Agenda item

The Board considered a report from the Corporate Director of Resources which provided details on the Government’s proposals for further reform of the LGPS following the first phase of the Pensions Review (for copy see file of Minutes).

The Head of Pensions (LGPS) noted one of the main issues was on how Pension Fund Committees would take advice going forward and accordingly he would therefore ask the existing advisors to leave while Members discussed the matter.

S Dickson and A Fletcher left meeting at 10.35am

The Head of Pensions (LGPS) noted the Government consultation set out that it would be mandatory for the Pool to provide advice, and that Funds must take primary advice from the Pool.  He explained that this would require a capability build at the pool, something that had been supported by the Committee as part of the BCPP 2030 strategy, however, with this was now proposed as a mandatory requirement.  He noted the position as set out by Government, with the role of the principal Pension Fund Investment Advice being provided via the Pool and with the Independent Advisor role suggested to become an Independent Member of the Pension Fund Committee; with a more holistic role.

Councillor J Atkinson asked if BCPP would have a conflict in providing advice, running both the investments and the advice.  He noted the importance of the role of both Advisors, including the separation between the two.  He noted their professional advice that they had provided had been very good, and helped Committee Members to scrutinise issues properly.  The Head of Pensions (LGPS) noted the challenge in terms of BCPP providing advice, noting any such advice team would be separate from the pool’s investment teams.  He noted there were broad concerns within the sector as regards such potential conflicts of interest, however, all 11 Funds within the Pool had supported BCCP in building an advisory capability on a voluntary basis through the 2030 stratregy.  He agreed that good advice was important to provide Members with confidence in scrutinising issues. 

He noted that the consultation envisaged that the Independent Advisor role would be retained by Funds, whilst additional consultancy would perhaps be procured as required by exception, reiterating Government’s view that advice should come via Pools. He added however, that existing contracts already in place would remain.

Councillor C Fletcher noted the positive position of the Durham Pension Fund in terms of pooling and performance.  She asked for BCPP’s opinion in terms of providing advice, and as regards having clear separation between advice and investments.  She agreed as regards bringing in additional consultancy as and when required.  The Chair agreed with Councillor C Fletcher and noted the fiduciary duty of the Committee in scrutinising and making investment decisions.

M Kerr noted that the current approach taken by the Committee with its advisors had been very productive, and BCPP appreciated the oversight and scrutiny as well as feedback, which helped BCPP to make improvements.  He noted he felt that approach of independent challenge should be retained. 

He noted that BCPP had agreed to grow its advisory function, supported by Durham and the other 10 Funds within the pool.  He noted the speed at which Government wished to move, though he felt however that BCPP was in a good position, having progressed quickly in terms of pooling, and already having shareholder agreement for an advisory function.  He added that such work must be in partnership with Funds.

Councillor J Atkinson noted the importance of the human aspect and the Committee’s confidence in the current advisors.  The Head of Pensions (LGPS) noted that the consultation set out how Government though it could work in practice, however, feedback from the Committee would be included in the response reflecting the importance of independent view points as required.  He noted that some elements of the Government’s view on expanding the Independent Advisor role looking at governance and pension administration may sit better within the Local Pension Board, rather than the Committee.

Councillor M Porter asked if changes were as per Government’s current proposals, would it be better to have a separate independent person supporting the Local Pension Board.  The Head of Pensions (LGPS) noted that the existing Independent Advisor role would support the Committee in terms of investments, whilst it is possible that another person on the Local Pension Board could support on governance and administration.

S Dickson and A Fletcher entered the meeting at 11.02am

Councillor C Fletcher asked if all 11 Pension Funds would require separate advisors for their Committees and Local Pension Boards.  The Head of Pensions (LGPS) noted there was the shareholder role and the client role for each Fund.  He noted Government consultation was looking for one approach national across Pools.  He reiterated that BCPP was in a strong position, having pushed forward with pooling, and being regulated by the Financial Conduct Authority (FCA), another requirement proposed by Government. As shareholders, the Fund would work with BCPP and Partners to shape the function.

