The Surrey Local Pension Board met on Tuesday 21 July 2026 to discuss a range of important matters concerning the Surrey Pension Fund. Key discussions included the ongoing performance of investments managed by Border to Coast Pension Partnership, updates on the operational efficiency of the Surrey Pension Team, and the proposed enhancements to the Fund's risk management framework. The Board also received updates on the implementation of a Single Purpose Pensions Authority and the implications of new government regulations on the Fund's Investment Strategy Statement.

Investment Performance and Governance of Border to Coast Pension Partnership

A significant portion of the meeting was dedicated to discussing the performance of investments managed by Border to Coast Pension Partnership (BCPP). Concerns were raised about the underperformance of several pooled mandates, particularly the UK Equity Alpha and Global Equity Alpha funds, which have led to a notable shortfall compared to benchmarks. Board members expressed a desire for more detailed reporting on the causes of this underperformance and the actions being taken to address it.

Neil Mason, Director of Pensions and LGPS Senior Officer, acknowledged these concerns, stating that while the overall Fund performance had been positive, driven by asset allocation, specific mandates had been disappointing. He highlighted that BCPP's influence had increased, making it harder to divest from underperforming areas. The Board discussed the need for greater involvement in overseeing the governance of BCPP, moving beyond just performance monitoring to a more robust challenge of investment aspects.

Richard Teer, Chair of the Surrey Pension Committee, reassured the Board that the Joint Committee, which he attends with Neil Mason, was becoming a more robust body and was actively challenging BCPP. He noted that BCPP was undertaking a more detailed review of its investment risk profiles. William McKee, a Member Representative, sought clarification on the power pension funds have to influence BCPP, asking if they could pull levers to change unacceptable situations. Richard Teer confirmed that dialogue through officer groups, the Joint Operating Committee, and shareholder power were all levers that were being used.

Brendan Bradley, an Employer Representative, raised questions about the impact of Environmental, Social, and Governance (ESG) investment principles on performance, specifically mentioning divestment from oil stocks. Lloyd Whitworth, Head of Pensions Investment and Governance, clarified that the Fund does not have a divestment policy but does have exclusions on certain areas for risk reasons, such as tar sands and cluster bomb munitions.

The Board agreed to note the content of the report and to work on framing a recommendation to the Pension Fund Committee that would request more detail on the causes of underperformance and the planned actions. Neil Mason also suggested that the Board could recommend its inclusion in the governance review process to enhance the oversight framework.

Surrey Pension Team Overview and Operational Performance

Kay Chauhan, Head of Pensions - Resources, provided an overview of the Surrey Pension Team's performance for the first quarter of 2026/27. She reported generally positive staff sentiment from a recent Pulse survey, with expenditure remaining in line with forecasts. The draft accounts had been approved by the Pension Committee and published, with external audit underway and no immediate issues identified.

Neil Mason highlighted the continued excellence in Key Performance Indicators (KPIs) within Customer Operations, with the team handling nearly 13,000 queries in the quarter and resolving 98% at first response. He also noted that the McCloud remedy work was on track for completion by the end of August. He reiterated that the Fund's funding rate was beating its target and that the asset allocation placed it in the upper quartile of local government pension schemes.

Tim Evans, the Chair, commented that the team tended to focus on areas that had gone wrong rather than acknowledging the overall positive performance. William McKee raised a question about looking forward regarding performance trends, particularly in light of increases in liabilities. Lloyd Whitworth clarified that the increase was in the value of liabilities due to a reduction in the discount rate, not an increase in liabilities themselves.

Tom Lewis, Head of Pensions - Customer Operations, provided a detailed update on various aspects of scheme administration. He confirmed that the McCloud remedy work was 92% complete and on track for the August deadline. He also detailed the work underway for the Access and Fairness legislation, including identifying deaths and survivors in scope and determining resource requirements. Jeremy Webster, Vice-Chairman, inquired about the source of additional resources for this work, and Tom Lewis explained that internal posts would likely be used, with a domino effect on training programmes.

The introduction of a new data strategy was highlighted as a means to formalise existing practices and ensure consistency in data handling. Engagement efforts, including webinars and feedback mechanisms, were also discussed, with a new dashboard to monitor customer experience in development. Trevor Willington noted the significant improvement from a sea of red to a sea of green in performance metrics, commending the team for providing a reliable and up-to-date service. Brendan Bradley also offered positive feedback on the team's management of complex legacy redress schemes.

Risk Register and Methodology Enhancements

Leah, from the Surrey Pension Team, presented an update on the Fund's risk register for Quarter 1 2026/27. She reported that the overall risk profile remained stable, with the top eight risks unchanged since the previous meeting. The highest risk identified was the impact of devolution and Local Government Reorganisation (LGR) on the Fund, with a residual score of 20. Investment-related risks concerning market volatility and the impact of Fit for the Future reforms were also highlighted as significant.

Three sub-risks within Unit 4, relating to banking controls, reporting configuration, and the new chart of accounts, had increased in score. Conversely, a sub-risk concerning MySurrey access for SPF staff had reduced significantly.

