The Berkshire Pension Board will meet on Monday 16 December 2024. The agenda suggests that a number of reports will be reviewed by attendees, and covers topics such as the ongoing administration of the Pension Fund, the implementation of the McCloud Remedy, the Fund's approach to risk management, progress with the Pensions Dashboards Programme and a review of the Fund's Responsible Investment activities.

McCloud Remedy

The report pack includes a project report on progress toward implementing the McCloud Remedy). The McCloud Remedy came about following legal action against the UK government regarding changes to public service pension schemes that were introduced in 2014 and 2015, which moved members from a final salary to a career average benefit structure. Those legal challenges were upheld, with the courts determining that the changes discriminated against younger scheme members. To rectify this, the UK government has extended the underpin protection to all members, meaning that their pension will be calculated using whichever method (final salary or career average) produces the higher outcome.

The report pack explains that:

Despite the substantial task of implementing the McCloud remedy, most members will not see an increase in benefits. This is because the pension they built up in the career average scheme during the protection period was higher than the pension they would have built up in the final salary scheme. Where there is an increase to a member’s benefits, it is likely that this will be a modest amount.

The report pack states that the McCloud remedy project will be implemented in a phased approach, with a series of milestones to be met, including:

• Identifying all members in scope of the remedy.
• Collecting the necessary data from Scheme employers to enable correct benefit calculations to be undertaken.
• Updating the Pension Fund’s administration systems.
• Training staff.
• Communicating with scheme members.
• Rectifying benefits.

The report pack also notes the potential risks associated with the implementation of the McCloud Remedy, these include:

• Not identifying all eligible scheme members.
• Being unable to obtain the data necessary to accurately calculate benefits.
• The impact of the remedy on staffing resources.

Risk Register

The Pension Fund Committee will review the Fund's Risk Register, which includes a series of risks related to its operations. The risk register is updated quarterly and uses a three stage approach to assess each risk: inherent, current and controlled. A score of between 3 and 75 is produced for each risk, with higher scores indicating greater risk.

The two highest scoring risks are:

• PEN026 Failure to successfully implement the McCloud Remedy to all affected scheme members: The report pack states that this is a high risk (score of 44). The mitigations outlined in the report pack include: effective project management; regular communication with Scheme members and Scheme employers; additional staff resources; and regular reporting to the Pension Board and Pension Fund Committee.
• PEN023 Committee or Board members do not have appropriate skills or knowledge to discharge their responsibility leading to inappropriate decisions: The report pack states that this is also a high risk (score of 30). The report pack notes that:

Succession planning for Local Pension Board members is under consideration as the board considers its Terms of Reference, including the period of office for Board members.

The mitigations for this risk, as set out in the report pack, include: succession planning; training; and seeking expert advice when necessary. The report pack also notes that new statutory guidance is expected to be published to clarify the roles and responsibilities of committee members.

Administration Report

The report pack includes the Administration Report for the period 1 July 2024 to 30 September 2024. The report provides an update on the Pension Fund's performance against a number of Key Performance Indicators, including the time taken to process new starters, leavers, retirees, deaths, and refunds. The report also includes updates on communications with stakeholders.

One of the key areas of focus in the Administration Report is the ongoing implementation of the i-Connect Software platform. This platform enables Scheme employers to electronically submit data to the Pension Fund, including details of starters, leavers and changes to member details. The report pack notes that overall 126 employers representing 900 members have not yet implemented i-Connect.

The report pack notes the benefits of i-Connect:

Pension records are maintained in ‘real-time’; Scheme members are presented with the most up to date and accurate information through “my pension ONLINE” (Member self-service); Pension administration data matches employer payroll data; Discrepancies are dealt with as they arise each month; Employers are not required to complete year end returns; Manual completion of forms and input of data onto systems is eradicated removing the risk of human error.

The report pack also provides an update on the Pensions Dashboards Programme. The Pension Dashboards Programme aims to enable pension scheme members to view all of their pension savings in one place. Under the current timetable, the Royal County of Berkshire Pension Fund will need to be ready to connect to the dashboards by October 2025. The report pack states that the Head of Pension Fund, Jo Thistlewood, has signed an agreement with Heywood Pension Technologies to provide the necessary software and support to enable the Fund to connect to the dashboards.

Responsible Investment

The report pack includes a report on the Fund's Responsible Investment (RI) activities. The report provides an overview of the Fund's approach to incorporating environmental, social and governance (ESG) considerations into its investment decisions, and includes information on the Fund's RI policy which was updated in October 2022.

