The Pension Board of Westminster Council met on the 18th July 2024 to discuss a variety of reports relating to the performance and administration of the City of Westminster Pension Fund. This included updates about the Guaranteed Minimum Pension (GMP) and McCloud projects, a new Pension Website, and several financial reports.

Performance of the Council's Pension Fund

The meeting's report pack included a report on the performance of the Council's Pension Fund's investments to 31 March 2024. This report showed that the market value of the Fund's investments had increased by £101m to £2.008bn during the last quarter, with the fund returning 5.4% net of fees. This represented an underperformance against the benchmark of 0.2%.

This report also provided an update on the performance of the London Collective Investment Vehicle (LCIV) - a collaboration between the 32 London Local Authority pension funds, enabling them to pool assets and reduce costs. The report shows that the value of the Westminster Pension Fund’s investments that are directly managed by the London CIV, as at 31 March 2024 was £886m, representing 44% of the Fund's investment assets.

The report also provided an updated estimate of the Pension Fund's funding level, which at 31 March 2024 was 163% (compared with 156% at 31 December 2023).

The report concluded that:

The high diversification of assets has protected against volatility within global markets and the impacts of inflation and base rate rises.

LGPS Projects and Governance Update

The report pack for this meeting included an update about the ongoing Guaranteed Minimum Pension (GMP) Project¹ and McCloud² project, as well as the Pension Dashboard Programme (PDP), and a new Pension Website.

The GMP project is progressing well and, subject to committee approval, it is scheduled that letters informing pensioners of a decrease to their pension following the GMP rectification exercise will be sent to them in late July. This will coincide with the payroll, giving pensioners three months' notice to prepare for the decrease. The pension decreases are currently scheduled to be implemented in the October payroll.

The report pack stated that:

We are working with HPS to design and manage the process for questions, informal complaints, and formal complaints as a result of these decreases and I will update the Board on this at the next meeting.

The report explained that the bulk of pensioner records had been rectified by Mercer, however some records needed to be reviewed manually because of a lack of available, or contradicting, data. Mercer did not have the expertise to manually rectify these records and referred them back to the Fund to manage. The report explained that these manual cases would need to be rectified by Hampshire Pension Services (HPS) and their GMP partner, Intellica.

Intellica estimate that it will cost between £24,450 and £45,740 to manually rectify the records. The Pension Fund Committee has given their approval for the project to proceed with HPS and Intellica.

The McCloud project is also progressing well, with Hampshire Pension Services having:

correctly applying the McCloud underpin calculation in all deferred, retirement and death calculations; and have increased benefits in a handful of cases where the underpin has had this effect.

The Pensions Dashboard Programme, which aims to enable people to see all of their pension savings in one place online, is also on track, with Hampshire Pension Services scheduled to be working with Civica to implement the dashboard connection software later this year in compliance with the programme's guidelines.

The report also provided an update about the planned new Pension Website. The new website will clearly signpost members to services, as well as clarifying and defining the roles and responsibilities of each service. The report states that:

The Board noted that the aim was for the website to be a highly curative site that was user friendly and could facilitate all users to make decisions by following various pathways and using the templates provided on the site.

The new website is scheduled to go live in November 2024.

Pension Administration Update

The report pack contained a report on the performance of Hampshire Pension Services (HPS) from January to May 2024. HPS are responsible for the administration of the City of Westminster Pension Fund, under contract to the Council.

The report notes that HPS have reported 100% compliance with the agreed Key Performance Indicators (KPIs) for each month. The report then included a table summarising the number of cases completed in each month, broken down by category.

The report then highlighted a particular payroll provider - Strictly Education - that has been experiencing problems that have resulted in late data submissions. The report explains that:

Fines have been sent to the schools that use SE for the late returns. The SE return has been loaded and the overall queries for them is actually low, so I believe the annual return data is of relatively good quality. However, SE had also sent in their March 2024 remittance slips late and they should have sent in schedules to go with those remittances which are still missing as at the time of writing this report. In addition, the April data which should have been with us by the 19th of May is also still missing. The schools are being PAS fined for this and we are keeping them up to date with the situation and upcoming deadlines. We have offered to meet with SE but again as at the date of writing this report no response from them. I have made the internal auditors aware of the situation and we are also making education finance aware.

The report also provided a table that shows the percentage of active members of the scheme, broken down by employer, that have signed up to the members portal. The highest percentage of members that have signed up is Westminster City Council employees, at 57%. Fifteen employers have signed up less than 40% of their active members.

The report concludes by setting out the team's plan to:

be working to engage with employers over the summer months and into autumn to increase the portal registration for all employers to a minimum 40% where there are at least 5 active employees. It’s important that we encourage members to engage with their pension throughout their working life to help people to plan for their future proactively and to raise any concerns they may have with us before they reach retirement.

Fund Financial Management

A report on Fund Financial Management was also included in the report pack. This report highlighted the top five risks to the Pension Fund.

The top risk was:

Significant volatility and sentiment in global investment markets following disruptive geopolitical and economic uncertainty, including the conflict between Russia and Ukraine, and Israel and Gaza. Outlook deteriorates in advanced economies because of heightened uncertainty and setbacks to growth and confidence, with volatility in oil and commodity prices, as well as the weakening of the pound. Leading to tightened financial conditions, reduced risk appetite and raised credit risks.

The second ranked risk was:

Investment managers fail to achieve benchmark/ outperform targets over the longer term: a shortfall of 0.1% on the investment target will result in an annual impact of £2m. The Fund returned 13.3% net of fees in the year to 31 March 2024, underperforming the benchmark by 1.6% net of fees.

The third ranked risk was the regulatory and compliance risks associated with the new Climate-Related Financial Disclosures (TCFD) Regulations, which place an obligation on Local Government Pension Schemes to assess, manage and report on climate-related risks.

The fourth ranked risk was:

Price inflation is significantly more than anticipated in the actuarial assumptions. CPI inflation was 2.3% as at April 2024, down from the peak of 11.1% in October 2022. Inflation remains above the BOE's 2% target, mainly due to high energy and food prices. It is anticipated that the BOE MPC will start to cut base rate from summer 2024.

The fifth ranked risk was:

Failure of an admitted or scheduled body leads to unpaid liabilities being left in the Fund to be met by others. Current economic conditions will cause strain on smaller employers.

The report also provided a cashflow forecast for the next three years, concluding that the bank/cashflow position continues to be stable.