Agenda item

The Committee considered an update on the wider national position in respect of collaboration within the LGPS and in particular the potential impact of an announcement contained within the summer budget.

The report set out details of the DCLG update on 21 August 2015 and the passive equity collaborative working with LGPS funds.

The Chief Financial Officer introduced the report and made the following points:

·         The Government was looking at proposals to change regulations to enable LGPS investment pooling. The Council needed to examine the process of collaborating between different pension funds to ensure the right balance was achieved between local sovereignty, local style and cost reductions.  It was important that this Council was ahead of the game in introducing collaborative working

·         He was requesting that he be granted delegated authority to work with six other pension funds to merge the procurement of passive investments to enable the work to be completed by the end of October. An external company had been engaged with a view to negotiating a reduced fee for the combined Pension Fund operations. Effectively one Pension Fund would be serviced instead of 7 separate funds. It was anticipated that the combined pension funds would total £6bn and a reduction in the fee could result in savings of £170,000 pa for the Council although the external company had indicated that there was potential for even further savings

·         The Government was also pushing councils to consider changing their approach to active investment funds on the basis of a collective investment vehicle. There was potential for cost reductions of such an approach in that financial reports would only need to be considered by one Committee rather than multiple Committees. There would be governance issues that needed to be considered in relation to the possible loss of challenge. It was important that the Council was able to prove that it was doing enough to lower the cost of these funds to avoid any possible punitive measures from the Government.

In the ensuing debate, the following principal points were raised:

·         What were the risks of making multiple changes to the governance arrangements for the Pension Fund and what would be the cost implications of such changes? The Chief Financial Officer stated that it was possible that in the future the Government could push for a Passive National Fund for example. Should this be the case then the proposed changes to collaborative working would leave the Council in a stronger position to meet this potential change. The cost of such a change would be minimal. However Active Investment Funds operated differently and if the Council decided to make an early change to the governance arrangements, it would be quite expensive to change in the future and would require a number of years to payback. Therefore the recommended approach to Active Investment Funds would be to wait and make the change once and only once, ensuring that the chosen partners matched the Fund style    

·         The proposed approach to collaborative working was sensible and cautious given the lack of clarity from the Government

·         There were concerns about the transferring of costs from the Government to the Pension Funds and the Committee needed to be realistic about that 

·         A major issue for the Committee was how to manage the Pension Fund deficit. The scheme would not be able to sustain further strain on it without its sustainability being called into question.

 RESOLVED that:

a)    the update regarding the wider national position in respect of collaboration within the LGPS be noted; and

b)    he be granted delegated authority to conclude the matter of a joint procurement of a passive investment manager with six other LGPS administering authorities.