The Board discussed proposed enhancements to the risk scoring methodology and impact framework. Leah explained that the current methodology placed too many risks in the middle category, making differentiation difficult. Option 1 for the revised methodology was preferred, as it narrowed the central likelihood category from 30-70% to 40-60%, providing clearer differentiation between medium and high risks.

The impact framework was also proposed to be expanded to include pension-specific impacts such as Impact on Members, Impact on Strategic Objectives, Impact on Fund Value, Contribution Rate Implications, Service Delivery Impacts, and Regulatory and Legal Consequences. The Board was asked to endorse the proposed likelihood scoring approach and note the developments of the expanded impact framework, recommending approval to the Pension Fund Committee.

Implementation of Single Purpose Pensions Authority (SPPA)

Neil Mason provided an update on the implementation of the Single Purpose Pensions Authority (SPPA). He confirmed that ministerial approval had been received on 1 June 2026, with the SPPA to be effective from 1 April 2027. The transition is integrated within the wider Surrey LGR programme, with support from cross-cutting officers. Work is ongoing with the Ministry of Housing, Communities and Local Government (MHCLG) on the statutory instrument that will formally establish the SPPA. A first draft is expected by the end of July, with the instrument to be laid in autumn. A shadow form of the authority will meet before its effective date to agree the budget, constitution, and appointment of statutory officers. The priority for the initial stage is to ensure the safe and legal payment of pensions from 1 April 2027.

Fit for the Future – Investment Strategy Statement Implications

Lloyd Whitworth presented the implications of the government's Fit for the Future reforms on the Fund's Investment Strategy Statement (ISS). He explained that new regulations mandate specific requirements for the ISS, including return, risk, cash flow, and local investment objectives. A key change is that the committee must use a prescribed table for strategic asset allocation, with no preference allowed for passive versus active management, and primary strategic advice must come from the pool (BCPP).

The requirement for a local investment objective was discussed, with the possibility of setting a target allocation of zero mentioned. Lloyd Whitworth clarified that a target allocation is mandatory, but its value is not prescribed. The committee will set the expected return, and William McKee raised concerns about fiduciary duty if a return significantly below the overall fund's expected return were set. Lloyd Whitworth assured the Board that this would be discussed in detail at upcoming ISS preparation meetings, and that there is no requirement to accept a lower return. The Board was invited to attend these meetings, with the first scheduled for 7 August.

Surrey Pension Fund Draft Statement of Accounts 2025/26

Kay Chauhan presented the Surrey Pension Fund's draft statement of accounts for 2025/26. The accounts showed a strong financial position, with net assets increasing from £6.1 billion to £6.8 billion, reflecting positive investment returns. The draft accounts had been approved by the Pension Fund Committee and were undergoing external audit by Ernst and Young, with final sign-off expected in November.

Trevor Willington queried an increase in contributions receivable transfers in, which Kay Chauhan explained was due to timing adjustments in clearing off transactions at year-end. Brendan Bradley noted that benefits paid out had exceeded contributions received in the last two years, indicating a move to cash flow negative. Kay Chauhan confirmed this was a common trend in mature LGPS funds and that the Fund remained strongly cash generative through investment income, with substantial liquid assets.

William McKee inquired about the timeline for audited accounts and any issues raised by auditors. Kay Chauhan confirmed that substantive testing was underway and final sign-off was expected by November. Tim Evans raised minor comments on management expenses, noting a decrease compared to the previous year, which he found commendable but slightly surprising. He also queried £2 million in augmentation contributions, which Neil Mason clarified were discretionary payments made by employers, not part of the LGPS itself.

A discussion also took place regarding the proportion of funds managed by BCPP, with it noted that only 28% were directly managed by BCPP at that time, although this was expected to increase. Trevor Willington inquired about changes in derivatives, and Lloyd Whitworth explained this related to currency hedging, not standalone investment positions. William McKee asked about stock lending, and it was clarified that this generated minimal fees.

Surrey Local Pension Board Annual Report 2025/26

Lloyd Whitworth presented the draft annual report for the Surrey Local Pension Board for 2025/26. The report summarised the Board's activities, including monitoring administrative performance, risk management, and policy reviews. Key areas of focus included the impact of Local Government Reorganisation (LGR) and the implementation of regulatory changes such as Fit for the Future and the McCloud remedy. The report also detailed internal audit findings and Board member training. The Board was asked to note the content of the report.

Recent Developments in LGPS

Tom Lewis provided an update on recent developments in the Local Government Pension Scheme (LGPS). Key highlights included the publication of the government's response to the Fit for the Future technical consultation, changes to the SCAPE discount rate, and new resources to promote the LGPS. Updates were also provided on the Pensions Dashboard Programme, Scheme Advisory Board activities, and developments from His Majesty's Treasury, HMRC, The Pensions Ombudsman, and The Pensions Regulator. The Board was asked to note the content of this report.

The meeting concluded with the date of the next meeting being set for Monday 2 November 2026.