The Pensions Committee of Hillingdon Council met on Tuesday 28 July 2020 to discuss the audit of the pension fund accounts, investment strategy, and administration reports. Key decisions included the ratification of delegated decisions made during the COVID-19 pandemic, approval of an updated investment strategy statement, and an increase in the threshold for writing off pension overpayments.

Audit of Accounts and Annual Report

The committee received an interim audit results report from EY, presented by Suresh Patel and Larisa Midoni. The audit for the 19-20 accounts was in progress, with EY noting the finance team's commendable work in preparing accounts and working papers remotely despite the pressures of the COVID-19 pandemic. Key impacts of the pandemic on financial reporting included volatility in property valuations and the need for disclosures regarding going concern and events after the balance sheet date. EY highlighted that they would likely include emphasis of matter paragraphs in their audit report to draw attention to important disclosures, which is not a modification or qualification of the audit opinion. The audit timetable had been adjusted due to the pandemic, with a deadline for publishing audited accounts by 30 November 2020. EY also noted potential additional fees related to the tri-annual valuation and internal consultations. The committee resolved to note EY's interim report.

Ratification of Delegated Decisions

James Lake, Chief Accountant, presented three decisions made under delegated authority by the Corporate Director of Finance between March and July 2020 due to the cancellation of committee meetings because of COVID-19. These decisions were: the suspension of the abatement policy for 12 months, the approval of the Triennial Valuation and Funding Strategy Statement, and the award of the contract for actuarial services. The committee had previously reviewed these decisions and formally ratified them.

Investment Strategy and Fund Manager Performance

James Lake provided an update on the fund's performance for the quarter ending 31 March 2020, during which the fund value fell to £989 million from £1.126 billion due to the impact of COVID-19. By the end of June 2020, the fund had recovered to £1.069 billion. Performance over the quarter ending March was -2.67%, behind the benchmark. Longer-term numbers showed positive returns but were also behind the benchmark. Underperformance was attributed to UBS, the ELSI income fund, EPOC, and AEW (the property manager), with AEW making a significant markdown on asset valuations. A £50 million allocation to long lease property was finally drawn down, and index-linked gilts were rebalanced to match scheme liabilities. The committee noted the update on fund performance.

Investment Strategy Statement and COVID-19 Review

James Lake presented an updated investment strategy statement, which reflected a revised asset allocation to meet the objectives of the funding strategy statement. A review of the strategy due to COVID-19 concluded that the strategy had defensive qualities and could still deliver the required returns, meaning no significant changes were deemed necessary. A key update related to the Supreme Court decision in the Palestine solidarity campaign, meaning pension funds no longer need to adhere to UK foreign and defence policies, but rather give them consideration. This wording was proposed to be applied to other pension policies, including the responsible investment policy. Amendments were also proposed to change terminology from corporate bonds to diversified credit and to remove a reference to the SID Investment Advisory Committee. The committee approved the draft investment strategy statement and the amended reference to UK foreign and defence policies.

Administration Report

Yvonne Thompson-Hoyte, Interim Manager, Pension Fund, presented the administration report, which reviewed the performance of the administration service against key performance indicators (KPIs) and membership uptake of self-service options. The report highlighted a decline in KPIs, partly due to staff being diverted to other areas and staff shortages at Surrey, the service provider. The recent resignation of the head of pensions was noted as a significant concern, adding to the risk register. A deferred member address tracing project was reported as a success, yielding a 92% positive result. The committee was asked to make a decision regarding pension overpayments. Yvonne explained that due to the time lapse between a death being notified and the pension being stopped, overpayments can occur. While many have been recovered, it has been difficult to recover amounts where there is no estate. The committee approved a proposal to increase the threshold for writing off overpaid pensions from £100 to £200, with reasonable attempts to recover funds to be made first.

Pension Fund Conflict of Interest Policy

Yvonne Thompson-Hoyte presented a draft conflict of interest policy for the pension board, identified as a shortfall in compliance with code of practice 14 by governance advisors Aon. The policy aims to help the board identify, monitor, and manage conflicts of interest. The committee approved the policy for implementation, with proposed amendments to include the chief accountant in the notification process for potential or actual conflicts of interest.

Communications Policy Review

Yvonne Thompson-Hoyte presented a review of the communications strategy, which was last approved in June 2017 and requires updating every three years. The strategy outlines who the fund communicates with and the methods used. No major changes were made due to regulatory changes, but contact names and electronic links were updated, and a redundant section regarding the previous administrator was removed. The committee approved the updated communications strategy for the London Borough of Hillingdon Pension Fund.

Risk Register

James Lake presented updates to the risk register. A new risk relating to business continuity and COVID-19, initially added in March, was reviewed, and the risk was reduced due to the establishment of homeworking and systems. The market value of investments (PEN1) was upgraded to red due to the potential loss of investments, as seen in March. The risk relating to inflation (PEN4) was also upgraded due to government intervention and low interest rates. Comments around administration (PEN7) were updated, and the buyout of KPMG by Isio (PEN3) was updated to reflect that service delivery is running smoothly. The committee considered the risk register, including the approach, specific risks, and mitigation measures.

Draft Work Programme

Yvonne Thompson-Hoyte presented the draft work programme. The date for the next meeting was confirmed as 28 October 2020, and an update on the McLeod judgment will be added. Councillor Martin Goddard suggested continuing the practice of taking statements outside of committee meetings and relabelling an item in part two as responsible investment. The committee noted the work programme and made suggestions for future agenda items.