The Committee considered the final outturn position for the financial year 2022/23, together with a summary of the key achievements against the Business Plan, provided at Appendix 2 to the report.
Members heard that Fund Officers continued to embrace hybrid working and technological developments and about the positive impacts these have had on operational activities. Members attention was drawn to the continued high levels of service being provided throughout 2022/23 to scheme members and employers. Specific achievements included:
Pensions Administration Team
• Completion of the 2022 Triennial Actuarial Valuation
• Changes to Management Team Structure and ongoing Recruitment
• Continued improvements and support of the “My Pensions Portal”
• Continued improvements of the Pensions Website
• Successful completion of the first “Digital Proof of Life” biometric recognition exercise
• Continued exploration of various mediums to deliver communication to scheme members and employers.
In response to a question asking if data analytics were used to help officers understand how people were accessing the Pensions Portal or website, it was confirmed that a monthly analytics report was provided to Fund Officers. This information allowed Officers to continually develop the sites to ensure the most relevant information was being provided in places that were easily accessible.
Pensions Investment Team
• Annual Stewardship Report developed in line with the requirements of the Financial Reporting Council’s (FRC) UK Stewardship Code and submitted to the FRC in March.
• Climate Change Reporting in line with the requirements of the Task Force for Climate Related Financial Disclosures (TCFD).
• The implementation of the Fund’s Strategic Asset Allocation, in line with the Pension Fund’s Climate Change Strategy continued at pace.
The Committee were informed that three Internal Audits had taken place throughout 2022/23. The Pensions Administration System Audit, which had received a draft assurance rating of “Adequate”, the annual Pensions Administration Audit, which had received a draft assurance rating of “Substantial”, and the Pension Fund Responsible Investment, Climate Change & Engagement Audit for which an assurance rating of “Substantial” had been received.
Pensions Administration – Service Standards
The Committee were presented with the pensions Administration Team’s Service Standards for 2022/23 and were informed that the Team had achieved a 90% performance target in 12 of the 15 published standards. The Committee were asked to note the consistent level of performance versus the standards over the last three years.
Councillor Greatorex highlighted that, whilst 90% of performance targets had been achieved in 12 of the 15 standards, there would be 10% of targets that had not been achieved. It was also noted that there were three standards where the performance results were less than 90%. It was clarified that performance was monitored on a monthly basis to track the cases where the desired standard had not been achieved. This allowed the team to learn lessons and ensure that, where possible, they would be able to improve services standards in the future. The ability to continue to recruit additional team members to deal with the ever-increasing volume of work was also noted as being a contributory factor.
Ongoing workloads and impact on Service Standards
Members received an update of the latest position of the McCloud remedy project which summarised that:
• 2022/23 saw the Systems & Data Team requesting final data from scheme employers for the c70,000 scheme members in scope;
• Software providers continued to work with the Department for Levelling Up, Communities and Housing (DLUHC) and the LGPS Actuaries, to ensure appropriate changes to administration systems had been made;
• DLUHC published a consultation and draft legislation on the McCloud remedy on 30 May 2023, which closed on 30 June 2023;
• Regulations were expected to be in force on 1 October 2023;
• Once all of the above points were implemented, a substantial exercise would be carried out to validate and load historic data and test member benefit calculations to ensure a member would not be better off in the final salary scheme. It was anticipated that very few scheme members would be affected.
• Annual Benefit Statements for 2024/25 would include any McCloud underpin calculations.
Confirmation had been received that changes to the Government’s Pensions Dashboard Programme had delayed the date that LGPS Funds had to be connected to the dashboard’s ecosystem. This had been rescheduled from 30 September 2024 to 31 October 2026. Despite this, the Fund intended to continue with its plans to cleanse scheme member data and appoint an Integrated Service Provider to enable system connection prior to the go live deadline.
Recruitment of experienced team members continued to be difficult, and the focus continued to be on training and ‘growing our own’. Over the last 12 months the number of team members had remained stable and whilst several experienced members of the Team had retired or left, through successful recruitment the Fund had managed to appoint some new and enthusiastic team members.
Pensions Investment Team
As well as undertaking the day-to-day accounting and contract monitoring activities, the investment team also delivered several additional projects:
• Submitting the first Annual Stewardship Report to the Financial Reporting Council, in line with the UK Stewardship Code’s increased requirements.
• Continuing to implement the recommendations from the Strategic Asset allocation review, carried out by Hymans Robertson in 2022.
• Continuing involvement in the development of the LGPS Central pool and engagement with the various Officer Working Groups, to ensure the right products were being developed and available for the Fund to invest in.
Pension Fund Budget and Costs
Committee members were reminded that instead of solely setting an annual budget and relying on budget monitoring to manage costs, reliance would be placed on cost comparisons, benchmarking and trends, where these were available, to ensure that value for money was consistently delivered.
The headline budget reported to Pensions Committee for 2022/23, showed that the Fund was underspent by c£5.4m, this was compared to an overspend in 2021/22 of c£3.5m. It was explained that the underspend in 2022/23 was attributable to a decrease in expenditure on Investment Management Fees and vacant property costs during the year.
The Pension Fund Budget and Costs were presented to the Committee. These focussed on:
• Administration Costs, where it was noted, costs had decreased from 2021/22 by around £0.04m. This was mainly due to a decreased cost of the Pensions Administration ‘Altair’ software system, following the recent tender.
• Oversight and Governance Costs, where the costs had increased in 2022/23. Actuarial fees had increased, reflecting the work for the 2022 Triennial Actuarial Valuation and Investment Oversight fees had increased because of the ongoing implementation of the Fund’s Strategic Asset Allocation. LGPS Central governance costs had also increased - proportionate to the general increases in the LGPS Central budget.
• Investment Management Costs, had decreased overall in 2022/23. Private Equity fees were c£2.2m less, due to lower performance fees payable than in 2021/22. Vacant property costs had also decreased by c£0.5m relative to 2021/22. Asset values fell in 2022/23 due to markets falling on the back of inflationary pressures, interest rate rises and fears of a recession. Investment management fees, as a percentage of assets under management, had reduced. However, due to the outcome of the recent Strategic Asset Allocation review, where further allocations would be made to private market asset classes, the investment management costs of the Fund were expected to rise.
Councillor Greatorex suggested that it might be an appropriate time to carry out an exercise to assess the success of the Fund’s participation in LGPS Asset Pooling, to establish whether it had achieved the cost savings anticipated and originally forecasted. In response it was explained that there had been many changes to the Fund’s Investment Strategy since pooling was introduced in 2016 and as a result a true like for like comparison was difficult to obtain. Changes within the Fund’s Strategic Asset Allocation and downward pressures on investment management fees in the market generally meant a comparison of the expected savings in 2016 would be very different to the expected savings in 2023. However, it was agreed that a session on LGPS Asset Pooling would be provided to the Committee in the future.
Resolved: That the outturn position of the Staffordshire Pension Fund Business Plan for 2022/23 be approved.