This meeting is set to cover a broad range of issues relating to the Hounslow Pension Fund, including administration, investment, and governance. The agenda includes a discussion of the Draft Annual Report and Accounts for the 2023/24 financial year, a review of the Pension Fund Risk Register, a report from the Investment Advisor, and an update on the Strategic Asset Allocation. It's important to note that this summary only reflects what is scheduled to be included in the meeting and that the council may choose to amend the agenda. We do not know what was actually discussed or decided.

TPR General Code of Practice

The TPR General Code of Practice (GCOP) came into force in March 2024 and applies to all Pension Funds. The report pack includes the first assessment of Hounslow Pension Fund's compliance with the Code, carried out by officers. This compliance review is a substantial undertaking and will be done in stages throughout the administrative year. The initial focus is on the 'Governing Body' and 'Reporting to the TPR' modules. The review will assess whether the Fund's structure, activities, and reporting practices align with the Code's expectations. This initial assessment has already been reviewed by the Pension Board and will be presented to the Panel during the meeting.

The report pack also includes a summary of the Hymans model, which is the tool used by Hounslow Council to assess its compliance. The scorecard highlights several areas requiring further action, including the ongoing recruitment drive to fill vacancies on the Pension Board, the implementation of a formal system for appraising the Investment Advisor, the Actuary, and the Custodian¹, and a tender process for Investment Advisory Services.

Draft Annual Report and Accounts 2023/24

The Draft Annual Report and Accounts for the Hounslow Pension Fund for the 2023/24 financial year are included in the report pack. This comprehensive document summarizes the year’s events and the Fund's financial position as of the year-end. The Draft Annual Report will be published on the Local Government Pension Scheme (LGPS) Scheme Advisory Board’s (SAB) website by December 1st, 2024, in line with statutory deadlines.

The draft report provides an overview of the Fund’s performance, governance, investment strategy, administration, and a summary of the financial statements. It details a significant increase in the Fund's assets from £1,212m at the end of March 2023 to £1,332m at the end of March 2024, marking a rebound from the previous year's decline.

The report also includes a discussion of the ongoing transition to a new Strategic Asset Allocation (SAA). This change, agreed upon in June 2023, involved substantial shifts in investment strategy, including disinvestments from BlackRock and Aberdeen bond portfolios and the Aberdeen UK Equities portfolio, as well as a new investment in the LCIV Long Duration Buy and Maintain Credit Fund managed by Insight Investment Management Ltd.

Pension Fund Risk Register

The Pension Fund Risk Register has been updated and will be presented to the Panel for review. This document outlines the primary risks associated with the Hounslow Pension Fund and the measures taken to mitigate them. The register is structured using the Zurich methodology for managing risk², a system previously employed by Hounslow Council for its corporate risk register, and assesses both the likelihood and impact of each risk, categorized as red, amber, or green based on the combined score.

The report highlights updates to several risks, including:

• Risk 2: Manager Underperformance. Continuously monitored by the Investment Advisor, this risk currently has a score of 9 (amber). One of the Fund’s nine mandates is rated 'red risk,' and three are rated 'amber risk.' The most pressing, Fidelity and Aberdeen UK, have underperformed for three years. The December Panel meeting decided to divest these assets to fund changes agreed upon as part of the updated Investment Strategy. Aberdeen UK has been sold and reinvested in LCIV Long Dated Bonds and the BlackRock Low Carbon Fund.
• Risk 8: Pooling Risk. The risk that asset pooling will negatively impact the Fund is being reviewed following interventions by the Department for Levelling Up, Housing and Communities (DLUHC) and additional investments transferred to the London CIV (LCIV). This risk has a score of 9 (amber). Continued monitoring is warranted because two LCIV-procured funds remain on an 'amber risk' rating from the Investment Advisor. DLUHC is maintaining its focus on pooling.
• Risk 10: Administration Risk. This risk, relating to incomplete or inaccurate data, maintains an amber rating with a score of 9. The introduction of a Data Improvement Plan, embedded in WYPF’s administration to track and monitor data quality, enhances assurance. Additional monitoring of monthly returns and exception reports is ongoing, and an annual member movement exercise led by the Actuary aims to improve data accuracy before the next valuation.
• Risk 11: Climate-Related Risk. This risk score has been re-evaluated to align with the new regulations requiring administering authorities to manage and report on climate-related risks. After applying the correct matrix, the risk retains its amber rating with a score of 9, reflecting a low likelihood but potentially significant impact.

