The Committee noted the minutes of the Pension Board meeting on 19 November 2024 and the Pension Investment Sub-Committee meeting on 29 November 2024. The Committee also noted the Worcestershire Pension Fund Annual Report for the year ended 31 March 2024, and commented on the strong improvement in the funding position from the last triennial valuation.

Pension Fund Annual Report for the year ended 31 March 2024

The Pensions Committee noted the 2023/24 Annual Report for the Worcestershire Pension Fund. The statutory publication deadline for the Fund’s annual report is 1 December 2024, and it is expected to be published before that deadline. The report summarises the Fund’s audited financial statements, investments, administration, governance, valuations, accounts, and membership.

The Chairman’s foreword to the report states that the Fund’s notable achievements included:

• Increasing the Fund’s net assets by £362.7 million to £3,971.3 million; • Increasing both employer numbers and scheme membership despite a backdrop of financial pressures in the UK over the last year;

New statutory guidance was published in April 2024 to assist pension funds with the preparation of the pension fund annual report. The guidance calls for additional disclosures regarding administrative statistics and KPIs as well as investment disclosures relating to pooled investments and the geographical composition of investments, including identification of investments in UK assets.

Business Plan

The Committee noted the Worcestershire Pension Fund Business Plan as at October 2024. The plan is designed to cover everything going on at Worcestershire Pension Fund and in the LGPS world. It includes a detailed work plan for 2024/25 – 2026/27 covering Administration, Governance and Investments.

The Fund has appointed Hymans Robertson as its actuary. It is commencing a review of its existing Additional Voluntary Contributions (AVC) provision, following the Committee’s agreement that officers could start the process of seeking a consultant at the last meeting on 10 October 2024. The Fund is using the national LGPS frameworks for this. Work on preparations for the 2025 Triennial Valuation is underway. Data has been provided to Hymans Robertson so that contribution modelling can be completed to support the delivery of contribution rates for selected employers in Q1 2025.

The Business Plan details the progress of a number of ongoing projects:

• The McCloud Remedy project is all about applying a McCloud underpin[^2] to in-scope members. The project had been paused, but is now being restarted following the receipt of implementation guidance from the LGA. It is anticipated that the project will be delivered in-house, with the current allocation of resources. [^2]: The McCloud remedy refers to a legal case that challenged the legality of changes made to the judges’ and firefighters' pension schemes in 2015. The Court of Appeal found that these changes, which introduced different pension arrangements for younger members compared to older members, amounted to unlawful age discrimination. The ruling has implications for other public sector pension schemes, including the Local Government Pension Scheme (LGPS).
• The Member Portal project is all about implementing self-service functionality which enables members to view their benefits online through a secure portal and to carry out certain processes. The member portal was implemented in February 2024, and the project is now almost complete.
• The Pensions Dashboard project is all about planning for the government’s intention to deliver pensions dashboards through the Pensions Schemes Act 2021 and The Pensions Dashboards (Amendment) Regulations 2023. The Fund is working with its pensions administration system provider, Heywoods Technologies to implement an Integration Service Provider (ISP)[^3] that will be used to connect to the dashboard ecosystem. Phase 1 of the implementation is scheduled for delivery by 21 November 2024. [^3]: An ISP will act as a secure data exchange hub, allowing pension schemes to communicate with the Pensions Dashboard ecosystem.
• The Implementation of I-Connect project is about enabling employers to submit monthly data securely directly from their payroll system to the Pension Fund. The Fund is continuing to test and onboard employers onto I-Connect, with 42 employers using the live version. Dataplan became the first payroll provider to go live, with Innovate Services and Wychavon Leisure due to be the next two employers to go live. Liberata are the next large payroll provider expected to go live.

Governance Update

The Committee noted the Worcestershire Pension Fund Governance Update and the Cyber Incident Response Plan and Data Retention Policy.

Since the March 2023 review of the Fund’s Risk Register, progress in developing mitigating action for five risks is being reported in Governance Updates. These risks are:

• WPF 01 Failure of governance arrangements to match up to recommended best practice.
• WPF 04 Not having an established and meaningful Business Plan / Pension Administration Strategy.
• WPF 15 Failure of the actuary to deliver the services contracted.
• WPF 17 Failure of custodian to deliver the services contracted; and
• WPF 26 Fraud by staff.

Progress since the last quarterly Board / Committee cycle has included the production of a Cyber Incident Response Plan and a review of the Business Plan.

The Fund is continuing to review its Governance Library, and is prioritising policies highlighted in The Pensions Regulator's (TPR) General Code of Practice. The Fund has also started to document its process for managing third-party providers.

Risk Register

The Committee noted the February 2024 Worcestershire Pension Fund Risk Register.

