Transcript

Good afternoon Councillors and Officers, and welcome to the Multi-Location meeting of the Denver Pension Film Committee. There is no fire alarm planned today, therefore should the alarm sound, there will not be a test, and it should follow the appropriate fire exit signs. Webcasting and meetings before proceeding today, I have to remind everyone present that the proceedings of today's meetings are being filmed live, and may be kept on the Council Internet site as an after-choice record of the meeting. The images and sound recording may also be used for training purposes within the Council. All members should already check their headphones, microphones and IT kit before the meeting ends. Members and guests who have joined through Zoom who wish to receive simultaneous translation from Welsh to English should click on the interpreter symbol at the bottom of the screen and then choose English. Those moving in attendance in the chamber should use the translation device and microphone provided. I must remind all members and Officers that you should only activate your microphone after I invited you to speak on the right time. Please remember to mute your microphones when you have finished speaking. This will allow the proceedings to be seemingly broadcasted. If remote attendees lose connection during the live meeting, please make every attempt to reconnect so that we are quiet. Before I commence the meeting, I just need to confirm the Members and Officers in attendance today. I am Councillor Alon Williams and I am the Chair of the Repentionship Committee. My fellow Committee Members in attendance today are Councillor Dai Thomas and Councillor Peter Cooper. There are a number of Officers present in the meeting today and I would ask you to please introduce yourself before you speak. We will now move to the agenda for today's meeting. There are no apologies for absence. Declaration of Personal Interests We have a responsibility under the Code of Conduct to verbally declare any personal interests that we may have in relation to any item appearing on the agenda today. Please ensure that you clearly indicate which agenda item you have any personal interests in and the specific nature of the interest to be disclosed, and whether or not you will be withdrawing from the meeting during consideration of that item. If an interest has not been declared at the start but becomes known during discussions, it needs to be declared when that interest becomes apparent. You will need to repeat your Declaration of Personal Interest at the beginning of the relevant item on the agenda, as well as indicating whether or not you will be leaving the meeting during consideration of that item. You will also need to indicate whether you have been content dispensationalist on this Committee or the Monitoring Officer to speak or vote on any item on the agenda. Members, please raise your hand if you wish to declare interest. No interest declared. We will now move on to our agenda, item 3. Ministry of the Meeting of the Committee held on the 27th of March 2024. Page 5 of your agenda pack. The Committee has been asked to approve as a correct record the Ministry of the Meeting held on the 27th of March 2024. Can I have a proposal and seconder so that I can sign the Ministry of the Meeting held on the 27th of March 2024 as a correct record? Will Members raise their hand and the Ministry will be adopted as a correct record. Unanimously approved. We will now move on to agenda item 4. The Committee is advised that this agenda item has been withdrawn or because it did at the next meeting. We will now move on to agenda item 5. The Committee is advised that this agenda item has been withdrawn or because it did at the next meeting. We will now move on to agenda item 6. This is to provide the Committee with the Audit Plan for 2024. I would like to welcome Jason Blewitt from Audit Wales. Jason, would you like to take us through the report, please? Thank you, Chair. This is the usual audit plan that you will be used to receiving each year. It sets out the work that we are going to perform, the team doing the work and the timing and the fee. As usual, I was not going to go through the report in detail but just pull up some of the key points for your attention. In terms of the work, as you know, our work is around auditing the pension funds financial statements and whether they give a true and fair view. We do not provide absolute assurance. We work to the concept of materiality and on a risk basis. Materiality levels are shown on page 8 and the key risks shown for your information on page 9 and 10. In terms of the team, the team is set on page 13. The team is the same as in prior year except Eleanor Ansell has taken over as the team leader for the audit. Eleanor is also the team leader on the main council audit so we felt that that provided a little bit of common sense really to have both team leaders the same on both audits. In terms of the timing for this year, the key dates are shown on page 11. Key dates for this year are production of the draft accounts by the 30th of June with audited accounts by the 30th of November. We've agreed with officers to undertake the audit in August and September with the aim of bringing our report to the September audit committee. Finally, then the fee. The fee is shown on page 12. You'll note on page 12 there's been an increase to our fees this year of 6.4% for inflation, which for the pension fund is approximate increase of about £2,000. So I think that's all I was going to say in terms of the key points. I'll pause there and I'm happy to take any questions. Do members have any questions? No. We all remember Shobha raising your hands that you