude the press and public during consideration of items 9 and 10 on the grounds that they are likely to disclose exempt information by virtue of paragraph 3 of Part 1 of schedule 12 as amended by the Local government Act 1972 that agreed thank you.
Mr. Kershaw.