The Local Government Pension Scheme Local Pension Board of Hertfordshire Council met on Friday 02 October 2026 to review the fund's risk register, discuss governance updates, and consider performance reports. Key decisions included noting the Pension Fund Risk Register, approving the Governance Report, and noting the LPPA Performance Report.

Pension Fund Risk Register

The board reviewed the half-year Local Government Pension Scheme risk register for the quarter ending 30 June 2026. Two risks were highlighted as exceeding their tolerated risk threshold:

• Risk C5: Ineffective management of the fund. This risk related to the transition to Border to Coast by 31 March 2026. The risk level remained above tolerance during the quarter due to a pending investment management agreement, which was subsequently signed on 3 July 2026.
• Risk E1: Poor administration, including failure or delays in implementing regulatory changes. This risk level was increased to reflect the significant regulatory changes impacting the LGPS, Border to Coast, and LPPA. While services continue to meet expectations, there is a risk of failures due to the unprecedented level of current and upcoming changes.

A discussion arose regarding the cyber risk, which was identified as the biggest risk. The tolerance for this risk was set at the maximum level. Officers explained that this was based on guidance from the Pensions Regulator (TPR), which advises acting as if a cyber-attack is a matter of when rather than if. The board noted that the tolerance level for cyber risk was set at 16, reflecting the high likelihood of an attempted attack, but acknowledged that the risk of data compromise was lower. The officers agreed to take this point away for further consideration and feedback at the next meeting.

Employer Risk Report

The board received an update on the employer risk report for quarter one. The overall employer risk profile remained stable, with 90.4% of employers assessed as green risks. However, the number of red risk employers increased from nine to 14 during the quarter. This increase was primarily attributed to revised covenant assessments and risk monitoring criteria, rather than new material financial concerns. The reasons for the increases included updated covenant analysis, an employer entering administration while subject to a debt spreading agreement, repeated late submissions or payments, and a combination of amber risks.

The most significant event was the administration of a ceased tier three employer with outstanding debt payments. Legal advice confirmed that the debt was classified as a non-preferential unsecured claim and was unrecoverable. This debt forms part of the fund's orphan pool, which remains strongly funded with estimated surpluses. The unrecovered amount was considered immaterial and had no material impact on scheme members, the fund, or participating employers. The fund's employer risk position remains stable, with officers continuing to monitor risks closely.

Governance Report

The governance report provided an update on governance matters, including regulatory developments and fund-specific updates. It detailed the fund's compliance with the Fit for Future regulations and included a timetable for policy and strategy development, along with an annual governance planner. The report also outlined a forward plan for Pensions Committee meetings and provided updates on cybersecurity, training, budget, audit, treasury management, and compliance with the general code of practice. A governance compliance statement, approved by the committee on 18 September, had been reviewed and updated with minor amendments for 2026-27, including the addition of Border to Coast Pension Partnership and the independent person. The statement noted that a new training strategy and terms of reference for the Pensions Committee were being prepared. The governance compliance statement will evolve into a governance strategy later in the year.

LPPA Performance Report

Chris, representing LPPA, presented the performance report for quarter one (April to June). He highlighted a new design for the report, including a performance at a glance section and extended trend graphs. Casework performance remained strong, exceeding the 95% target at 98.4%. There was positive news regarding employer retirement notifications, with over 54% of notifications received on time, leading to 82% of payments being made within 30 days.

However, the contact centre performance was above the four-minute target at 4.34 minutes. Chris noted that averages can be skewed by peak periods and introduced median wait times as an additional measure, which stood at one minute 13 seconds. He assured the board that performance for July, August, and September had improved and was more stable.

Significant activity included the issuance of over 81,000 annual benefit statements by the 31 August deadline, representing nearly 98% of the active and deferred population. For McLeod-eligible members, 95.6% of active and 99.1% of deferred statements were issued. The report also detailed ongoing work related to regulatory changes, including survivor benefits, death grants, and monthly returns. The ESIP programme had paused due to the volume of regulatory work.

A discussion ensued regarding the McLeod element of the annual benefit statements, specifically the 282 active and 70 deferred members for whom statements could not be issued by the deadline. Officers confirmed they were working on data issues and would consider informing or reporting this to TPR, noting that the numbers were small and consistent with previous years' challenges in achieving 100% issuance.