are happy to approve the report. Approved unanimously. We'll now move onto agenda item 7, final budgetary position 23/24. Page 57 of the agenda pack. This report is by the committee with the latest budgetary position as of March 31st, 2024. Martin, would you like to take us through the report, please? Thank you, Chair. I'm Martin Owens, Pension Investment Officer. The final budgetary position report is on page 61 of the pack. The final position as of 31st of March, 2024 was an underspend to pay the budget of £2.2 million. On expenditure, expenditure was £5.6 million more than budget, which is made up mostly of lump sum retirement benefits of £6.2 million and transfers out to £1.2 million. Slightly offset in these, pensions payable were underspent by £1.1 million, lump sum death benefits £526,000 and management expenses by £180,000. We want to take an end of year review of the reporting of costs on some of the BlackRock fees previously reported against BlackRock and now shown against transactional costs further down. Underlying fees have also been removed from the budget monitoring. As noted in executive summary, lump sum retirement benefits transfers out the scheme and lump sum death benefits depend on the actual activity throughout the year and we cannot anticipate these at budget setting. On income, this was £7.8 million more than budget, contributions received were £7.2 million more than budget. This is likely due to a higher pension payable for members, that was forecast at budget setting. There was also an increased amount of augmentation income from employers, which we hadn't anticipated. Transfers in exceeded the budget by £2.5 million and investment income was £1.9 million below budget. Although investment income was below budget, there was an almost £3 million increase in investment income from the previous year. At budget setting, the investment income is a balancing item to bring the overall budget back to zero, where the income generated equals the expenditure. Despite investment income being below budget, the fence income exceeded its expenditure, mostly due to the increase in contributions. Overall total expenditure was £128.4 million and total income £130.6 million. I'm happy to take any questions. Thank you, Chair. I just wanted to ask about the increase in lump sum retirement benefits, because that's quite material in terms of the overall cash balance. I'm wondering if there's any trend there or whether this is something that varies randomly around zero, if I can put it like that. It's difficult to anticipate the budget setting. We looked at it for this year to date, and it's a little bit lower than it was last year. The next item is the cash flow. We can see that there's sufficient cash there too. It seems that this year was exceptionally high when we reviewed it compared to previous years, so hopefully it's a win-off. So my change in interest rates and the amount of money that people can earn from their lump sum might make some change in behaviour, so one that I would suggest we watch, and other pension funds may be having similar kind of experience. I think the other thing there, Chair, if we can come in, is that it is very unpredictable what's happening in terms of structures within the authorities, and therefore what happens in terms of changing the structures, and by default that actually some officers will leave during that period as well, and that's the unpredictability, but it's getting more difficult as we move forward with some of the budgetary issues, that there will be potentially more individuals across the whole of David area, perhaps leaving their employment, and that will increase the lump sum calls, but that's something that we can't predict at the moment until we go into the next budget cycle. Does any of the members have a question to ask? No. We'll all move the scope by raising your hands that you're happy to receive the report. We'll now move onto agenda item 8, cash reconciliation as of 31st March 2024. This report is provided to you with the final cash position as of 31st March 2024. Martin, would you like to take us through the report, please? Thank you. The cash reconciliation for 23/24 is on page 67 of the pack. The final position, as of 31st March, reports a commensurate council on behalf of the Fund for immediate cash flow requirements, and many of the year before, so it's a very consistent year on year. I'm happy to take it up. Any questions? No? No questions? Will all members show by raising your hands that you are happy to receive the report? Passed unanimously. We will now move to agenda item 9, pensions administration report, page 16 of the pension administration. Kevin. I'm Kevin and I'm the pensions manager. If I went through the regulatory update to begin with, you're all familiar with the background on the cloud case, and just to give you a quick update on the progress. The main focus continues to be on Pembrokeshire and Camarthenshire, data reconciliation and validation. That's because we've already completed that exercise for Kedrigjon and all the other employers within the fund. Point B, you'll notice that we were waiting for the guidance from DLAC, that guidance came through. We're working our way through the guidance, there's over 30 pages of guidance, so at the next committee meeting, we can give you an update on if there are any other areas we need guidance on from central government. Pensions dashboard, which will be on the agenda for a while to come again. This is where we must provide information to a pensions dashboard in order that scheme members can access pensions information in one place. We required additional resources to do this, and we undertook interviews on