The Pensions Committee of Barking and Dagenham Council met on Wednesday 14 June 2023 to review the quarterly performance of the pension fund, discuss administrative and governance matters, and consider updates on the Local Government Pension Scheme (LGPS). Key decisions included the adoption of a revised investment strategy aimed at reducing downside risk and increasing the likelihood of maintaining full funding, alongside adjustments to strategic asset allocations.

Pension Fund Quarterly Monitoring Report

The committee received a comprehensive update on the pension fund's performance for the quarter ending 31 March 2023. David Dickinson, Investment Fund Manager, presented the report, highlighting that the fund's overall value increased to £1.316 million. However, the fund returned 3.1% net of fees, underperforming its benchmark of 3.5% by 0.4%. Over one year, the fund returned -1.5%, underperforming its benchmark of 1.2%. Nicholas Jellema, an investment consultant from Hymans Robertson, provided an economic overview, noting resilient global growth and signs of inflation peaking in major markets, though UK inflation remained stubborn. He also discussed the impact of the banking crises in the US and Europe, which, despite initial fears, did not lead to systemic risk. The committee noted the progress on strategy development, the daily value movements of the fund's assets and liabilities, and the quarterly performance of the fund and its managers.

Administrative and Governance Report

Jesmine Anwar, Pension Fund Accountant, presented the administrative and governance report. This included an update on the pension fund budgets for the period 2022-2025, noting that employer contributions were higher than budgeted due to salary increases, while transfer out payments were also higher. Investment income was also greater than budgeted due to the sale of infrastructure assets. The report also provided an update on the fund's investments with the London Collective Investment Vehicle (LCIV), which had fallen in value. The committee noted the report, including the budget, the fund's cash flow positivity, and the LCIV update.

Independent Advisor Report - LGPS Update

John Raisin, the committee's independent advisor, provided an update on national developments affecting the Local Government Pension Scheme (LGPS). Key points included changes to the Scheme Advisory Board (SAB) Cost Management process, which now offers greater flexibility to the SAB. Significant changes to pensions taxation were announced, including an increase in the Annual Allowance to £60,000 and the intention to abolish the Lifetime Allowance, which is expected to exempt most LGPS members from pension tax charges. Further consultation on the McCloud remedy, addressing age discrimination in the LGPS, was ongoing, with draft regulations expected to come into force in October 2023. The report also noted a delay in mandatory climate change reporting for the LGPS, now expected from April 2024. Finally, updates on investment pooling indicated that new regulations were anticipated, potentially leading to a smaller number of larger pools. The committee noted the report.

Business Plan Update

Jesmine Anwar presented an update on the progress of the 2021-2023 Business Plan. The report detailed key activities undertaken by the Pension Fund, including the production of draft annual accounts and cash flow reports. The committee noted the progress on the delivery of the business plan actions.

2022-23 Draft Pension Fund Accounts

Jesmine Anwar also presented the draft Pension Fund Accounts for the year ended 31 March 2023. The accounts showed a decrease in the fund's value by £44 million to £1,314.5 million. The overall investment return for the year was -1.5%, underperforming the benchmark. Two employers, Citizens Advice Bureau and Cleantech, had exited the fund. The audit fee remained at £16.2k. The committee noted the report.

Investment Strategy Review

The committee undertook a significant review of the fund's investment strategy, guided by advice from Hymans Robertson. Nick Jellema, from Hymans Robertson, presented the findings of the review, which assessed the current strategy's effectiveness and explored alternative strategies. The analysis indicated that the fund had reached a point where limiting downside risks was more beneficial than pursuing higher returns, and that reducing overall investment risk would enhance the likelihood of maintaining full funding.

The committee agreed to:

• Adopt alternative strategy 1, which demonstrated the highest success measures and reduced downside risk.
• Implement changes to the strategic allocation, including reducing equities from 52% to 50%, Diversified Growth Funds (DGF) from 15% to 13%, Alternatives from 9% to 11%, Property from 5% to 4%, and increasing Global Credit from 8% to 11%.
• Appoint LCIV PIMCO as the Fund's Global Credit Manager.
• Rebalance current holdings to align with the revised strategic allocations.
• Undertake a series of further strategy reviews over the next year, including considering options via the London CIV, establishing a framework for regular rebalancing, reviewing existing DGF and infrastructure managers, and examining property investments.
• Reflect these changes in an updated Investment Strategy Statement.