The Pensions Committee is scheduled to meet to discuss the fund's actuarial valuation, responsible investment policy, and investment strategy. They will also discuss fund governance and risk, and review the fund's performance.

Fund Governance

The committee is scheduled to discuss a number of significant governance and administration issues relating to the pension fund.

BDO Audit Reports

The committee is expected to note reports from BDO, the external auditor, regarding the years 2019/20 to 2022/23. The reports pack notes that audits for local authorities were significantly disrupted because of the pandemic. In 2024, BDO identified significant issues related to loans between the Pension Fund and the council, as well as what the report refers to as prepayments .

The loans issue has been discussed previously and the practice terminated. The council obtained a King's Counsel opinion in December 2024 supporting the legality of the transactions.

BDO also raised concerns about prepayment of contributions by the council in the period 2019/20 to 2021/22, which were not reflected in the actuary's Rates and Contributions Certificate. The report states that there appears to have been a misuse of the term prepayments by council officers, and that these transactions are historic and have no impact on the 2023/24 and 2024/25 accounts.

BDO will issue a disclaimer of opinion on the financial statements for all four years (2019/20, 2020/21, 2021/22, and 2022/23) for the council's accounts incorporating the Pension Fund accounts. The disclaimer reflects circumstances rather than failure in the current arrangements.

The committee is also expected to receive an update from Grant Thornton on the 2024/25 accounts.

Actuarial Valuation

The committee will receive a presentation from Barry McKay, the fund actuary from Barnett Waddington, on the initial results of the triennial actuarial valuation¹. The valuation reassesses the fund's liabilities based on updated employee data and evaluates investment performance over the past three years.

According to the reports pack, at the fund level:

• The 2022 valuation assumed an investment return of 4.3% per annum, but the fund outperformed this, returning 4.8% per annum across the period.
• High pensions increase awards (10.1% in 2022/23 and 6.7% in 2023/24), with some offset from lower expected future inflation, have increased the cost of the LGPS.
• Discount rates are higher than the previous valuation.
• The funding level has increased from 101% to 108%.
• The Primary Rate reduces from 21.5% to 18.1%.

LGPS Pooling

The committee is scheduled to discuss the government's response to the Fit for the Future consultation in May, which outlines changes impacting the fund with regard to pooling². These include:

• Investment strategy stays with the fund, but all implementation is delegated to the pool, which determines the type and style of investments.
• Funds will also set Responsible Investment and Local Investment strategies.
• Funds will take investment advice from the pool but may procure oversight services.
• All legacy assets to be under pool.

The committee will also discuss proposals relating to fund governance, including preparing a governance strategy, a training strategy, and a conflicts of interest policy. The council will also be required to appoint a senior LGPS officer and an independent person to the committee.

LCIV Investment Management Agreement

The committee will receive an update on the Investment Management Agreement (IMA) with the London CIV (LCIV). The reports pack states that partner funds agreed to collaborate over taking legal advice and Greenwich have taken the lead and Brabners have provided advice. Pension Fund Officers met with the LCIV at the end of September and there was widespread concern at the position of the LCIV on a range of issue outside the core IMA e.g. in relation to management of cash flow. Further discussions are underway.

The LCIV has also started to provide information on charges they will make for funds brought in to the IMA arrangements, which are 2 (0.02%) basis points on liquid assets and 3 (0.03%) basis points on non-liquid assets.

Buckinghamshire Pension Fund

The committee will discuss the Buckinghamshire Pension Fund joining the LCIV. All London Boroughs have agreed the membership in principle, but there is now a formal process that each fund has to go through to approve an updated Shareholder Agreement and the Written Resolution.

Contracts

The committee will note that the Strategic Director Resources has exercised two-year extensions for both the actuarial and investment consultancy contracts, taking the Barnett Waddingham contract to 30 June 2027 and the Hymans Robertson contract to 31 March 2027.

Responsible Investment

The committee is expected to discuss further development of the fund's Responsible Investment Policy, which focuses on Environmental, Social, and Governance (ESG) issues. The reports pack notes that to date, the focus has been on climate change-related issues, but it is now timely to consider wider social and governance issues, including exposure to conflict zones and possible human rights breaches.

The committee will discuss a request from the Palestine Solidarity Campaign (PSC) to divest from investments that are seen to support the conflict in the Occupied Palestinian Territories³.

The council has received emails expressing concern over the fund investing in Israeli companies. The fund has two global equity managers: Kempen, which has a policy of excluding controversial armaments and tobacco stocks and has no exposure to Israeli companies, and UBS, which has an exposure of £600,000 to Israeli companies through their Life Fund.

Through the LCIV, the Baillie Gifford Global Growth Paris Aligned Fund has a £600,000 investment in Mobileye, which was founded in Israel and is headquartered there, although it is owned by Intel.

The LCIV is asking for the position of funds on the Responsible Investment matrix they have developed, which essentially places the varied approaches of 32 partner funds into three options, or Pillars:

• Pillar One: Controversial weapons and non-conventional fossil fuel extraction exclusions.
• Pillar Two: Restrictions from Stream One plus controversial areas and companies breaching global norms and human rights standards.
• Pillar Three: Restrictions from Stream Two plus weapons and companies officially listed by the UN as breaching human rights/international law in conflict zones.

The committee is expected to discuss consulting on a Human Rights violation overlay for its equity allocations and authorising the Strategic Director to write to the Chief Executive of the LCIV setting out the fund's requirements on mandates as they transfer to LCIV funds.

Investment Strategy

The committee is scheduled to receive an update on the progress made on implementing previous decisions and to discuss a number of investment strategy issues.

Strategic Asset Allocation

Following the actuarial valuation, the fund is required to update its Strategic Asset Allocation (SAA). The LCIV has approached officers with a proposal that the fund be a pilot for undertaking the SAA work with them and Mercers. The proposed fee for the work is discounted at £25,000.

The work will consist of taking data on the fund's liabilities and cash flows and then modelling the risk and return of variations in the allocation to each major asset class. A particular focus will be on protection of funding level gains and income the fund requires to pay cash liabilities.

The work will need to reflect issues with the current SAA, including the additional investment in Infrastructure to move the allocation from 6% to 10% has not been implemented, and the closure of the Absolute Return funds has meant the 7% of assets to this asset class has been split between Equities and Fixed Income.

Absolute Return Funds

The LCIV has confirmed that they will be closing the two Absolute Return funds which the fund invests in through the LCIV, managed by Newton and Pyrford. The fund was the only investor with the LCIV in each fund, and the LCIV has determined that it is no longer cost-effective to maintain these funds given that they only have one investor each.

Based upon an examination of the underlying investments of the two funds, the allocation proposed was 60% to the PIMCO Global Bonds and 40% to the UBS Passive Equity funds. The committee had delegated the decision on where to allocate the funds to the Strategic Director Resources in consultation with the Chair and Deputy Chair, and this delegation was enacted following the LCIV advice.

Pension Fund Risk Register

The committee will be presented with an updated Pension Fund Risk Register. The current register has not been updated for several years, and an up-to-date register is part of the good governance of the fund.