This meeting will focus on how the investments of the Pension Fund are performing, on the Pension Fund's accounts and a review of the regulatory landscape for pensions. It will also receive feedback from the Local Pension Board, consider a report on responsible investment at Border to Coast Pensions Partnership (BCPP)¹, and receive a briefing on the government’s recent consultation on proposed future changes to the Local Government Pension Scheme (LGPS).

Performance of the Pension Fund’s investments

The overall value of the Fund's investments was £3.705 billion at 30 September 2024, an increase of £50 million over the previous quarter. The Committee will consider reports from its investment managers, namely:

• Alliance Bernstein
• CBRE Global Investment Partners
• Foresight

The Committee will also receive its regular quarterly performance measurement report from the fund’s custodian Northern Trust. This report shows:

• the fund managers’ benchmarks
• the total fund performance, plus the performance of individual fund managers for a range of time periods.

Pension Fund Annual Report and Accounts

The Committee will consider the Pension Fund Annual Report and Accounts for the year ended 31 March 2024. The Accounts include a statement from the Fund Actuary Aon setting out the outcome of the last triennial actuarial valuation.

The statement of accounts will be audited by Mazars.

Responsible Investment

The Committee will consider a report which provides an update on the approach to Responsible Investment at Border to Coast Pensions Partnership (BCPP). BCPP’s current policies are published online at https://www.bordertocoast.org.uk/publications/?_sfm_publication_document_type=Responsible%20Investment%20Policies.

Fundamental to BCPP’s approach is the belief that influence through ongoing engagement with companies, rather than divestment, drives positive outcomes. However, BCPP’s Climate Change Policy includes specific exclusions covering companies with >25% of revenue from thermal coal and oil sands (or 25% for Private Markets). BCPP also exclude public market companies in developed markets with >50% revenue derived from thermal coal power-generation and will apply a >70% threshold in emerging markets to support a just transition towards a low-carbon economy. The exclusion policy also covers landmines, biological and chemical weapons.

The report notes the increasing importance of responsible investment and sustainability, due to factors like increasing regulation and pressure from beneficiaries and stakeholders, and recommends that the Committee approve the following changes to the BCPP policies which will be implemented on behalf of the Fund for assets transferred into the pool:

• Minor changes to the Responsible Investment Policy.
• Material changes to the Climate Change Policy.
• Material changes to the Voting Policy relating to deforestation.

The report also recommends that the Committee approve the adoption of the Border to Coast Voting Guidelines for any remaining assets held outside of the pool, and that it authorise the Corporate Director of Resources to amend the Fund’s Investment Strategy Statement (ISS) in line with the principles of Border to Coast’s RI Policy.

Regulatory Update

The Committee will be provided with an update on developments in matters that are both LGPS specific and non-LGPS specific but of wider interest. It includes details of the following:

