The meeting of the Surrey Pension Fund Committee was scheduled to include discussions about the Government’s Pension Review, updates from the Local Pension Board and an overview of the performance of the Surrey Pension Team in quarter two of 2024/25.

The Government’s Pension Review

This item was scheduled to provide an update to Committee members about the UK Government’s ongoing review of workplace pension schemes. In particular, it included a consultation that was published by HM Treasury¹ on 14 November 2024, entitled “Local Government Pension Scheme (England and Wales): Fit for the future”.

The consultation seeks views on proposals to reform local government pension schemes in three main areas:

• Reforming how assets are pooled by local government pension schemes.
• Boosting local government pension scheme investment in the UK.
• Strengthening the governance of both local government pension funds and how they pool their assets.

The report pack included for discussion a briefing note which highlighted some of the key proposals included in the consultation, including:

• The requirement for local government pension funds to fully delegate the implementation of their investment strategies to their chosen pool, and for those pools to be authorised and regulated by the Financial Conduct Authority.
• A requirement for all existing assets held outside of a pool to be transferred into the pool over time.
• A requirement for funds to set a target range for the proportion of their assets they will invest locally and to set out in their annual reports how those investments are performing.

The briefing note suggests that because Border to Coast Pensions Partnership already manages many of the Surrey Pension Fund’s assets, and is already regulated by the Financial Conduct Authority, the Surrey Pension Fund is well placed to comply with the proposed reforms.

The briefing note included the following quote about the role of Border to Coast in the context of the Government’s requirement for all local government pension schemes to obtain investment advice from their pool.

“This is something which Border to Coast already plans to develop as a capability. The SPF will need to explore how this might work in practice and ensure it is supported by robust governance and oversight.”

The briefing note concluded by suggesting that there is a significant amount of work that Surrey County Council will need to do in the coming months and years to fully comply with the proposed reforms, and with the Border to Coast 2030 Strategy.

Summary of the Local Pension Board

This item was scheduled to provide an update to the Committee on the discussions that took place at the most recent meeting of the Surrey Local Pension Board².

The report pack indicated that the meeting of the Board had included updates on the following topics:

• The performance of the Surrey Pension Team in the second quarter of 2024/25. The report pack stated that the targets set for performance in that quarter were all met.
• Governance changes that were endorsed by the Committee at its September meeting, including proposals for how to effectively manage any conflicts of interest between the Pension Fund and Surrey County Council. The report pack stated that the proposed governance changes had been approved by Full Council on 8 October 2024.
• The 2025 Actuarial Valuation, including the dates of a series of training sessions to be provided to the Committee and Board by the Fund Actuary, Hymans Robertson.
• Internal and external audit progress, including confirmation from the Head of Accounting & Governance that the sign-off of the Pension Fund accounts by external auditors Ernst & Young was expected to take place in January 2025.

The report pack indicated that Jeremy Webster, a member of the Board, had visited the Dakota offices of the Surrey Pension Team and that he had found the visit to be “useful and informative”.

Surrey Pension Team Overview – Quarter 2

The report pack indicated that this item was scheduled to provide an overview of the entire Surrey Pension Team service.

The report pack highlighted that:

• The total value of the Pension Fund was £6bn at the end of September 2024.
• The overall funding ratio of the Fund was 143% at the end of September 2024, but that this improvement was primarily due to an increase in the expected rate of future investment returns since the 2022 valuation.
• The ongoing project to reduce the number of outstanding legacy cases in the Accounting & Governance and Service Delivery teams continued to perform strongly.
• The results of the third staff survey undertaken by the Surrey Pension Team showed that the Team was on track with its strategic plan.

Asset Class Focus – Private Markets

This item was scheduled to provide a review of the performance of the Fund’s private markets investments, concentrating on the Fund’s exposure to renewable energy investments.

The report pack indicates that Surrey has committed a total of £800m to private markets investments in renewable energy since 2013. According to the report pack, £200m of this has been invested, generating an expected return of 8% per annum. The remaining £600m is yet to be invested.

The report pack included a summary of the Fund’s legacy renewable investments, which were made directly by the Committee, and a summary of the newer investments made by Border to Coast Pensions Partnership.

