clwyd pension fund annual joint consultative meeting - aon.pdf · aon hewitt limited is authorised...
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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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
Agenda
Reminder of the Fund’s governance structure
Review of governance in 2017/18
National changes
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6 November 2018
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
Governance
Structure
1
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6 November 2018
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
Fund’s governance structure
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6 November 2018
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
2017/18
Review
2
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6 November 2018
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
Good governance
Good
governance
should be
demonstrated
in all areas of
fund
management
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6 November 2018
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
National
changes
3
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6 November 2018
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
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6 November 2018
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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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Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.
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