Meeting documents

To consider the papers provided to the Pensions Committee at their meeting on 16 September 2022.

Review of Pensions Committee Papers - Agenda Item 6

The Funds and Investments Manager went through each of the reports presented at the Pensions Committee meeting on 16 September 2022.

LGPS Pooling of Investments (item 6): Now that the transition is complete, it was suggested in future, this review is combined with the review of investment performance paper. The Board were in agreement.

Review of Investment Performance (item 8): It was confirmed that SCC does not hold any Liability Driven Investments (LDIs) which are mainly used for corporate schemes to protect investments from volatility. In the context of LGPS, volatility is not a major concern. LDI does incur a cost in terms of lost performance, another reason this is not done. The benchmark return for the September quarter was -2%. The fund performed ahead of this with a return of -0.5%. Relative performance is good, outperforming benchmark figures by nearly 1.5% for the first 6 months of the financial year. In the context of performance to the 2025 valuation, performance is not good and there is unlikely to be a sustained rebound in the foreseeable future. Markets outside of the US remain low. Questions were invited.

It was asked that in the light of the very recent volatility, if there is sufficient protection of the fund in spread of investments. Mr Sweet replied that the current activity is not expected to change the long-term outcome as investments should be considered over a 10-20 year time frame. It was asked if investment in the current under-valued emerging markets had been considered. Mr Sweet stated that emerging markets are a source of growth, however investment in these markets are likely to show greater volatility due to the influence of the Chinese economy and it’s emergence from COVID. It was suggested that information on investments in emerging markets such as China and Brazil, could be presented to the Board. A member suggested a bolder approach in emerging markets considering a relatively low current allocation of 3.75%. Mr Sweet stated there were volatility concerns, as well as Environment, Social and Governance (ESG) concerns. The Chair suggested a review of investment in emerging markets in one to two years time ahead of a new investment statement in 2024-25.

A member asked how quickly funds could be moved if required considering the turbulence in the domestic economy. Mr Sweet stated that the unknown is the length of the UK economic downturn. The member continued to ask whether green investments should be considered more favourably considering the fuel price rises caused by the Ukraine War. Mr Sweet stated that ‘crisises’ can be relatively frequent, however the UK economy is now more greatly influenced by world events to inter-dependency on international trade.

A member suggested that high alpha funds should inevitably react to market changes faster than more passive funds, and that actively managed funds are likely to perform well in the next 18-24 months and that a balance of funds should be maintained.

Review of Administration Performance (item 9): Questions were referred to Mrs S Cuthbert. Discussion was held on complaints and concern about the timings of the issue of estimates. Guidance is available on ‘transfer-outs’ to advise where this many involve potential scamming and possible refusal to release funds where this is deemed an irregular transfer. Tighter controls are now in place. In addition, a glossary of terms has been compiled and will be circulated. Pension Awareness Week will run from 31 October with web links for further information as well as videos, information sessions and other resources for employees and information for employers.

A question was asked about the level of confidence of energy security and the likelihood of blackouts. It was confirmed the Devon County Council (DCC) have a generator for use in such a scenario to protect services such as payroll.  Any blackouts are expected to last for 2-3 hours maximum so are unlikely to affect output significantly as work hours would be adjusted to meet energy supply.  Any power outages are likely to be known in advance so challenges to business continuity can be managed. SCC and DCC both have Business Continuity Plans in place. Changes to work patterns since COVID have been significant which may now aid business continuity. Office space and energy supply would be prioritised for critical tasks.

Business Plan Update (item 10): It was reported that expected LGPS regulations anticipated from government continue to be delayed. These include new disclosure requirements regarding climate metrics. There will be a requirement to produce an annual climate risk report. It is believed that Brunel are already collecting the necessary data for this...

The Carbon Metrics report is not yet available from Brunel. Brunel are working hard to reduce carbon intensity however reassurance is required from previous reports to quantify this. The Chair requested that Brunel be chased for their response to the request made in April 2022 for this data to ensure informed decision can be made.

Finance and Membership Statistics (item 11): Data for the quarter to June and the previous quarter indicate that the full year projection remains realistic within the broader context.

Review of Pension Fund Risk Register (item 12): This will be discussed later on this agenda.

Pension Fund Annual Report (item 13): The Board were encouraged to read the report in full to aid overall understanding. The Committee have approved this subject to Auditors comments. The substantive findings do not appear to be a cause for concern. Audit opinions will follow when County Council audit findings are finalised. Preliminary results for the whole valuation from all employers will be known early in the new year. The deficit has reduced from 2019, partly due to good investment performance. Employers will be engaged in early November regarding the meeting with the Actuary to give employers the opportunity to engage directly.

Knowledge and Skills (item 14):  Following discussions, a draft knowledge and skills questionnaire has been received fromBarnet Waddington to understand the skills base and knowledge gaps of the Board and Committee. All members are requested, and expected, to complete so that training can be devised either as whole group, small group or one-to-one sessions. This will be funded by the Scheme to ensure decision-making is from a position of accurate and up to date knowledge and skills.

The Board noted the Committee papers.