the 31st of May. We were successful in appointing an individual to the post, and over the coming month we'll hopefully have that person in place. The next item is the breaches. I'm sure you'll notice that the breaches is a standing item on the agenda, and it's in respect of the time limit for a payment of refund to scheme members, and we must pay that refund within five years of the last active day of that scheme member. If the scheme member does not respond to us, we have to record it on the breaches register, and the breaches register has been updated with the payments due from March to June 24. Item three is the iConnect update. We continue to work with colleagues at GAR, PEMS College, and colleague Cara De Gionne in respect of assisting them to implement iConnect. I'm sure you'll recall me reminding you that it's not a legislative requirement for employees to provide data this way, and that's why we actively encourage them, but more importantly support them to work towards this option. Item four is the GMP reconciliation. You'll be familiar again with this item. The levels remain at 99.76% and 99.4% because the remaining scheme members have reached the state pension age. You'll all recall that at the last meeting I reminded you that HMRC will respond to us with outstanding queries as each of those individual members reach the state pension age. The remaining item under item five, there's a number of workflow items. I don't propose to go through each individual one, but I'm happy to take questions on anything within the report. It's not a question, it's just an observation. It's worth it that fairly large employers are slow with iConnect, isn't it? Colleagues at GAR and the ones which have more resources to get their act together as well. You are correct because there are some significant advantages, but I don't know whether there's any particular issues that I can highlight in terms of why it's a challenge for those organisations. I do have a question. Although they may appear large, those employers, they don't represent a large percentage of the fund. For example, Colleagues at GAR represents 2% of the fund's membership. So in the whole, the three colleges represent around 4.5% of the scheme membership. That's a very small proportion of the scheme membership, which isn't on iConnect. In accordance with the debit pension fund breaches policy, this report is for the committee to note any breaches that have occurred. Martin, would you like to take us through the report, please? Thank you. The breaches report is on page 85 and 86 of the pack. There have been a few cases where employer contributions have been received late and the report has been updated. These are mostly due to operational reasons with employers making a payment. These could be seen on row 160 and 161. There were a few cases where the contributions were received a few days late. No report has been made to the pensions regulator. Happy to take any questions? Will all members show by raising your hands that you are happy to note the report and the breaches that have occurred? We'll now move on to agenda item 11, risk register, page 87 of the agenda pack. The report details the outcome of the review of the risk register, which is a working document that highlights all the risks identified in relation to the function of the debit pension fund. Anthony, would you like to take us through the report? Yes, thank you, Chair. My name is Anthony Parnell, Treasury and Pension Investment Manager. So if you go on to the next page, page 88 of your pack, just a reminder that the risk register is a working document that highlights all the risks identified in relation to the functions of the debit pension fund. It's regularly monitored and reviewed and you can see the register includes four items there. As we agreed with the last pension committee, the focus of the risk register review for this meeting will be the governance and regular risks. There are eight risks and these are referenced in the regs. The risks have been reviewed and there have been no changes approved at the previous committee meeting. As noted at the last meeting, risk number G8 concerning environmental, social and governance factors was added as part of the recent review prior to submission to pension committee for approval in March 2024. These governance and regulatory risks then can be found from page 91 of the register. So G1, for example, is the failure to hold personal data securely and there's controls being put in place there to mitigate that risk. G2 is a lack of expertise in pension fund committee and amongst investment officers and training and flawed recommendations given to pension committee which, in challenge, could lead to incorrect decisions being made. As you can see, the control risk there is to ensure, and you'll be aware of this with the training plan, that investment officers are trained and up to date in key areas. So courses, seminars, discussions with consultants. You'll know, as members, you'll go on induction training when you join the committee and Councillor Peter Cooper, you'll be going on the fundamentals training this year as a new member and the dates are out to inform you of that. So a member's training plan and governance policy is established and is on the website and was reviewed back in March and then specialist assistance available from consultants and independent advisors such as our own Adrian Brown. G3 is officers acting outside delegated authority, loss of income to the fund, etc. So the controls there is undertake review, regular review of standing orders of constitution, report executive board and monitoring officer role. Those are commercial committee council responsibilities