Agendas, Meetings and Minutes - Agenda and minutes

Agenda and minutes

Venue: County Hall, Worcester

Contact: Simon Lewis  Committee Officer

No. Item

Available papers

The members had before them:


A.    The Agenda papers (previously circulated); and


B.    The Minutes of the meeting held on 5 October 2018 (previously circulated).


Named Substitutes (Agenda item 1)


Dr A J Hopkins for Mr P Middlebrough.


Apologies/ Declarations of Interest (Agenda item 2)


Apologies were received from Mr A Becker Mr P Middlebrough and Mr R J Phillips.


Mr V Allison declared an interest as a member of the Pension Fund.


Public Participation (Agenda item 3)

Members of the public wishing to take part should notify the Head of Legal and Democratic Services in writing or by e-mail indicating the nature and content of their proposed participation no later than 9.00am on the working day before the meeting (in this case, 27 November 2018). Further details are available on the Council’s website. Enquiries can be made through the telephone number/e-mail address below.




Confirmation of Minutes (Agenda item 4)

To confirm the Minutes of the meeting held on 5 October 2018 (previously circulated – pink pages)


RESOLVED that the Minutes of the meeting held on 5 October 2018 be confirmed as a correct record and signed by the Chairman.


Equity Protection (Agenda item 5) pdf icon PDF 74 KB


The Committee received an update presentation from Jason Wood and Mark Davies of River and Mercantile on the Equity Protection Strategy.


In the ensuing debate, the following points were made:


·         Jason Wood indicated that as the Equity Protection Strategy was half way through the contract period, it was an appropriate stage to consider how it was progressing. Although no action was recommended at this stage, the Committee might wish to amend the Strategy prior to its date of maturity

·         Philip Hebson commented that at some point a decision would need to made about the future approach to equity protection and whether it would be appropriate to enter the active equity market

·         In response to a query, Mark Davies suggested that in the event of a major market fall, the strong funding position of the Fund could provide an opportunity for re-investment in equities market

·         Philip Hebson explained that although there had been a recent fall in markets, they had only fallen to a level slightly below the original starting point. Mark Davies added that most pension funds would be concerned about a fall in markets. Even if the market rallied, there would remain concerns and the asymmetry factor (in other words as the performance neared the cap, the risk/return balance was out of kilter) became more important because of the exposure to market forces at that point

·         Mark Davies explained that there remained enough upside and reasonable protection within the strategy so that no action was needed at present. The staff at River and Mercantile monitored the performance of the Strategy on a daily basis, taking into account the asymmetry factor, the market factor and the replacement strategy factor. The Fund would only be contacted when it was considered that a restructuring of the contract could be beneficial

·         What would be the cost to the Fund of withdrawing from the contract with River and Mercantile before the date of maturity? Jason Wood explained that there would be a market trading cost of around 5 – 15 basis points. This was a market charge not a fee to the company

·         Michael Hudson commented that the Committee needed to weigh up the benefits of adopting equity protection against the Fund's appetite for risk as it entered the next phase after the maturity date for this Strategy. The date of maturity for this particular Strategy had been planned to coincide with the forthcoming Triennial Valuation. Mark Davies emphasised that the equity protection product could be tailored to meet the needs of the Investment Strategy of the Fund

·         In response to a query, Michael Hudson indicated that this Fund was one of only two funds in LGPS Central who had taken out some form of equity protection. The key issue for the Fund to determine going forward was whether it wanted long or short term protection. If the Committee deemed that some form of equity protection was necessary, a decision would need to be made as to the form of equity protection tool required  ...  view the full minutes text for item 147.


Administering Authority - Administration Update (Agenda item 6) pdf icon PDF 555 KB

Additional documents:


The Committee considered the Administering Authority - Administration Update. The details were set out in the report.


In the ensuing debate, the following points were raised:


·         Bridget Clark explained that as a result of the GMP Reconciliation exercise a total of 152 records had been identified where HMRC had stated that no GMP was payable as there was ‘no qualifying spouse’. The impact of accepting the HMRC position would be that some of the 152 members had received (an overpayment) incorrect pension. Of the 2 records, none were in excess of £1,000 per annum and only 24 were between £10 and £1,000 per annum

·         What would be the additional cost to the scheme of accepting the HMRC record? Bridget Clark indicated that the cost would be £70k but there would also be the added burden on the administering authority of updating records and notifying dependents. Michael Hudson added there was the reputational impact on the Council of pursuing dependents who might be elderly and infirm.

·         In response to a query, Bridget Clark confirmed that as the Fund records did not hold whether a state bereavement benefit was ever claimed from HMRC a further file review to challenge HMRC was not recommended

·         Michael Hudson drew the Committee's attention to a recent court case involving Lloyds relating to the equalisation of pay between men and women which could have an impact on the GMP Reconciliation

·         Rob Wilson indicated that the cut-off date for the response from employers to the request for information for the covenant review was imminent. It was intended to report the outcome of the review to the extraordinary Committee meeting on 21 January 2019. 




a)    Option 1 – Accept Admin Records for Dependants ineligible for GMP be supported;


b)    the update on the Guaranteed Minimum Pension (GMP) Reconciliation exercise be noted; and


c)    the general update from the Administering Authority be noted.


Pensions Investment Update (Agenda item 7) pdf icon PDF 110 KB

Additional documents:


The Committee considered the Pensions Investment Update. The details were set out in the report.


