The Joint Pensions Committee met on Wednesday 4th December 2019, receiving a presentation on the 2019 actuarial valuation and approving a revised Funding Strategy Statement. The committee also agreed on objectives for their investment consultant and noted the fund's investment performance.

Actuarial Valuation and Funding Strategy

The committee received a presentation from actuaries Graham Muir and Louise Lau of Barnett Waddingham LLP regarding the 2019 actuarial valuation of the Pension Fund. This valuation assessed the fund's financial health, including how assumptions for future benefit payments were selected, the results of the valuation, and identified risks within the fund. The presentation also touched upon the implications of the McCloud judgement, a significant legal case affecting public sector pensions.

During the discussion, committee members questioned the margin of error on expected future benefit payments and its impact on projected fund cashflows. The actuary explained the difficulty in short-term error calculation for the SSA joint scheme, which had only been in place since 2016, and that projected cashflows relied on long-term averaging. Paul Guilliotti, Assistant Director of Resources (Financial Services), noted that the Asset Shock Reserve, a new addition for 2019, would help mitigate short-term uncertainty.

The committee also sought clarification on the increase in the primary contribution rate since 2016. The actuary attributed this to ongoing improvements in life expectancy and the increased value of assets, which made them more expensive. Concerns were raised about potential risks associated with funds, particularly colleges and charitable organisations, but it was noted that pensions are statutory payments and would be paid regardless of these risks.

Councillor Senior, the Chairman, highlighted that while there is an overall scheme for Wandsworth and Richmond, the Pension Fund is divided into three pots : one for Wandsworth, one for Richmond, and one for the SSA. Due to historical differences, Richmond makes an additional cash deficit contribution (the secondary rate), while Wandsworth continues to pay the primary rate of 18%. The Director of Resources confirmed that this would not affect the reserves in the overall fund. The committee also discussed the implications of over-funding, with the actuary explaining that investment strategy and the discount rate must be aligned. Mr. Guilliotti added that excessive de-risking could lead to an increase in the primary rate due to the long-term nature of liabilities.

Following this, the committee approved the revised Funding Strategy Statement (FSS), presented by Mr. Guilliotti. This statement incorporates administrative changes and the results of the actuarial valuation, and the actuary must consider it when determining employer contribution rates from April 2020. Two minor typos in the statement were noted: in paragraph 41, the longevity increase should be 1.25% per annum instead of 1.5%, and in paragraph 38, the long-term pay increase assumption should be CPI plus 1% instead of CPI plus 1.5%. The committee resolved to approve the revised FSS and delegate to the Director of Resources, in consultation with the Chairman and Deputy Chairman, the authority to make minor adjustments if further comments were received from scheme employers.

Setting Objectives for Investment Consultant

The committee received a report outlining guidance from The Pensions Regulator (TPR) concerning the investment consultancy market. This guidance was used to suggest key considerations for setting objectives for the Fund's investment consultancy services, currently provided by Mercer. While current objectives were to be agreed, Mercer's contract ends in March 2021, necessitating the setting of longer-term objectives during the re-tendering process.

The committee discussed weighting the objectives to better reflect their importance. They agreed that objectives (h) and (i), along with the Environmental Social Governance (ESG) Strategy, should carry more weight. Councillor Carpenter proposed some weightings, and Mr. Guilliotti agreed to circulate these proposals for approval.

The Investment Consultant suggested removing objective (b), as it was considered covered by objective (j). They also proposed amending objective (a) to: help the Committee set an appropriate investment strategy which is expected to deliver an investment return as determined by the Fund's Actuary's neutral assumption measured over the valuation cycle with an appropriate level of risk. This change was intended to reflect the long-term nature of their work. The committee agreed to these amendments.

The committee resolved to note TPR's guidance for setting objectives for the investment consultant and agreed on the objectives, with the two amendments made.

Pension Fund Investment Performance

A report on the Pension Fund's investment performance up to September 2019 was presented, comparing it to peer groups, the fund benchmark, and individual managers. The report also detailed the current aggregate fund value by asset class against defined targets and ranges in the Fund's Investment Strategy Statement (ISS). The committee was asked to consider which managers to invite to the next meeting.

Discussion arose regarding the recent risks in property funds, exemplified by the closure of the M&G Fund. The Investment Consultant clarified that the M&G fund contained retail and multi-management money, and that the SSA scheme did not include property funds with retail elements or significant retail exposure.

The committee decided to invite JP Morgan to the next meeting, as they were now 100% invested. The committee resolved to note the fund's investment performance and to invite JP Morgan to the next meeting on 19th March 2020.

The Pensions Regulator Review and Local Pension Board Annual Report

Mr. Guilliotti presented a report summarising TPR's review of ten local government funds. The Pensions Shared Service (PSS) had reviewed TPR's findings and recommendations, assessing their impact on their service. The report also included the Annual Report from the Chair of the Local Pension Board, outlining the Board's perspective on TPR's recommendations.

The Board identified two key areas for improvement: the level of training for the Board and the Committee, and the frequency of Board meetings. TPR recommended the Local Pension Board meet four times a year, but the Board suggested three meetings annually as a more sensible and pragmatic approach, given the PSS's high performance and low complaint rate. The committee was asked to approve this change to the Local Pension Board's Terms of Reference, which would then be presented to Richmond and Wandsworth Councils.

The committee resolved to note the Chair of the Local Pension Board's Annual Report and their views on meeting frequency, and to recommend to Richmond and Wandsworth Councils that the Local Pension Board's Terms of Reference be amended to increase meeting frequency to three times a year.

Minutes of the Local Pension Board

The committee received the minutes of the Local Pension Board meeting held on 4th November 2019 as information.

Any Other Business

The committee discussed the urgency of recent discussions surrounding the ESG Strategy, aiming to develop a clear plan at the next meeting to commence implementation. Mr. Guilliotti explained that Sustainalytics had provided statistics on the Fund's carbon footprint, but these were not in a presentable format. The committee requested that Mr. Guilliotti ask Sustainalytics to update these statistics as a matter of urgency for circulation before the next meeting.

The committee resolved that Mr. Guilliotti would provide information from Sustainalytics on the Pension Fund's carbon footprint as soon as it was available in a presentable format. They also agreed to consider this information in advance of the next meeting to facilitate the effective implementation of the ESG Strategy.