Agenda and draft minutes

Apologies were received from Seb Burch and Jeff Carruthers.

(as stipulated by the Public Sector Pensions Act 2013 and set out in Annex A of the Board Terms of Reference).

The Chair stated that he worked for the Local Authority Pension Fund Forum and also for a firm of American lawyers which had Pension Fund clients, although these did not include Warwickshire.

The minutes of the meeting held on 22 October 2024 were approved as an accurate record, save for a small amendment to section three to state that a government actuarial evaluation exercise would be taking place to report a standardised valuation position, so GAD would not do evaluations for all pension funds.

Arising from the minutes, the Chair stated his belief that consideration should be given to including the possible impacts of geopolitics and use of artificial intelligence on the risk register.

The item was introduced by Chris Norton (Head of Investments, Audit and Risk), who explained the deadline for submissions to the government consultation on the future of the LGPS, with a focus on pooling of investment management, had been the previous week. A report considering Warwickshire’s response to the consultation had been discussed at the Pension Fund Investment Sub-Committee in December. The Sub-Committee had also considered the draft response, which was included in the agenda pack for the Board meeting. The final response had been amended slightly following the Sub-Committee meetings, and had a focus on ensuring minimum standards for pooling across all of the LGPS; the scheme’s governance; and how the government might use the LGPS to support the UK economy by using it to fund investments. Members were reminded the Warwickshire Pension Fund was part of the Border to Coast pool, which was performing well. Chris Norton said many of the proposals in the consultation were things that Border to Coast was doing already through its strategic plan and investment implementation plan. However there were also proposals for pools to manage the strategic asset allocation on behalf of the pension funds that made up the pools, and for them to be the primary investment advisors to the funds. Chris Norton said it was the Warwickshire Fund’s view that the strategic asset allocation should remain the responsibility of the individual funds, and there was the potential risk of conflicts of interest arising if pools also became the primary investment advisors.

Mike Snow said he agreed with the Fund’s response, and said the priority for the Fund should continue to be paying members’ liabilities.

Responding to a question from Beverley Farmery, Chris Norton said the individual LGPS members and fund managers had been responding and there had been joint submissions from the pools. He said it was felt the Warwickshire Fund’s response was pragmatic and had attempted to give helpful feedback.

Councillor Ian Shenton said he had concerns that individual funds might be forced into a position to take a particular investment route, which may not be in the best interests of that fund. He said Warwickshire’s response was balanced and he was in agreement with it.

The Chair said he was in agreement with the Fund’s response, and stated his belief it was better for the Fund to be in less well performing shares in the right market than in better performing shares in the wrong market. He said greater consideration should be given to making local investments, but urged caution based off his personal experience.

Rob Powell (Executive Director for Resources) stated he agreed with the Chair’s summary that the government's direction appeared to be locked in and driven by the Treasury. He said the consultation questions were framed in a way that meant responders had to express if they agreed the government was correct in what it was proposing.He added that the Warwickshire Fund’s response expressed some concerns about how the devolution White Paper and the  ...  view the full minutes text for item 2.

The item was introduced by Alistair Wickens (Technical Specialist Pensions Fund Policy and Governance), who told members the report summarised the results of the first part of the full governance review with AON. These were set out in the table in the report and were given a RAG rating. Some areas of non compliance, resulting in a red rating, had been expected as this was the first time the Fund had been inspected against the new code. Any area of non compliance, however minimal, would result in a red rating for the module as a whole. Alistair Wickens said feedback from AON stated the Fund was in a very good position compared to other funds, and was able to provide a very substantial evidence of published policy documents. Members’ attention was drawn to some specific areas of non compliance, such as no formalised procedure for recruiting Pension Board members or policy relating to missing historic data. The full and final report would be presented to the Board at the next meeting in April.

The Chair said although there were some red areas, the table in the report pack did not reflect the overall picture. Referencing Board member recruitment he said two new members had joined recently, who had both helped diversify the overall membership. Regarding some of the summaries relating to administration, Lisa Eglesfield (Pensions Administration Service Manager) said there was one section that had been graded as red, but a scenario relating specifically to an active member over the age of 50 transferring funds out had never arisen. Nevertheless the process notes had been updated following the review by AON. Cases relating to McCloud were also an example where missing data had been identified, which had been flagged as a red rating. A policy relating to this was in the process of being formulated.

Responding to a point raised by the Chair, Chris Norton said the AON report had been commissioned by the Warwickshire Pension Fund by choice, as it was possible that in future there may be biennial independent assessments of the governance of LGPS funds. The review was taken with the single regulatory code in mind. He added he would take on board any feedback from members regarding the amount of material that had been provided, and if it was too much information.

Rob Powell said he was reassured by the contents of the AON report, and that the red and amber ratings were not of any great significance. For many of the elements, the Fund had been given good green ratings. He asked if AON could present the information differently next time to give a more accurate representation of the areas where the Fund was performing well. Councillor Ian Shenton said the report did not show the Fund’s overall position, or how it compared relatively to others.

The item was introduced by Dapo Shonola (Pensions Investment and Governance Manager). He said the responsible investment policy had been due for review by officers and brought to the meeting for members to note. There had been no amendments to the policy following the review, although there had been some changes to related policies. These were the climate risk policy and the voting guidelines, which had been amended so as to align to the policies of Border to Coast. This meant action would now be taken against companies where the Fund held investments that were exposed to a deforestation risk.

