Agenda item

Report of the Director of Corporate Services

The Committee were informed that, at the beginning of each financial year, the Pensions Committee were asked to approve an annual Business Plan for the Staffordshire Pension Fund. The final position against the Business Plan approved for 2019/20 showed that most planned activities had been achieved or were in progress. Of those in progress, some were classed as ‘business as usual’ activities and these together with several other ‘development’ activities which required further work, or ongoing activity, had been carried forward into the 2020/21 Business Plan.

The Committee noted that Key achievements during 2019/20 included: 

(i) Pensions Administration Team -

·               Completing the 2019 Actuarial Valuation;

·               Continuing to implement i-Connect with the Fund’s larger Employers;

·               Reviewing the Administration Policy, the Independent Dispute Resolution Procedure (IDRP) and the Funding Strategy Statement, following the Actuarial Valuation; and

·               Promoting the use of Member Self Service (MPP) in readiness for issuing Annual Benefit Statements electronically from 2020.

(ii) Pensions Investment Team -

·               Reviewing the Fund’s Strategic Asset Allocation (SAA) in conjunction with 2019 Actuarial Valuation;  

·               Continuing to monitor those Global Equity assets transferred to LGPS Central Limited; and

·               Preparing for and physically transitioning Corporate Bond assets into LGPS Central Limited.

Additionally, throughout the year, there had been several Internal Audit reviews across the two Teams. The Pension Fund Governance Audit received ‘substantial’ assurance for the third year in a row, from Staffordshire Internal Audit Services and the Pensions Administration Audit maintained its ‘substantial’ assurance rating for the second year in a row. The Investment Team had also assisted with the Governance and Investment Audits carried out on the LGPS Central pool as part of the wider Audit Assurance Framework developed by the Auditors of the 8 Partner Funds that made up LGPS Central.

It was also noted that the Pensions Administration Team’s Service Standards for 2019/20 continued to show improvement in these standards over the previous two years with a 90% performance target being achieved in 11 of the 14 published standards. The three published standards where the performance target was not achieved in 2019/20 all related to the area of work around Transfer Values (TV) i.e. the payment that arose when a scheme member elected to move their pension benefits between Employer schemes or alternative insurance-based schemes. For TV’s from other public sector pension schemes and from within the LGPS, the options now available to members were more complex to process, and communicate, than for transfers from external schemes. Potentially, if this type of TV remained within the scope of the Fund’s reported service standards, the internal processing deadlines may need to be reviewed to reflect the new requirements. Despite the added complexity, TV processing had remained consistent and further changes to internal processes were likely to build on this. In all TV cases, the strict statutory deadlines, prescribed within the various Pensions Schemes Acts, were always met, often well within the prescribed statutory timescales.

The Director explained that whilst the Service Standards for 2019/20 were very gratifying and something of which the teams should very proud, it was important to remember that the Scheme continued to become more and more complex and the number of Employers and their arrangements for continuing to participate in the Scheme were in themselves becoming more complex as a result. One such new challenge, which would undoubtedly impact the Service Standards, would be the ability to undertake and resource the ‘McCloud’ project.  The recent Public Sector Regulations 2020, limiting an exit payment to £95,000 where an Employee is made redundant or their employment is terminated for reasons of business efficiency, was also already having repercussions for the Pensions team.  In response to a questions from Cllr Sutherland and Cllr Little, the Director indicated that additional staffing resources were likely to be required to complete the McCloud project and that it was understood that the limiting of exit payments to £95,000 was the subject of a Judicial Review to be heard in February 2021.

The Director also informed the Committee that following the retirement of several experienced staff in recent years, it was extremely pleasing to be able to report that the latest two recruitment exercises, which led to a cohort of 5 new staff joining the teams, over the last 2 years, had been successful.

The Committee also considered and discussed the 2019/20 management costs of the Pension Fund and noted that the majority of the £2.1m budget ‘overspend’ in 2019/20 was attributable to vacant property costs. This was an area that was difficult to forecast on any consistent basis and the original budget assumed around £0.933m, based on an average of previous void costs across the property portfolio. In 2019/20, four properties accounted for most of the increased expenditure, with the vacated Toys R Us property at Hayes, being the largest proportion, at a cost of c£500,000. This particular property was now in the process of being let, subject to local planning approval being granted. Other more recent void costs across properties in Birmingham, London and Eynsham were all in excess of £200,000 each.  The Director also added that the Fund’s Administration Costs had also increased from 2018/2019 levels by £0.630m. Almost half of this (£0.294m) was accounted for by increased support service charges, following a review of the internal recharging process.  However, the Fund’s Administrative costs were still significantly below the CIPFA average when compared with those of the 28 other Funds (out of a possible 90) captured by the CIPFA benchmarking service. The Committee also noted that Oversight and Governance costs had decreased in 2019/2020 as a result of the review of the re-allocation of support charges; and Investment Managers fees had reduced overall in 2019/20.

The Committee also noted that to seek further reassurance about cost, Staffordshire Pension Fund continued to take part in an extended benchmarking exercise with international company CEM Benchmarking. The 2019/2020 survey grouped Staffordshire Pension Fund with 18 LGPS and international funds ranging in size from £2.3bn to £8.6bn (a median size of £4.6bn versus our £4.4bn). Based on a comparative cost base and taking into account embedded costs, the Staffordshire Fund’s costs of 67.0 basis points (bps) was 7.3bps above the peer median of 59.7bps. This was predominantly because our Fund invests in Alternative asset classes, such as Private Equity, using a ‘Fund of Fund’ approach, where there are multiple layers of fees payable. However, Private Equity had been a strong performing asset for the Fund over the period and had delivered returns well in excess of its benchmark. This illustrated the point that whilst cost was an important consideration, it must be viewed versus any out-performance it delivered.

RESOLVED – That the outturn position of the Staffordshire Pension Fund Business Plan for 2019/20 be approved.