• The Government’s Levelling Up White Paper published in February 2022, which proposes that LGPS funds publish plans for up to 5% of their assets to be allocated to local investments.
• The Chancellor’s announcement in December 2022 of a set of reforms intended to drive growth and competitiveness in the financial services sector, which is expected to include a consultation on new guidance on LGPS asset pooling.
• The Department for Levelling Up, Housing and Communities (MHCLG) consultation “LGPS: Next Steps on Investments” which ran from July to September 2023. The government response to that consultation was published in November 2023. It proposes measures that would accelerate asset pooling, introduce enhanced reporting, and support ‘local’ investment – for the purpose of the consultation, ‘local’ investment is defined as investment in the UK.
• The HM Treasury Pensions Review: Phase One published in February 2024, which includes proposals to tackle “fragmentation and inefficiency” in the LGPS, and will consider “how to unlock the investment potential of the £360bn LGPS in England and Wales”. The Chancellor appointed the Minister for Pensions to lead the Review which reported its initial findings in June 2024.
• The government’s July 2024 consultation “LGPS: Fit for the future”. The consultation, which runs until January 2025, includes proposals to reform LGPS asset pools by mandating certain minimum standards deemed necessary for an optimal and consistent model, boost investment in their localities and regions and strengthen the governance of both LGPS funds and pools.
• The Government Actuary's Department (GAD) report to the Ministry of Housing, Communities and Local Government on the 2022 fund valuations (the Section 13 Report). This report, which is required by section 13 of the Public Service Pensions Act 2013, examines whether each of the 87 LGPS funds’ valuations have achieved the 4 aims set out in the Act, namely compliance, consistency, solvency and long-term cost efficiency.
• The mandatory Taskforce on Climate-related Financial Disclosures (TCFD) reporting that will become due in 2025. The report notes that the Fund’s pooling partner Border to Coast Pensions Partnership (BCPP) has published its second TCFD report and has put in place measures to support Partner Funds.
• The review of the Cost Control Mechanism, including the impact of the McCloud judgment. The report notes that the Fire Brigades Union and the British Medical Association have been granted permission to appeal against the March 2023 High Court judgment, which ruled in favour of HM Treasury to allow the inclusion of the McCloud remedy as a “member cost”.
• The implementation of the McCloud remedy. The report notes that MHCLG’s May 2023 consultation on draft scheme regulations which would implement the remedy, was responded to in July 2023.
• The MHCLG consultation launched in January 2019 “LGPS: Fair Deal – Strengthening Pension Protection”, which proposes removing the option for compulsorily transferred employees of an LGPS employer to be granted access to a GAD-certified broadly comparable scheme.
• The MHCLG May 2019 consultation “LGPS: Changes to the Local Valuation Cycle and the Management of Employer Risk” which proposed amending the regulations to provide greater discretion to Administering Authorities on the amount of any ‘exit credit’ payable to a scheme employer leaving the Fund.
• The ongoing consultation on indexing of Guaranteed Minimum Pensions (GMP) and the implementation of the McCloud remedy in the LGPS.
• The Scheme Advisory Board (SAB) June 2024 annual report, which provides a single source of information about the LGPS as of 31 March 2023.
• The SAB review of Academy participation in the LGPS and the increased Department for Education (DfE) guarantee to £20m for Academies.
• The SAB review of ‘Tier 3’ employers in the LGPS and the potential for Colleges to be reclassified as ‘public sector’.
• The SAB review of good governance in the LGPS and its Action Plan submitted to MHCLG.
• The SAB’s November 2019 draft guidance on responsible investment, which is currently on hold.
• The SAB statement setting out their position on fiduciary duty, following “increasing levels and extreme forms of lobbying about how LGPS funds are invested”.
• The SAB’s recommendation to MHCLG to separate pension fund accounts from the main local authority accounts.
• The SAB’s updated guidance on preparing annual reports, and its plans to update guidance on Funding Strategy Statements.
• The SAB report on Sharia compliance in the LGPS.
• The SAB’s recommendation to HM Treasury that an active and consistent approach to closing the gender pensions gap is taken across public sector pensions.
• The disapplication of the public sector exit payments cap, which limited exit payments, including pension strain costs, to £95,000.
• The revised UK Stewardship Code 2020.
• The proposed increase to the Normal Minimum Pension Age (NMPA) from 55 to 57 in 2028.
• The Pensions Regulator’s consultation on the introduction of a single Code of Practice covering all regulated schemes, which replaced the previous LGPS-specific Code (Code of Practice 14) in March 2024.
• The dissolution of Parliament before the 2024 General Election which meant that the government’s Economic Activity of Public Bodies (Overseas Matters) Bill fell.
• The new Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 which require greater due diligence to protect members from falling foul of Pension Scams.
• The Pensions Regulator’s statement following the recent Capita data breach.
• The Money and Pensions Service (MaPS) evidence review on Pension Scams in the UK.
• The “Stronger Nudge” to Pension Wise, which will require the Fund to refer scheme members wishing to take or transfer their AVCs to the Pension Wise guidance service.
• The delayed introduction of the national Pensions Dashboard.
• Changes to pension taxation including the increased Annual Allowance to £60,000 and the abolishment of the Lifetime Allowance.
• The DfE’s guarantee to cover FE bodies.

Feedback from the Local Pension Board

The Head of Pensions (LGPS) reported on the appointment of Mr Ian Pritchard as the Unison representative on the Local Pension Board.

Internal Audit Plan 2024/25 - Progress Report to 30 June 2024

The Internal Audit Manager, Nicola Cooke, reported to the Committee on the work that had been carried out by the Internal Audit service during the period 1 April 2024 to 30 June 2024 as part of the Internal Audit Plan.

Overall Value of Pension Fund Investments to 30 September 2024

The report pack contains a report on the overall value of the Pension Fund's investments. It is unclear whether this was discussed or whether any decisions were made.

The report notes that the value of the fund’s assets at 30 September 2024 was £3.705 billion and that the cash balance held in the Durham County Council Pension Fund bank account was £35.159 million.

No rebalancing was undertaken during the second quarter of 2024/25.

Performance Measurement of Pension Fund Investments to 30 June 2024

The report pack contains a performance report from Northern Trust, the Pension Fund’s custodian. It is unclear whether this report was discussed during the meeting, or whether any decisions were made.

The report shows that:

• the fund managers’ benchmarks
• the total fund performance
• the performance of the individual fund managers, both in absolute terms and relative to their benchmarks, for a range of time periods.