as opposed to adjusted of a pension fund. G4 then is non-performist by officers and committee members, a lack of training, a qualified audit report. So our controls here in G4, established performance measurement system, officer appraisers in October and March annually, regular internal or external audits, established and reviewed training plan as I mentioned earlier for both officers and members and pension committee member assessments. G5 is failure to comply with LGPS regulations and you'll see the controls in place for that. G6 is failure to respond to major change the LGPS. Again there's plenty of controls in place there and especially participation in government discussions which are done on our administration on the investment side. There's plenty of controls in place there. G7 is the global financial markets impacted by economic climate, etc. So in that day obviously a lot of these days outside our control there's an ongoing review and subsequent actions by pension committee investment officers and advisor with reference to global economy and global instability. So as part of Adrian's report he'll give an overview of global economics and national economics. And then the final risk is the one I just said which was added on environmental social governance. We're all fully aware of the responsibility we have for ESG and how much value we put on it as a pension fund. So we've got the establishment of responsible investment policy which you've approved previously and that's an ongoing review. We look at the fund's equity carbon exposure which we'll come on to later and then significant work is undertaken with the Wales Pension Partnership. So there's an RI subgroup there and there's also a dedicated responsible investment resource from Highman's Robertson to assist the Wales Pension Partnership in all responsible investment matters. So those are the eight risks I wanted to cover in this particular committee meeting. I will cover other risks in the next meetings but I'm happy to take any questions on these eight. I'm increasingly worried about political pressure on the pension fund from various sources. Is it worth adding political pressure as a risk? Because first of all we came under political pressure to invest in infrastructure. Then we came under political pressure to invest locally. Now we come under political pressure not to invest in Pylons. Now we've come under political pressure not to invest in Israel. A lot of our holdings are in Bailey Gifford and Bailey Gifford are coming under political pressure. Is there a risk there? That's what I want to know. I've been to various meetings in the last few years and we've engaged with many of the organisations. The fiduciary duty to our members to monitor the stocks we have through our investment managers. As I'll come on to later about the carbon footprint we have reduced some stock portfolio where that's the pension specifically of either ways and we have a minimum number of investments in most of these areas that you've just mentioned. I will continue to work across those. It's put on the risk register for fiduciary duty but when we look at all some of these issues to be considered that's what we do basically through our managers. We continue to review and you as a pension committee continue to review and have reports on it as well. We do have to be careful as well what is out in the public domain and in the media. We will see if there is a pension partnership but we are monitoring it and we don't feel it's necessary really. My comment was particularly G8. The way these risks work is you start off with the uncontrolled risk and then you deduct from that the actions that you're taking to get the net risk if I can put it like that. My comment was that I think we've marked ourselves possibly rather quite severely in terms of the amount of reduction that we've given ourselves because this fund like many LGPS funds is doing a lot more than for example many corporate pension schemes in terms of the amount of investment that is with WPP which has a very strong environmental governance framework. We as a fund have taken a number of actions to explicitly reduce our carbon footprint for example. It's a relatively small discount from the 15 high to the 12 net risk if I can put it like that. I would comment that you have marked yourselves reasonably sternly on that front. Any other questions? Will all members show by raising your hands that you are happy to note the report. Pass it unanimously. We will now move on to agenda item 12. Training plan 24/25. The report was submitted with a training plan for 24/25 and will you please take us through the report. It's page 103. The training plan itself is page 103 of your pack. This is an update from the last to the Cotswold which is a local authority conference, PLSA. Would you like to comment at all on that? Can you put your lights on sorry? Yes, it's quite an experience and I found it very interesting actually how it was variation from different parts of the country. What is Scotland, Ireland, England, Wales, whatever and it is very good. I thought it very good to be honest with you. What I was a bit surprised with was the last item we had actually which was on Thursday lunchtime. It is a debate, not a debate, and there were questions to be asked about forthcoming elections speaking about different parties. It was a bit strange. It was a bit interesting but I think it was weeks before the election. It was interesting to get the opinion of that person on each party that they mentioned. So it was a bit about the investment side of it and this and that over the three days. I found it very good. I am very interested actually. So yes, it was very