Changes to Constitution

Philip presented proposed revisions to the council's constitution, driven by the Pension Schemes Act 2026 and Local Government Pension Scheme Regulations 2026. These changes introduce new governance requirements, including the appointment of an LGPS senior officer, an independent person, and enhanced statutory knowledge and understanding requirements. A dedicated Annex 31 for Pensions Committee Terms of Reference is also proposed. These changes have been reviewed by external legal advisors and were approved by the Standards Committee, with a recommendation to full council.

Independent Person Appointment Process

Taryn provided an update on the appointment of the fund's independent person, a new statutory requirement. This role will provide independent challenge and assurance to the LGPS senior officer and the Pensions Committee. Key duties include supporting pension strategies, scrutinising advice, monitoring performance, and contributing to governance reviews. To maintain independence, the individual must not have provided paid pensions advice or conducted independent governance reviews or actuarial valuations for the authority within the previous two valuation cycles. The skills assessment identified investment expertise as a significant gap, particularly in light of new pooling arrangements. The role specification emphasizes investment knowledge, alongside governance and administration experience. The procurement and candidate search phase has commenced, with shortlisted candidates expected in October and final interviews planned for November.

A discussion arose regarding the financial implications of this new role. While the report stated no direct financial implications, it was clarified that the costs would be absorbed within existing advisor fees, effectively being cost-neutral through scaling back other advisory fees. The wording of the financial implications section was noted as potentially vague, and officers agreed to check with legal services for clarity on whether implications refer to the authority or the pension fund.

Draft Investment Strategy Statement, Rebalancing and Local Investment

Philip presented the draft investment strategy statement, required under new regulations by March 2027. The statement specifies acceptable ranges for strategic asset allocation to provide flexibility while maintaining risk controls. Officers recommended a local investment allocation range of 0% to 5%, with a preference for investments in Hertfordshire. The Pensions Committee had approved these recommendations, and the full draft statement would be presented to the October Committee meeting.

A member raised concerns about potential disadvantages due to delays in local government reorganisation in Hertfordshire, which could impact the development of local economic development responsibilities under a potential mayor. Officers clarified that local investment encompasses all asset allocation buckets and is not a specific target for Borders of the Coast, but rather an approach to finding the best investments across the board. It was also noted that Borders of the Coast already invests in Hertfordshire-based opportunities if they are considered good investments.

Borders of the Coast Update

Philip provided an update on Borders of the Coast's review of sterling investment grade credit arrangements. The proposal is to consolidate partner fund credit holdings within its sterling investment grade credit fund. This fund has outperformed its benchmark and includes Royal London Asset Management (RLAM), which manages part of Hertfordshire's credit allocation. Under the proposal, the existing RLAM mandate would transition to the Borders of the Coast fund, retaining RLAM's expertise while benefiting from scale, governance, and lower fees. The cost of restructuring is estimated to be recovered in less than one year through fee savings. An initial £230 million was transitioned in June, with a further £170 million invested in July, bringing the total invested in the Borders of the Coast credit fund to approximately £400 million. The report also highlighted recent drawdowns against private market commitments, including private equity, UK real estate, and infrastructure mandates.

Pension Fund Responsible Investment Report

Jonathan from Mercer presented the responsible investment report, focusing on the fund's progress towards net carbon zero targets. The report showed that for listed equities, the fund's carbon footprint is now back on track with projected figures for 2026, representing a 32% reduction over six years. This progress is attributed to a shift from UBS overseas developed equity to Climate Aware Funds and the nature of stocks held by managers like Dodge and Cox.

On the bond side, progress has been steady, although there was a slight increase in the carbon footprint in recent years, driven by changes in the bond benchmark. The report covered scope 1 and 2 emissions, with scope 3 emissions not yet included due to data limitations. The board noted that the increase in the corporate bond benchmark's carbon footprint was due to the issuance of bonds by companies with higher carbon footprints, and that the fund's portfolio was managed against this benchmark. The report also indicated that companies are proactively decarbonising, with further analysis to be provided in a private session.

The meeting concluded with noting future meeting dates and moving to a closed session.