The Pension Fund Committee of Dorset Council met on Tuesday, 25 June 2024, to discuss various matters related to pension administration, fund investments, and governance. Key decisions included the approval of the Treasury Management Strategy for 2024-25 and updates on the implementation of investment management changes.

Pensions Administration

The committee reviewed the performance against Key Performance Indicators (KPIs) despite ongoing challenges with the McCloud remedy. The new McCloud regulations, effective from 1 October 2023, have caused delays in the necessary software delivery, now expected by the end of the year. The pension fund's data is in good condition for the McCloud remedial work and the 2025 valuation. However, issuing annual benefit illustrations in compliance with the new regulations will not be possible until the software is delivered.

The possibility of switching to a different software provider was discussed, noting that the alternative provider was further ahead in implementing the McCloud remedial work. This will be monitored in the next Local Pension Board meeting. New Government Actuary Department (GAD) guidance issued on 24 January 2024, covering technical areas such as interfund transfers and additional calculations required for the McCloud remedy, was also noted.

Pension Fund Investments

As of 31 December 2023, the pension fund's assets were valued at £3.8 billion, with nearly 80% managed by Brunel Pension Partnership. The total return on investments for the quarter ending 31 December 2023 was 5.0%, outperforming the benchmark return of 4.5%. For the 12 months ending 31 December 2023, the return was 9.7% compared to the benchmark of 8.8%.

The committee discussed the impact of global inflation falls and stabilising interest rates on asset classes, noting a positive backdrop for Brunel's portfolios. The performance of the Magnificent Seven mega-cap stocks—Apple, Amazon, Alphabet, Meta, Nvidia, Microsoft, and Tesla—was highlighted, with potential risks from social media and anti-trust legislation being managed by Brunel's active portfolios.

Brunel is investigating an increase in Weighted Average Carbon Intensity (WACI) for its Paris Aligned Benchmark (PAB) and Climate Transition Benchmark (CTB) passive equities products. David Vickers, Brunel’s Chief Investment Officer, has joined a Green Finance Initiative (GFI) taskforce to provide recommendations on encouraging private investment in the UK's net zero economy.

Brunel Governance / Scheme Advisory Board Update

Councillor John Beesley updated the committee on governance matters related to investment pooling. Brunel's budget for 2024/25 was agreed by shareholders, and the threshold for approval of Special Reserved Matters (SRM) was reduced from 100% to 75%. A replacement for Brunel’s retiring chair was agreed, pending confirmation. The committee agreed to invite Brunel’s Chief Investment Officer to a forthcoming meeting.

The Scheme Advisory Board (SAB) is ensuring that any legislation or guidance from the spring budget proposals for the Local Government Pension Scheme (LGPS) aligns with fiduciary duty. The McCloud remedy continues to be a significant focus for SAB.

Pension Fund Treasury Management Strategy 2024/25

The committee approved the Treasury Management Strategy (TMS) for 2024-25. Although the pension fund has no strategic allocation to cash, the TMS provides a framework for managing cashflows to ensure liquidity and appropriate investment of surplus balances. The TMS for 2024-25 remains unchanged from the previous year and follows the TMS for Dorset Council where applicable.

Investment Management Changes

The committee received updates on the progress of implementing previously agreed changes to investment management arrangements. The transition of holdings from the RLPPC Over 5 Year Corporate Bond Fund managed by Royal London Asset Management (RLAM) to the Sterling Corporate Bonds portfolio managed by Brunel is nearly complete. Additionally, the transfer of holdings in Climate Transition Benchmark (CTB) passive equities to Paris Aligned Benchmark (PAB) passive equities is now fully complete.

For more details, you can refer to the printed minutes of the meeting.