Agenda item

Report of the Director of Finance and Assurance.

The Board received report which set out the draft Pension Fund Annual Report, External Audit Plan and Financial Statements for the year ended 31 March 2020.

The officer explained that the audit of the Pension Fund (PF) accounts, alongside the Council’s main accounts, was currently in progress and was due to be completed in time for reporting to the Council’s Governance, Audit, Risk Management and Standards Committee  on 22^nd October 2020. The final report would be published by 1^st December 2020.

It was explained that the Fund continued to mature and this was likely to continue as the number of pensioners grew while that of active members remained stable or decreased. The officer reported a slight increase in the number of pensioners in 2018-19 and decrease in the number of active members. The Council remained the biggest employer with 82% of the members.

It was also reported that the net assets of the Fund decreased from £851.3m to £777.8m which reflected the fall in markets over the last quarter of the year due to the Covid-19 pandemic and the fact that “lockdowns” in major economies had commenced shortly before the reporting date of 31 March 2020. However, there had been significant recovery since then and by the end of July 2020 the Fund value was at £877m.

Referencing the report, a Board Member wished to place on record that they believed there was an inaccuracy and that the Pension Board was in fact legally incompliant by way of the size of its existing membership. Officers clarified that the Pension Board was part of the Council’s governance arrangements and not the Pension Fund’s legal structure, and that the Board membership would be further discussed later on the agenda (minute item 73 refers).

In response to a question regarding the annual return performance figures for years 3 and 5 falling below the benchmark, the officer explained that the Pension Fund was reviewing its investment strategy and was working with Aon to address issues relating to the strategic allocation of funds as well as the equities portfolio.

Referencing the cumulative cost of pooling for the Pension Fund to 31 March 2020, officers advised that some investments were now managed by collective arrangements negotiated by the London CIV, therefore some benefit in terms of fees paid to investment managers could be expected. However, it was premature to provide estimates for 2020/21 at this stage as these were driven by the value of the assets under management, with any changes in valuations likely to affect the amount of fees paid.

In response to questions regarding the increase in administrative costs, officers explained that these were due to a number of factors such as an increase in oversight and governance training, actuary fees and possible software changes.

The Pension Board noted that the valuation of the Pension Fund as at 31 March 2020 was depressed, as a result of which the deficit on the Fund had been increased and queried the exact figures. Officers explained that the fees were set out in the authority’s main accounts as they related to the authority’s position as an employer and undertook to provide further details following the meeting. 

The officer stated that the PF was expected to invest 7.5%  of the fund in the CIV infrastructure fund but it was unclear at this stage whether renewables would be included in the bid. The Board was reminded that the investment strategy was currently being reviewed.

Responding to questions on the impact of the McCloud judgement on the PF and its overall cost for implementing it, officers acknowledged that the process was likely to be administratively burdensome, with an estimated 20 - 25 % of the scheme members likely to be affected. Work was currently underway to quantify the exact impact although exact implementation would ultimately be dependent on  the new Local Government Pension Scheme (LGPS) regulations which had not been issued yet.

The Board thanked officers for the report and requested that a report on the effects of the McCloud judgement on Harrow’s Pension Fund be brought to the next meeting.

RESOLVED: That the report be noted.