good. Thank you very much. You will see as well the fundamental strain as I mentioned earlier down here. We have got potential as well but I am happy to take any questions, Chair. Any other questions? No. Will all members show by raising your hands that you are happy to receive the report? We will now move on to Agenda Item 13, Carbon Intensity Analysis, page 109 of the Agenda Pack. The report provides a committee with an update on a friend's carbon intensity. Anthony, would you like to take us through the report, please? Just a brief introduction from me. This is done on an annual basis, this equity and it is just on the equity side of the pension fund, carbon intensity analysis. We started it on the basis of September 2020 in a bit more of a detail. Thanks, Anthony. Yes, so this is a chart that you may be familiar with but just for the benefit of Peter in particular and the public in the gallery, I will go through it in slightly more detail. So what we have done was just to sort of roll back a bit, we set in September 2020, we set a baseline of carbon intensity because in order to measure the reduction, we have to know where we started from so that was the baseline and we measured both the market and our portfolio back in September 2020. And at that point, we were about 10% lower than the index in terms of carbon intensity in our portfolio, the equities in our portfolio, 10% better than the market, if I can put it like that. We monitored this every single year as Anthony said, it came down markedly in 2021, it didn't move much in 2022 partly because of the rise in or the outperformance of some of the energy companies with Russia's invasion of Ukraine. And so that brings us to the end of 2023 when we had produced a significant reduction, much of that because of, we the committee if I can put it like that had made putting money into a low, 10% of the assets into a low carbon fund with BlackRock. It included managers in our main global equity WPP so that it was a low carbon manager, that's Bailey Gifford that you've heard referred to, and equally some of the trimming of some of the higher carbon regional portfolios we have, notably emerging markets. So those are some of the actions that we had taken before. What we have in the chart today considers what we did sort of in the March 23 to March 24 year, and within Black, the status of the year, the market index in March 23 which was 150 as you can see. And our portfolio in March 23 was 102 so they're all better than the market in terms of carbon intensity. Over the course of the last year we have further reduced the carbon intensity of the equities in the portfolio. Some of that, about 5% was the committee made, and in particular we rebalanced out of some of the emerging market equities into the credit portfolio last year. The average intensity of the equities was a significant improvement in market quite a lot, and that accounted for probably two thirds of the significance of the 14% reduction that we had in carbon intensity over the course of the last year. So as of March 2024 the portfolios carbon intensity was 84 against a market index of 130 odd, so again you can see further improvement such that we are significantly below the market index, and even more significantly if I put it like that, below where we started in September 2020. So let me pause there for any questions. Not a question, just an observation. So we've halved our carbon intensity in three and a half years, yeah? Basically, yeah? Yes. Okay, deal. Any other questions? No. We'll now move on to Agenda Item 14, West Pension Partnership Responsible Investment Update 31st of March 2024, Page 115 of the Agenda Pack. This provides an update on the recent responsible investment activities together with information on the global growth, sustainable activity and global credit service, which the double pension fund has invested in together with two wishes summary and appendixes 1 to 4. And Newt, would you like to take us through the report, please? Sure, could I read. So the brief summary is on page 116 of the pack. So the WPP, just to remind you, is an investment pooling opportunity for the eight funds in Wales, with total assets over 20 billion. This particular update has been produced by WPP's oversight advisor, Hyman Robinson, in conjunction with WPP. It sets out the R activity information on three of the sub-funds that the Chair has just mentioned. And these are the three sub-funds that the double pension fund has invested in, the global growth, sustainable active equity and global credit. There is a total of ten sub-funds in the WPP and WPP is in those three. Appendix 1 is 24/25, Appendix 2 is issuers under engagement, Appendix 3 is metrics, definitions, Appendix 4 is a general risk warning disclaimer. So the main report itself commences on page 119 of your pack. I won't read it verbatim, but just to pick up the salient points, the first paragraph explains that there are ten sub-funds within WPP. But the summary of the quarterly R activity, which is probably the important piece to focus on, is that we did a lot of work on climate reporting, so following publication of the always climate report, which was well received, WPP now prepares such a report tri-annually. For interim year there is a climate report that covers assets held at the pool level, only published. There is a climate framework and client focus list, so our recommendation of the always climate report is WPP to work on a draft climate framework and climate focus list, both of which will help foster climate understanding and stewardship across the pool. There's an escalation policy and basically that's escalation principles within the stewardship policy and a