In the ensuing debate, the following points were raised:


·         Rob Wilson reported that as a result of volatility in the market, the current funding level of the Pension Fund had fallen to 95%. It was intended to report the latest funding level to each Committee meeting in the future

·         Was the benchmark target for JP Morgan – Emerging Markets fair? Philip Hebson advised that it was the Fund's right to set the benchmark target as it sought fit and he considered it to be fair. The issue for JP Morgan and other Emerging Market managers was that the investment universe was skewed towards the market in China and a small number of large stocks therefore a small change in those markets had a big impact on their performance

·         Rob Wilson undertook to circulate a breakdown of the Councils set out in the report in Table 1 of the Covenant Review to members of the Committee.




a)    The Independent Financial Adviser's fund performance summary and market background be noted;


b)    The update on the Investment Managers placed 'on watch' by the Pension Investment Advisory Panel be noted;


c)    The update on the Property and Infrastructure commitments be noted;


d)    The update on the cashflow management be noted; and


e)    The funding position compared to the investment performance be noted.


Government Actuary Department (GAD) Pension Review Update (Agenda item 8) pdf icon PDF 109 KB

Additional documents:


The Committee considered the Government Actuary Department (GAD) Pension Review Update. The details were set out in the report.


In the ensuing debate, the following points were made:


·         It appeared that the assumptions made by each fund's actuary had a significant impact on the calculation of funding levels. Michael Hudson responded that it was a question of balancing the Pension Fund objectives against employer objectives. The actuary had to take a view based on these potentially competing interests

·         Michael Hudson commented that meetings would be held this time next year with employer and district council representatives to discuss the actuarial assumptions going forward. Issues to be discussed would include the tendering process and where the Fund would wish to be in 4 years time.


RESOLVED that the Government Actuary Department (GAD) Pension Review update be noted.


Risk Register (Agenda item 9) pdf icon PDF 79 KB

Additional documents:


The Committee considered the Risk Register. The details were set out in the report.


In the ensuing debate, Michael Hudson informed the Committee that Ian Kirk had left Mercers, the Fund's actuary and succession arrangements were being discussed with Mercers. It was understood that internal arrangements were to be proposed and was not considered to be a risk.




a)    The updated Risk Register be noted; and


b)    The Committee particularly note and comment on the amber risks identified in the risk evaluation table within the Appendix.


Stewardship Compliance Statement (Agenda item 10) pdf icon PDF 108 KB

Additional documents:


The Committee considered the Stewardship Compliance Statement. The details were set out in the report.




a)    The Stewardship Compliance Statement be agreed;


b)    The Responsible Investment activities be noted; and


c)    The key areas of the Local Authority Pension Fund Forum (LAPFF) quarterly engagement report be included in the Committee's future pension's investment updates.


Forward Plan (Agenda item 11) pdf icon PDF 62 KB

Additional documents:


The Committee considered its Forward Plan. The details were set out in the report.


In the ensuing debate, the following points were raised:


·         Rob Wilson indicated that the Equity Protection Strategy would need to be considered at the March and June 2019 Committee meetings

·         Bridget Clark welcomed any suggestions for items to add to the pensions training event scheduled for 18 December 2018.


RESOLVED that the Forward Plan be approved.


LGPS Central Update (Agenda item 12) pdf icon PDF 79 KB

Additional documents:


The Committee received a presentation from Callum Campbell, Head of Client Services and Investor Relations and Jason Fletcher, Chief Investment Officer of LGPS Central.


In the ensuing debate the following points were raised:


·         Philip Hebson highlighted a concern expressed by member funds that savings were being prioritised by LGPS Central at the expense of good investment returns going forward. Jason Fletcher responded that 80% of the score allocated to any investment bid related to quality assurance and therefore price was only a small part of the consideration. He argued that LGPS Central had assembled a good mix of innovative investment managers with the ability to maximise returns for member pension funds

·         Philip Hebson highlighted a further concern expressed by member funds about the lack of transparency in terms of the ability of member funds to review the performance and fees of the investment managers. Jason Fletcher gave an assurance that LGPS Central was committed to being open and transparent. However there were certain aspects that by nature needed to remain confidential, for example investment manager's fees

·         Michael Hudson queried the basis for the investment allocation across the three proposed investment managers. He argued that the arrangements lacked transparency with member funds unable to exert influence or assess performance and value for money. Jason Fletcher indicated that LGPS Central could skew the funding of the three managers to a maximum of plus or minus 10%. The decision would rest with the Investment Committee. There was no scope for individual Funds to have a greater or smaller exposure to each of the three managers, with their differing investment styles

·         When was the decision taken and by whom to adopt a multi-manager approach to investment management because this approach had not been agreed by the Shareholders Forum? It was not an approach that this Fund had ever supported. Jason Fletcher responded that meetings had taken place with all partner funds in February to discuss investment management. By necessity there had had to be some form of compromise in the agreed approach

·         Concern was expressed that Worcestershire Pension Fund would lose its ability to influence how it wished to invest member funds. Jason Fletcher commented that the danger was that in taking account of each individual member fund's investment requirements, the Pool would be operating nine separate investment management strategies with the resultant additional costs and loss of economies of scale as well as a negation of the benefits of the pooling arrangements

·         Given that the investment funds would be split equally between the three investment managers, what would happen in terms of the investment mix if one of the managers performed particularly well and how would performance be reviewed? Jason Fletcher responded that the Investment Committee had some scope to be able to change the mix of investments to a limit of 2% over the 33% allocation. He argued that a rebalancing on the investment mix was a positive action for the pool

·         A degree of caution was expressed about the rebalancing approach  ...  view the full minutes text for item 154.