Pension Administration Report

The Pension Administration Report, a regular item on the agenda, provides an overview of the performance and benchmarking of the administration service, managed by West Yorkshire Pension Fund (WYPF) since 2018 under a shared service agreement.

The report focuses on key performance indicators (KPIs), outlining the efficiency and timeliness of various administrative processes. It is noted that several areas are being affected by:

• The McCloud remedy, which requires recalculating pensions for some members to address past inequalities.
• Overall workload volume.
• Staffing levels, particularly vacancies in senior pension officer positions.

While WYPF is generally meeting or exceeding its target of completing 85% of processes within the allotted time, specific areas, like Interfund Transfers, are experiencing significant backlogs. These delays are primarily attributed to the manual calculations required for McCloud adjustments, which the current administration software cannot yet handle automatically.

The report also provides details on:

• Data Security: Following the cyberattack on Capita in 2023, where the records of 72 Hounslow Pension Scheme members were accessed, steps are being taken to ensure the permanent deletion of Hounslow’s data from Capita’s systems.
• Customer Feedback: Member and employer feedback is being gathered through surveys and training webinars. Electronic surveys have seen a lower response rate compared to paper surveys, posing a challenge for efficient data collection.
• Shared Service Costs: Despite an increase in overall costs, the shared service is running under budget.

Quarterly Overview and General Matters Report

The Quarterly Overview and General Matters Report provides a comprehensive update on the Hounslow Pension Fund, covering:

• Fund Valuation: The net assets of the Fund had increased by 10.1% from June 2023 to June 2024, rising to £1.343 billion, with a further 0.8% increase since the end of March 2024.
• Asset Rebalancing: The Fund is undergoing a strategic realignment of its assets, implementing recommendations from the Strategic Asset Review approved in June 2023. Details of this transition are included for discussion in a separate section of the meeting.
• Late Payment Register: A list of employers who submitted late contributions during the first quarter of 2024/25 is included in the report pack. All late contributions have been received, and officers are working with persistent late-payers to minimize future occurrences.
• McCloud Judgement: This landmark legal ruling, which found that transitional protections in public sector pension schemes discriminated against younger members, has significantly impacted pension schemes. Until the administration system at WYPF is fully upgraded to accommodate McCloud calculations, these assessments will continue to be done manually, creating potential for delays.
• Pooling Risk: Hounslow Pension Fund's response to the Minister for Local Government's letter regarding plans for pooling assets is included in the report pack. The letter outlines the Fund’s progress in transitioning assets to the LCIV, noting that 36% of assets were pooled as of March 2024. The report also mentions an upcoming meeting with the Scheme Advisory Board for further discussion on pooling.

Draft Annual Business Plan 2024/25

The meeting will include a review of the Draft Annual Business Plan for the Pension Fund Panel for the 2024/25 year. This plan outlines a schedule of meetings and proposed topics for discussion. Key areas for consideration include:

• Pension Fund Governance: Confirmation of the Pension Fund Board Chair, monitoring of WYPF's compliance with contractual KPIs, and ongoing assessment of General Code of Practice compliance.
• Investment and Asset Allocation: Quarterly updates from the Investment Advisor, presentations from Fund Managers, updates on the implementation of the new SAA, and the procurement of an Investment Consultancy Contract.
• Training: Regular training sessions for Panel members on topics such as asset classes, pensions administration, and governance.

The Panel will have the opportunity to identify any additional areas they wish to include in the business plan for consideration during the coming year.