The Head of Pensions (LGPS) noted that another element of the Government consultation was in seeking greater opportunities for local investment, and for no new investments outside of Pools.  He referred to a table within the report setting out roles and responsibilities for the Pool and Pension Fund Committee, reiterating the degree of alignment with BCPP’s 2030 strategy. 

He noted that this included Committees setting aspirations, such as a percentage of investments in Equities as an example, and then it would be for Pools to implement the investments. The Head of Pensions (LGPS) noted that current BCPP Partnership arrangements relied on a very effective culture, with the proposals from Government potentially restricting Pension Fund Committees in terms of explicit decision making and Funds relying on a continuation of that culture for investment implementation as desired by the Committee.

The Head of Pensions (LGPS) noted the timescales for the consultation, for new models of operation by 31 March 2026.  He noted that the consultation did not refer to mandatory mergers of Pools or Funds and then referred Members to Appendix 2 to the report relating to the SAB’s ‘Good Governance’ Phase 3 guidance report from February 2021.  He noted that he would take comments from Committee, Local Pension Board and produce a draft response to the consultation which would be circulated for further comments prior to a final response agreed with the Chair and Vice-Chair before being submitted to Government.

Councillor M Porter noted only five of the eight Pools were FCA regulated and asked as regards the other three.  The Head of Pensions (LGPS) noted that noted one was in Wales and not under FCA Regulation, and it would be for them and the remaining two English Pools to react to the consultation accordingly.  Councillor M Porter asked if Government guidance would be sufficient and whether there could be implications for Durham within the BCPP Pool.  The Head of Pensions (LGPS) noted that some Pools did collaborate, and we and BCPP would need to be mindful of the challenge for other Pools and Funds, giving due consideration to opportunities to work with other Pools.  Councillor M Porter noted that was an area of concern and asked as regards whether Committees would retain strategic asset management.  The Head of Pensions (LGPS) noted the standard table on page 304 of the agenda pack proposed in the consultation.  He noted that the nuance would be how the Committee worked with BCPP in terms of how the Committee wanted, for example, the equity split geographically and whether via active or passive management. Councillor M Porter asked if there were a number of legacy assets for Durham to take into account.  The Head of Pensions (LGPS) noted that that was more an issue for some other Funds, Durham having been at the forefront in terms of getting on with the task of pooling.  He noted real estate with CBRE and the bond portfolio currently managed by AB as elements of the strategy that were currently outside of the Pool.  Councillor M Porter thanked the Head of Pensions (LGPS) and his Team in the work with BCPP to get to the positive position in respect of pooling. 

A Delandre agreed with Councillor M Porter and asked if the Head of Pensions (LGPS) felt that Funds were being listened to in discussions with Government.  The Head of Pensions (LGPS) noted meetings with the Minister and Government Department had been positive. A Delandre asked for a sense of how well other Funds were in terms of their progress in respect of pooling. The Head of Pensions (LGPS) noted within our Pool the 11 Funds were broadly in alignment on most issues, with some subtleties.  Across the wider 86 Funds, the Head of Pensions (LGPS), noted there were a wide range of views, with some Funds still somewhat resistant to Pooling.

J Taylor asked whether the Government consultation was looking at ensuring the best returns for Funds, or whether it was an opportunity for the Treasury to access the LGPS monies.  The Head of Pensions (LGPS) noted there had been cross-party consensus in terms of greater involvement of the LGPS in considering investment in the UK economy.  He noted that Durham had exposure via BCPP’s UK Opportunity Fund.  He reminded the Committee that local investment had been supported by the Fund, supporting the launch of a regional fund of around £100 million into small and medium sized enterprises in the region, however, investments were based upon returns, with local impact being a secondary concern.

Councillor M Porter asked if the Head of Pensions (LGPS) had any concerns as regards local plans and strategies in terms of investment, noting the work of Local Authorities and the Combined Authorities in the Tees Valley and North East (NECA).  The Head of Pensions (LGPS) noted that it will be important for Combined Authorities to consider how they can work with the pools to present investment opportunities in the future – a mechanism which was a feature of the BCPP UK Opportunities fund.

Resolved:

(a)     That the report be noted;

(b)     That the Corporate Director of Resources, in consultation with the     Chair and Vice Chair of the Committee, be authorised to respond to       the Consultation.