clwyd pension fund annual joint consultative meeting - aon.pdf · aon hewitt limited is authorised...

Prepared by Aon

Presentation to Clwyd Pension Fund

Clwyd Pension Fund

Annual Joint Consultative MeetingIndependent Appraisal of Fund Governance

Karen McWilliam – Independent Advisor and Independent Chair of the Pension Board

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6 November 2018

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Agenda

Reminder of the Fund’s governance structure

Review of governance in 2017/18

National changes

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6 November 2018


Governance

Structure

1

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6 November 2018


Fund’s governance structure

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6 November 2018


2017/18

Review

2

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6 November 2018


Good governance

Good

governance

should be

demonstrated

in all areas of

fund

management

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6 November 2018


Robust foundations

Strategies

Clear objectives and aims

set out in strategies that

are regularly reviewed

Risk management

Well integrated and

covering all areas.

Monitoring

Good standard of regular

monitoring across all

areas.

Conflicts of interest

Good understanding of

potential conflicts being

demonstrated

Robust business

planning

Regular updates and

budget monitoring

Pension Board

Quickly established and

adding value e.g.

Cybercrime & disaster

planning

Structure and decision

making

Robust with decision

making being made at the

right level

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6 November 2018


Specific points to note - Governance

Committee

membership

changes

Transition to

asset

pooling

Pension

Fund Team

resources

Five new members

New Chairperson

During period of major challenges

Significant and urgent training

requirements

Excellent engagement by CPF

Significant amounts of work –

being expertly managed in CPF

Procurement and appointment of

Operator

Bedding in of Joint Governance

Committee

Retirement of key member of staff

Difficulties recruiting

Increasing workloads

Team coping admirably

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6 November 2018


Specific points to note – Investments and Funding

MIFIDII

UK

Stewardship

Code

Formal opt up process required

Involving 60 fund managers and consultants

Short timescales fully adhered to

All managers / consultants agreed requirements

CPF awarded Tier One status

Demonstrates robust stewardship arrangements relating to investments

Not easy to achieve!

Key points in later presentations

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6 November 2018


Specific points to note – Administration and Communications

New Website launched

I-Connect roll out

Two major councils now live and other smaller employers

Member self service launch

31% active members (as at 08/18)

Averages per day:

86 benefit projections

6 expressions of wish

On-line annual benefit statements now

provided

General Data Protection Regulation

Fully implemented within required timescales

Ongoing work load challenges

Processes doubled since April 2014

Ongoing focus on identifying efficiencies

Some increases in staff resources

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6 November 2018


Ongoing challenges

Areas of focus

Asset poolingStandards of

governance

CPF strategy being

delivered

ResourcesWorkloads

Resources

Vacancies

Succession planning

Business as

usualGetting back on track

Data improvement

Ongoing

changeBenefit changes

GMP equalisation

Etc etc

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6 November 2018


National

changes

3

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6 November 2018


The view from up high

The role of the LGPS National Scheme Advisory Board:

Sec. of

State

Funds

To provide advice to the Secretary of State on the desirability of

making changes to the scheme.

To provide advice to administering authorities and local pension boards in

relation to the effective and efficient administration and management of the

Scheme and their funds.

Following slides provide an overview of what is on their agenda / their latest

thinking

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6 November 2018


An affordable scheme?

By 2020 cut in council core funding of £16bn (60%) since 2010

Funding gap of £7.8bn by 2025

168 councils will receive no core funding at all in 2019

2017 saw biggest increase in children in care since 2010

8,000 people affected by reduced care provision in last six months

LGPS Employer contributions in 2017 were £7.4bn

However

– Employees paid £2.1bn towards the scheme

– Employer contributions constituted just under 6% of £93.6bn LA revenue

expenditure in 2017

– LGPS Investment income contributed some £4bn to the cost of the scheme in

2017

– Average LGPS pension paid in 2017 was less than £5,000 per annum

– LGPS pensions provide much needed income, defray other benefits and

contribute to the local economy

– LGPS investment could be part of the solution for local housing and

infrastructure

SAB now

confirmed

0.5% benefit

improvements

will be made

under LGPS

cost sharing

Newsflash

Will the next valuation (scheme and fund) be ‘make or break’?

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6 November 2018


Not just a council scheme

Members

just want to know

what their pension

will be

Scheme employers

14,000 in 2017

Councils

want protection for

local tax payers

Tier 3 employers

want more involvement,

closer alignment with

their needs and for some

an affordable route out

Academies

(England only)

want consistency

and affordability

Funds

need assurance of

covenant with

stability of assets

and cash flows

How can we meet the structural, administrative and investment challenges of all

these objectives?

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6 November 2018


Scheme management structure

AssuranceStatutory rather than trust status brings assurance to

scheme members and democratic link to local tax

payers

ConflictBut also brings potential for conflict of interest and

functions

ResourceDifficulty in matching of resources and priorities in a

time of austerity

ComplexityService is under pressure from a complex scheme and

increased demands both internal and external

Is the ‘ring fence’ high enough or are different solutions needed

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6 November 2018


Responsible investment

Financial and non-financial factors – blurred lines?

Law Commission’s recommendations to Government

DWP consultation – but trust based schemes only.

Should LGPS follow the private sector lead or are we already ahead of the game?

Need for a clear response to those questioning ESG policies

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6 November 2018


Cost Transparency

Linking with the new IDWG

User and account level templates

Out for testing

Will be transition for those signed up to LGPS

www.fca.org.uk/firms/institutional-disclosure-working-group

The

LGPS

Code

85 managers signed up covering over £160bn in assets

almost 60% of total assets and over 90% of listed equity assets

www.lgpsboard.org/index.php/structure-reform/cost-transparency

http://www.fca.org.uk/firms/institutional-disclosure-working-group

http://lgpsboard.org/index.php/structure-reform/cost-transparency

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6 November 2018


Pension committee post pooling

Area Pensions Committee Pool

Investment strategy Sets strategy Implements strategy

Asset Allocation Decides on allocation* Day to day management

of allocation

Responsible investment

strategy

Sets strategy Implements strategy

Reporting Reports to employers and

scheme members

Reports to LGPS funds

Manager selection Selects managers or

invests directly

*what counts as allocation in my pool especially re infrastructure?

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6 November 2018


Data quality and timeliness

Data

improvement

plans

Employers

have a critical

role

Example Callout bar. Don't clip the Aon LogoKey area of focus for the Pensions Regulator

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6 November 2018


Guaranteed Minimum Pension (GMP) Equalisation – hot off the press!

Legal requirement to provide equal benefits to men and women

Pre-Barber service(Equalisation not required)

Excess over GMP

GMP

No GMP

Pe

nsio

n

17 May 1990 5 April 1997

Total Pensionable Service

Equalised benefits required

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6 November 2018


The inequalities in GMPs

Spouses

benefits

Coverage

checks

GMP age

Accrual

rates

For females: Broadly higher accrual

For males: Broadly lower accrual

65 for males

60 for females

Different increases in deferment and payment therefore apply to/from different ages

GMP provides an underpin

Underpin is tested at different ages (65 and 60)

Steps-ups (anti-franking and “regulation 55”) therefore apply differently

Checks on cash commutation and early retirement look different for males and

females

In some cases no widower benefits if female member dies

Inequalities stem from statutory definition of GMP

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6 November 2018


Summary

Robust

governance

providing a

strong

foundation

Major

achievement

s – changes

and

efficiencies

Challenges

ahead – more

change,

workloads

and

resourcing

Any questions?

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6 November 2018


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