The October 2024 review of the register resulted in no changes to risk scores. Mitigating actions for four risks were updated:

• WPF 35 Being an LGPSC partner fund. This risk is currently scored as 75 (25 Impact * 3 Probability). The committee received an update on the ongoing recruitment process for a new CEO, Chief Commercial Officer and CIO for LGPS Central Limited.
• WPF 20 Having insufficient resources in pensions administration. This risk is currently scored as 25 (25 Impact * 1 Probability). The number of vacancies in the pensions administration team is down to two, and the Fund is building resilience by recruiting apprentices.
• WPF 28 Cyber-attack leading to loss of personal data or ransom, or our hardware being disabled or from financial loss from our banking / custody arrangements being compromised. This risk is currently scored as 25 (25 Impact * 1 Probability). The Fund has held a meeting with Heywoods Technologies to discuss member feedback about cybersecurity, and Heywoods have provided documentation about their security procedures. A training session for officers and members, to be delivered by Heywoods, is scheduled for 5 December 2024.
• WPF 29 Failure to deliver member communications in line with regulatory requirements, for example the 31 August annual benefit statement deadline. This risk is currently scored as 5 (5 Impact * 1 Probability). The delivery of active annual benefit statements via the member online portal has supported a more effective and efficient delivery to members.

Training Update

The Committee noted the Worcestershire Pension Fund Training Update.

The Committee received an update on the training delivered to staff and members of the scheme since the previous Training Update. This included news that Ben Jones, Fund Project Officer, was awarded the ‘Best work-based project award 2024’ at the Chartered Institute of Payroll Professionals (CIPP) Graduation Ceremony 2024.

The Committee also received an update on the Worcestershire Pension Fund Employer Forum 2024. The forum took place week commencing 30 September 2024 and featured a number of online sessions for employers.

Since the March 2023 review of the Fund’s Risk Register, progress in developing mitigating actions for four risks is being reported in Training Updates. These risks are:

• WPF 02 Insufficient knowledge amongst members of Pensions Committee / Pension Board / Pension Investment Sub-Committee members;
• WPF 03 Failure of officers to maintain a sufficient level of knowledge / competence or to act in accordance with our roles and responsibilities matrix;
• WPF 21 Failure of business continuity planning; and
• WPF 27 Incorrect calculation of benefits through human error or delayed notification of a death.

Progress since the last quarterly Board / Committee cycle has included officers participating in various scheme / industry groups / forums to keep up to date on pensions issues. A training session with Heywoods Technologies is being arranged about cybersecurity and critical incident reporting.

The Committee received a report on the percentage of members who have registered on the member portal:

• Active Members: 38.73%
• Deferred Members: 12.44%
• Pensioner Members: 5.31%

The Committee is recommending that all members, specifically those who have joined the Board within the last 12 months, complete the following training modules:

• Module 1 – Committee Role and Pensions Legislation; and
• Module 2 – Pensions Governance

Open Consultation - LGPS (England and Wales): Fit for the Future Update

The Committee noted the Government’s open consultation Local Government Pension Scheme (England and Wales): Fit for the Future, and granted delegated authority to the Chief Financial Officer, following consultation with the Chairman of the Pensions Committee, to prepare and submit the Fund's response to the consultation, taking account of the comments made by the committee.

The consultation covers a number of issues, including pooling, local investment and governance, including recommendations from the Scheme Advisory Board Good Governance Review. The consultation seems to be setting a direction of travel to further consolidate powers and responsibilities within pools.

The Fund supports the aims of pooling, and recognises its potential cost benefits. However, it has a number of concerns:

• Fiduciary Duty. The consultation suggests a requirement for AAs to fully delegate the implementation of their investment strategy to their pool, and for funds to take their principal investment advice from their pool. This would mean a loss of direct control over investment strategy, and the Fund is concerned that this will restrict its ability, as a fiduciary steward, to hold its pool accountable.
• Conflict of Interest. The consultation suggests that the pool will begin to primarily advise on setting and implementing the SAA. This may lead to a potential conflict of interest that could result in the implementation of sub-optimal strategies. The proposal for AA representation on pool boards is unlikely to mitigate this conflict as boards must legally act in the interests of the company.
• Capacity. The consultation sets out a requirement for AAs to transfer all of their legacy assets to their pool by 31 March 2026. This represents a significant increase in the requirements placed on pools, and the Fund is concerned that the government is not providing enough time for pools to take on this responsibility. The Fund is also concerned about the potential costs of transitioning illiquid assets.
• Local Investment. The consultation proposes that funds set a high-level objective on local investment within the Investment Strategy Statement. The Committee has recognised the challenges of prioritising local investment, with key concerns remaining issues around diversification, availability of opportunities and the potential for political risks. It is important that any local investment is made within an appropriate risk/return framework.
• Governance. The consultation proposes a number of new governance responsibilities, including participation in a biennial independent governance review. The Fund is concerned that this may create an unnecessary burden, and that it may not be proportionate to scheme requirements.

The consultation also looks at increasing collaboration between pools and between funds within the same pool. This may help pools to achieve critical mass, particularly for niche investments. The government is not currently proposing the creation of ‘megapools’, but this may be an indication of where things are heading in the future.

Forward Plan

The Committee approved the Forward Plan, which is to be reviewed at each meeting. The plan includes updates on LGPS Central Limited, the Stewardship Code, the Risk Register, training and investment updates. The Committee will also be reviewing the Fund’s Investment Strategy Statement, its Climate Change Risk Strategy and its Climate Risk Report.