One of the key focuses of the report is the Fund's exposure to ‘Green’ and ‘Brown’ assets. 'Brown' assets are defined in the report pack as investments in traditional energy based on fossil fuels. 'Green' assets are defined as investments in businesses directly contributing to the global transition to a lower carbon economy. The report pack states that the Fund's investments in 'Brown' sectors are 1.24% of the total portfolio. Its investments in 'Green' sectors are 4.61%. The report states that:

Investments in renewable energy generation from wind, solar, hydro, and waste make up 57% of total Green exposure, and 95% of Green exposure is via Infrastructure assets.

The report pack notes that the Local Pensions Partnership Investment (LPPI), which manages the investments of the Royal County of Berkshire Pension Fund, has submitted its Annual Report on Stewardship and Responsible Investment (2023/24) to the Financial Reporting Council. The report is expected to be published in early 2025.

Local Pension Board

The report pack includes a report on proposed updates to the Local Pension Board's Terms of Reference. These Terms of Reference were last reviewed in June 2022 but have not yet been adopted. The Local Pension Board is a statutory body, whose purpose is to assist the Administering Authority in ensuring the effective and efficient governance and administration of the Pension Fund.

The report pack sets out the duties of the Local Pension Board, which include:

• Reviewing compliance with regulations.
• Monitoring complaints and performance.
• Reviewing the arrangements for training.
• Reviewing the outcome of internal and external audit reports.
• Reviewing the draft accounts and Pension Fund annual report.

The report pack also proposes changes to the terms of office for members of the Local Pension Board. Currently, members are appointed for a ten-year term of office. The report pack proposes introducing a process for recruiting substitute members to provide cover when a full Board member is unavailable.

The report pack also includes a proposed timetable for the Local Pension Board's meetings and activities for the municipal year 2025/26. This timetable includes a number of topics for discussion, including:

• The McCloud Remedy
• The Pensions Dashboards Programme
• Responsible Investment
• Risk management
• The Pension Fund's annual report and accounts

Risk Management

The report pack includes a draft update to the Fund's Risk Management Policy. This policy was last updated in March 2023. The report pack explains the rationale for the proposed changes:

At the Pension Fund Committee meeting in September 2024, the Head of Pension Fund presented her first detailed review of the fund’s risk register, which include some thought on changes to the risk scoring matrix and potential changes to the risk register.

Committee, Panel and Board members, supported by the Fund’s independent advisers and officers from RBWM and the pension fund, attended a risk management workshop in October 2024, at which the Fund’s Risk Management processes were reviewed, considering findings from an Internal Audit report on risk management from November 2023.

The proposed changes include:

• A new scoring methodology which allows for assessment of a risk’s current score and its target score.
• New scoring criteria for 'Reputation' impact to separate it from scoring for 'Fund' and 'Employer' impacts.
• Removal of 'Impact on Life' scoring criteria.

It is proposed that the assessment criteria will be reviewed again following the upcoming review of the Fund's Responsible Investment policy. The report pack states that:

Including Responsible Investment considerations (including “impact on life” and ESG) under the “Reputation” impact could be appropriate as the major damage to the Fund or the Administering Authority in the case of some environmental mismanagement or human rights/conflict implications (admittedly unlikely to be directly under the control of the Pension Fund) would come about because of perception - loss of public support or adverse political action including public enquiries.

External Audit

The report pack includes a report providing an update on the external audits for the fund for 2021/22, 2022/23 and 2023/24. The report explains that the audit for 2021/22 was delayed but is now nearing completion, although the Fund's auditors (Deloitte) have not yet been able to provide their opinion. The report pack states that:

Jo Thistlewood emphasized that the Pension Fund's audit opinion could not be issued until the Royal Borough of Windsor and Maidenhead’s (RBWM) audit opinion was finalized, with a target date of 13 December 2024, for that resolution. She noted that this could lead to a qualified audit opinion for employers, pending confirmation of the Pension Fund's status.

The report pack explains that both the council and the Pension Fund are expected to receive disclaimed audit opinions for 2022/23. A disclaimed audit opinion means that the auditor was unable to obtain sufficient evidence to provide an opinion. The report pack attributes this to a significant backlog of external audits across the local authority sector. The report pack states that new legislation has been introduced requiring that all outstanding audits up to March 2023 be concluded by 13 December 2024. The report pack explains that qualified audit opinions are expected for 2023/24 and 2024/25. A qualified audit opinion means that the auditor has identified some issues with the accounts. The report pack states that the auditors for 2023/24 anticipate completion by November 2024, with a qualified opinion expected. For 2024/25, a qualified opinion is expected because the previous year's accounts will also have been qualified. The report pack states that the 2025/26 audit opinion is expected to be unqualified, unless other significant issues arose.

Draft Annual Report

The report pack contains a draft of the Fund's Annual Report for 2023/24.

It is important to note that the information presented here is a summary of the report pack for the meeting and does not necessarily reflect the decisions that will be made by the Pension Board.