Responding to a question from Beverley Farmery, Dapo Shonola said Border to Coast had also reviewed their responsible investment policy and had not made any changes. Because of this, the Warwickshire Fund had decided not to make any. However other policies would be also be reviewed with the alignment to Border to Coast in mind.

Members noted concerns over possible investments abroad following the recent US presidential inauguration and subsequent withdrawal from the Paris Climate Agreement.

The item was introduced by Lisa Eglesfield. Usage of the member self-service portal was slowly increasing. A new version of the portal was due to be launched on 1 April following the signing of a contract with the currentsupplier. Testing would be taking place to ensure a seamless switchover. Additional security measures, including multi factor authentication, would be used on the new system. The changes would be circulated to members, and consideration was being given to the use of training broadcasts to support use of the new system.

Regarding key performance indicators, Lisa Eglesfield said an employer training session would be taking place later in the week about notice of termination data and key dates and ages that the Fund would need so cases were not delayed. Work was taking place to streamline services in identifying payments and automation services, in order for performance to improve for two other KPIs.

No concerns had been raised over the performance of the pensioner payroll. Workloads were being monitored to see if there were any areas causing bottlenecks.

There had been one red breach covered in the report. The paperwork had now been completed and the breach could be removed. There was one outstanding IDRP requiring resolution and one new case. The team had received 51 compliments so far this year.

The administration team were nearing completion of the implementation stage of the link to the ISP, which would link the Fund to the new national pension dashboard. The system and the data contained within it would be tested again when the final stage had been completed.

All members identified as being in scope of the McCloud project had now been reviewed. All arrears payments had been made to pensioner members where an underpin had been identified and arrears were owed. Active and deferred members where an underpin had been identified would have the data included on their next annual benefit statement. There were some members transferring from one local government scheme to another that required actions from the other scheme.

One of the figures relating to the number of scheme members over the age of 90 was queried. This would be clarified and members informed of the outcome.

Responding to a question from Beverley Farmery, Lisa Eglesfield said self service portal members would be informed of the changes in six tranches. The intention was for the communications to start relatively close to the switchover.

Responding to a point raised by Councillor Brian Hammersley, Chris Norton said there would also be communication about possible changes to pensions on the Fund’s website for members. Lisa Eglesfield said this message had also been emailed out to all members the Fund held an email address for. The Chair noted that LGPS pensions were all guaranteed by statute, so the amount of pension payments would not be affected.

The item was introduced by Paul Higginbotham (Investment Analyst) The portfolio had increased in value by 0.7 per cent, which represented just under £3billion and was above target despite a quiet last quarter. There had been an increase in investments into private market assets, predominantly through Border to Coast in private equity infrastructure and private debt. There were significant inflows from older private markets, which were now starting to distribute assets from their funds. These were expected to be circulated back into Border to Coast.

Regarding cashflow, it was anticipated income received in 2026 would be £23.7million, compared to the current negative position. At the end of September the Fund’s cash balance was £57.5 million, which was invested in Lloyds and via the BlackRock money funds.

There were no updates regarding voting. It was anticipated the next update would have more information on voting relating to investments and how they affected the Fund’s Environmental, Social and Governance arrangements.

The latest funding level was 146 per cent. Paul Higginbotham said the funding level was slightly flattering given the current level of interest rate, although this was leading to larger and better investment returns. This had allowed the Fund to move into more diverse asset classes like private equity and private debt infrastructure.

Dapo Shonola said the government had announced it would be extending the guarantee for further education, meaning that if a sixth form or further education setting that was covered under the government guarantee went bust then any deficits would be covered. There were two eligible colleges covered by the Warwickshire Fund, although they both had more assets than liabilities at the last triennial valuation in March 2022.

Councillor Ian Shenton noted the Fund had often voted against proposals relating to Legal and General and asked if there were any reasons for this. Paul Higginbotham said many of these votes related to remuneration and share packages, or people being denied salaries or share bonuses. He said more detail could be provided in the next update. The Chair said he thought the votes were more likely to relate to governance issues, although he stated his belief Legal and General were more active on ESG issues.

Responding to a question from Beverley Farmery regarding cashflow, Dapo Shonola said the cash inflows and outflows used in the cashflow model were based on expected capital drawdown and distributions from fund managers, so the cashflow review could therefore largely be predicted to be correct.

It was noted there was a typo in section 2.2 of the report, and the phrase climate opportunities fund should be used instead of UK opportunities fund.

The item was introduced by Alistair Wickens. The Forward Plan had been updated to include a full governance review at the April meeting. The risk register had been updated to add compliance with the General Code of Practice. The other scores had remained the same. The risk register would be considered in full by the Staff and Pensions Committee in June.

The 2024 National Knowledge Assessment results had been announced and the Fund had performed well. Training for the forthcoming year was now being planned. Valuation assumptions training would take place at 2pm on 7 February, which members would be invited to in due course.

Members noted that the Budget announcement included extending inheritance tax to cover pension death benefits, and a requirement that pension administrators of UK registered pension schemes be a UK resident.

The Chair asked if consideration could be given to including use of artificial intelligence on the risk register.

Regarding some of the training, the Chair said it had generally been useful but there were certain sections where he felt the information lay members were expected to know – such as specific pieces of government legislation and when it was introduced – was not appropriate or relevant.

There were no questions from members on the contents of the report. Members noted the contents of the report.

Members noted the contents of the meetings of the Staff and Pensions Committee and the Pension Fund Investment Sub Committee held on 9 September 2024.

There were no additional items to discuss.