worked example of how this process will operate will be presented as part of a training workshop in September. So you'll be aware that there are quarterly training workshops held by WPP, which are online and available to all pension committee, pension board members and officers across Wales. So perhaps I can reiterate at this point that you could join those quarterly training events. The sustainable fixed income, as part of the evolution of this product offering, WPP is considering how to develop its fixed income sub-funds. So there's five fixed income sub-funds in WPP, of which we're investing the global credit, and Russell Investments, who are the investment managing solutions provider, are doing assessment of those fixed income to make them more sustainable. The voting engagement provider, that's currently Rubico, work is underway on procuring the new tender for that as the current contract ends 31st March 2025 and the tender process will begin in September this year. And then climate and ESG risk reports for the UK credit, global credit and global compounding funds, we're working on them as well. Shareholder proposals, so following dialogue with Rubico and Northern Trust who are the custodian, further investigation of the process for co-filing shareholder proposals is being established. Initial thinking is that WPP will be able to co-file on behalf of the underlying Welsh funds, but confirmation will be provided in the coming weeks following dialogue. So this goes back to the point about engagement with companies before considering divestment, and the more engagement we can do via Rubico and Northern Trust, obviously the more chance we've got of having these companies change their philosophy and strategies around various ESG factors. Not just climate, but directed remuneration, human rights and things like that as well. So we're doing a lot of work on that as well as WPP. And then sustainable active equity, there's a voting issue there. That fund was launched last year and now we've started voting on the stocks for that fund. So Rubico confirmed that there's two companies not getting DBS shares which weren't voted on, but in future there will be voting coming through on this sustainable active equity fund as well. Then we've got LAPF Alert, so the Local Authority Pension Fund Forum is a forum for the majority of the funds across the LGPS, at least 80% of them. The debit pension fund has been a member of LAPF for many years, and Councillor Di Thomas, you've attended various business meetings over the years, and Councillor Peter Cooper, you will in the future as well, and Councillor Evan Williams has. And the voting alerts we get regularly. There's an Apple voting alert which WPP voted in line with all five recommendations. So that gives a summary of the work that's been done. We then move on to the next pages, so page 120 for example, that gives a stewardship summary, so you can read that in your own time. I'm happy to take any questions, but I won't read through it. You can see the voting summary, the number of meetings proposed voted on, meters of at least one vote against management, and the fours and againsts. So there's a lot of information and engagement of voting within that, within the global growth sub-fund, which Baillie Gifford, Pizina Veritas and managers, as you know. The top ten holdings, you can see them at the top of page 121 for the Baillie Gifford sub-fund, and the climate metrics there. And the voting side and stewardship of global growth can be found on the following paper and the engagement. Then we move on to sustainable active sub-funds. I mentioned there's five managers there. You've got the top ten holdings there, and the carbon intensities and emissions of those, and the climate metrics, and the stewardship work. And the global credit sub-fund, which is the fixed income sub-fund, which has got a total value of a billion pounds, and we've got about 30% in that. There's four managers in that, underlying managers, and you can see the climate metrics and ESG there as well. So that area of the report is the main one. I'm sure you'll find that really helpful. It's information that you wouldn't have in previous pension committees. This will be brought quarterly now. Then the appendices then gives a bit more detail around the stewardship themes for 2024-25. The issuers under engagements, which is all the companies we're currently engaging with. You can see the number there, which is, as you can imagine, pretty substantial. And then you've got the metrics, the definitions of the metrics, and disclaimer for the rest of the report. So I hope you find that this is another step forward for publication of stewardship and ESG factors pension committee, which is for your information and we can work with. So happy to take any questions. Any questions? We'll all remember show by raising your hands that you're happy to note the update report. Is there anyone? Unanimously? We'll now move on to agenda item 15. The remaining items are not for publication, as they contain exempt information as defined in paragraph 14 of part four of the schedule 12(a) of the Local Government Act of 1972, as amended by the Local Government Access to Information Variation, Wales Order 2007. If following the application of the Public Interest Test, the committee resolves pursuant to the Act to consider these items in private, the public will be excluded from the meeting. Does the committee resolve to consider these items in private? We'll all now show by raising your hands that you're happy to receive the reports in private. Unanimously passed. Can officers? We have to clear the gap. Okay. Thank you very much for your attendance. (people chattering)