• Legacy Investments: These include three funds, which have now almost completed their investment period. Capital Dynamics Clean Energy Infrastructure Fund II, which has generated an Internal Rate of Return (IRR)³ of -5.6% for Surrey. Pantheon Global Infrastructure Fund III, which has generated an IRR of 10.4%. And Glenmont Clean Energy Fund III, which has a net IRR of 5.1%.

• Border to Coast Pensions Partnership Investments: These include:

  • Infrastructure Series 1, which has generated a net IRR of 8.5% for Surrey.
  • Infrastructure Series 2A, which has only invested 52% of the capital committed to it.
  • Climate Opportunities 1 & 2, for which it was deemed too early to have any meaningful performance data.
  • UK Opportunities, which was only launched in 2024 and to which no capital had been committed at the time the report pack was published.

The report pack includes a quote from Anthony Fletcher, the Independent Advisor to the Fund, in which he described the current exposure to renewable investments in the portfolio as “about right”.

“I believe that in the current market conditions the Fund’s allocation to renewables is about right and if valuations improve BCPP have enough flexibility to take advantage of the opportunity through increased allocations via their Infrastructure funds, Climate opportunities funds, and the most recently launched UK opportunities fund.”

Company Engagement & Voting Update

This item was scheduled to provide the Committee with an update on the environmental, social and governance (ESG) activities carried out on the Fund’s behalf by Local Authority Pension Fund Forum (LAPFF), Robeco and Border to Coast Pensions Partnership.

The report pack summarised the activities undertaken by LAPFF, Robeco and Border to Coast during the quarter, including:

• Engagements with companies in the aviation, steel, banking and water industries, to discuss their plans for a Just Transition.
• The addition of a new engagement theme on ‘Hazardous chemicals’ that will focus on addressing the pollution caused by the production and use of per- and polyfluoroalkyl substances (PFAS).
• Continued sovereign engagement with the Government of Australia on their climate policy.

The report pack indicated that in a relatively quiet quarter, Surrey was entitled to vote at five company meetings on 91 resolutions, 16 of which (17.58%) the Fund voted against. The report pack states that this was higher than the average level of dissent expressed by other shareholders (4.34%) during the quarter. The report pack contains a detailed summary of the resolutions voted on during the quarter, and the reasons for Surrey voting against them.

Investment Strategy – Fiduciary Duty and Investment Beliefs Update

This item was scheduled to provide an update to the Committee on the work being carried out by the investment beliefs sub-committee. The report pack explains that,

“Investment decisions made by the Pension Fund Committee must be within the regulations, in accordance with fiduciary duty and aligned with agreed investment beliefs.”

The report pack indicated that the sub-committee had met twice in 2024 to discuss:

• Legal requirements and fiduciary duty.
• The spectrum of capital and emerging investment themes.

The sub-committee was also scheduled to have reviewed the Fund’s investment beliefs by the time the report pack was published. However, because that meeting did not take place, the report pack recommends that the review of the investment beliefs is added to the Committee’s forward programme of work.

The report pack included the following quote:

“It is proposed that this third session now take place in the fourth quarter (Jan-March 2025).”

Recent Developments in the LGPS

This report was scheduled to provide a summary of the recent developments in the Local Government Pension Scheme.

It highlighted that the UK Government had launched two consultations, one relating to the pooling of assets by local government pension schemes, and the other relating to how death benefits from pension schemes are treated for the purposes of Inheritance Tax. The report pack included the following quote relating to the consultation about the pooling of assets:

“The consultation seeks views on proposals relating to the investments of the LGPS, with three main areas: Reforming the LGPS asset pools, Boosting LGPS investment in their localities and regions in the UK and Strengthening the governance of both LGPS administering authorities and LGPS pools.”

The report pack also provided a summary of the key points from the Chancellor’s Autumn Budget and from the Chancellor’s Mansion House speech on 14 November 2024.

The report pack provided updates on a number of other matters, including the latest developments relating to the McCloud remedy⁴ and to the Pensions Dashboard Programme.

The report pack also provided updates from a number of organisations with a role in the Local Government Pension Scheme, including the Scheme Advisory Board, The Pensions Regulator, The Pensions Ombudsman and The Money and Pensions Service.