Agenda item

Report of the Director of Finance and Assurance.

The Committee received a report of the Director of Finance, which set out the draft Pension Fund Annual Report, External Audit Plan and Financial Statements for the year ended 31 March 2020 on which the Committee’s comments were invited.

An officer reported that draft Pension Fund Annual report was subject to external audit and that Mazars had yet to complete their field work.  Upon receipt of their audit, the outcome would initially be reported to the Council’s Governance, Audit and Risk Management Committee on 22 October 2020 and, thereafter, to the Pension Fund Committee scheduled to be held on 25 November 2020.  He added that the Report complied with the revised reporting guidelines due to the Covid-19 pandemic.  The final Report would need to be published by 1 December 2020 as this was the only date that had not altered in the reporting cycle.  He added that the membership of the Fund had remained stable albeit with minor movements and, given the size of the Fund, was not considered to be an issue.

Members were informed that the Council remained the biggest employer accounting to 82.5% of the Fund membership but the membership also included other educational bodies, the largest of which comprised of some 319 members.  The value of the investment assets of the Pension Fund had decreased during the year 2019-20, but in the period from 1 April to 31 July 2020 the figure had risen although the markets remain volatile due to the Covid-19 pandemic.

Members and an adviser asked the following questions:

Q1:  What were the potential implications of the increase in the number of pensioners by over 8% compared to the decrease in active members in the scheme which was down by 4% and how did that compare to previous years?  Would the changes in the trend cause problems in the future?

The table at page 26 of the agenda also required an explanation – lower charging structure.

The Director of Finance stated that officers would provide the comparisons and future reports would include such data. She accepted that the numbers might appear starkand would be monitored and kept under review.  She acknowledged that there had been a reduction in contributions whilst the liabilities had increased.

An officer added that last year’s figures showed that the membership was stable and details were set out on page 40 of the agenda.  He added that the table on page 26 of the agenda set out Investment Management Expenses which had been negotiated with the London CIV (Collective Investment Vehicle).  He explained that whilst the other costs had increased, the move to the London CIV had resulted in an overall decrease in investment management costs.  The Oversight and Governance costs had gone up as, every 3 years, a full actuarial valuation is required, and 2019-20 is the year in which the work for the 2019 Valuation is carried out. The costs of the actuarial valuations are not spread over three years, hence there was a “spike” in costs in 2019-20.

Q2:  What were the implications of the decrease in assets of the Pension Fund from £850m last year to £776m this year, particularly when the July 2020 figure was £877m?

An officer informed the Committee that the figures quoted by the Councillor were correct. He added that the updated appendix 5 as set out in the second supplemental agenda tracked the month to month movement since March 2020.  There had been a significant fall in the value of the assets across the range of asset classes due to the volatility in the financial markets globally due to the Covid-19 pandemic global lockdowns, and 31 March 2020 was close to the lowest point of valuations. There had been a recovery in the period to 31 July 2020.

The same officer reported that the Council had not made any significant realignment except in respect of the London CIV Infrastructure Fund draw down which the Committee had previously agreed.

Q3:  Page 17 of the agenda stated that benefit payments exceeded contributions, which conflicted with page 33 which referred to a positive cash flow under liquidity risk?  Additionally, on page 16 of the agenda, who determined the benchmark – the PIRC benchmark was too generic and could not be taken seriously?

An officer explained that there had been significant transfers out of the Fund in 2019/20 as a result of which itwas not as cash positive now when compared with previous years.  The benchmark was calculated by PIRC (Pension and Investment Consultants Limited) but, in essence, it was a weighted average of the targets that each investment manager was set for their investment strategy, using the Strategic Asset Allocation benchmark for the weights.  Each investment manager had a target return and PIRC did a computation and provided a weighted average which was the benchmark.

Q4:  Was there a breakdown in staff who had been made redundant Corporately and in Schools?

The Director of Finance undertook to discuss this request with HR (Human Resources) and provide the relevant information for the last 3 years.  She added that, except for the pension liabilities, redundancy payments were not a draw on the Pension Fund but were funded by the Council.

In response to additional questions on the impact of redundancies  on the Pension Fund due to the restructuring of staff within schools, the Director reported that any restructuring would result in a benefits transfer.  In respect of redundancies, these would be paid from the existing Fund.  An officer added that where staff took early retirement due to redundancy, as well as the early payment of pension, there would be a loss of contribution to the Fund - the employer would have to cover the cost of the resulting  “strain” on the pension fund.  The Councillor requested a breakdown of figures.

RESOLVED:  That the report be noted.