County Hall Beverley East Riding of Yorkshire HU17 9BA Telephone (01482) 393939 www.eastriding.gov.uk Darren Stevens Director of Corporate Resources
To: Members of the Local Pensions Board Your Ref: Our Ref: Agenda/LPB/IE Enquiries to: Iain Edmiston E-Mail: [email protected] Tel. Direct: (01482) 393208 Date: 24 October 2019
Dear Board Member
I hereby give you notice that a meeting of the LOCAL PENSION BOARD will be held at COUNTY HALL, CROSS STREET, BEVERLEY on FRIDAY, 1 NOVEMBER 2019 AT 10.30am.
The business to be transacted is as set out below.
Yours sincerely
for Darren Stevens Director of Corporate Resources
Enc
Pensions Committee 10.30am – 12pm
Employer Annual General Meeting 12.30pm – 1.30pm
Lunch 1.30pm – 2pm
Local Pension Board (2pm – 3.30pm)
A G E N D A
1. Apologies for Absence.
2. Declarations of Pecuniary and Non-Pecuniary Interests - Members to declare any interests in items on the agenda and the nature of such interest.
3. To approve the minutes of the Local Pensions Board meeting held on 21 June 2019 (pages 1 - 4). Caroline Lacey 4. Review of the Local Pension Board’s Terms of Reference (pages 5 - 11). Chief Executive
5. Local Pension Board Work Plan 2020 (pages 12 - 14).
6. Local Pension Board Training Programme 2020 (page 15).
7. Pension Fund Risk Register (pages 16 - 43).
8. Update on Scheme Employer Year End Return Exercise 2018-19 (pages 44 - 48).
9. Pension Fund Annual Report and Accounts 2018-19 (pages 49 - 201).
10. Update on Pension Administration Strategy (pages 202 - 218).
11. Items for Information (pages 219 - 231).
i. Pensions Committee Minutes 26 July 2019 27 September 2019
ii. LAPFF Business Meeting and AGM - July 2019
12. Any other items, which the Chairman decides are urgent by reason of special circumstances, which must be specified.
The Committee is asked to consider excluding the press and public from the meeting for consideration of the following items on the grounds that they are likely to involve the disclosure of exempt information as defined in paragraph 3 of Part 1 of Schedule 12A of the Local Government Act 1972. In making its decision, the Committee is asked to confirm that, having regard to all circumstances, it is satisfied that the public interest in maintaining the exemption outweighs the public interest in disclosing the information.
13. Pension Fund Annual Performance Review - 2018-19 (pages 232 - 248).
14. 2019 Formal Funding Valuation Initial Results (pages 249 - 271).
15. Shareholders Voting Records (pages 272 - 296).
i. Quarter Ended 30 June 2019 ii. Quarter Ended 30 September 2019
16. Update on Boarder to Coast Pension Partnership (pages 297 - 301).
Under the Openness of Local Government Bodies Regulations 2014 members of the press and public may film, record, take photographs or use social networking during Council meetings that take place in public. Democratic Services kindly requests advance notice from anyone wishing to film, record or take photographs during open meetings so that suitable provision can be made.
East Riding of Yorkshire Council will, on request, provide this document in Braille, audio or large print format.
If English is not your first language and you would like a translation of this document into any other language, please telephone (01482) 393939.
EAST RIDING OF YORKSHIRE COUNCIL 3 LOCAL PENSION BOARD
21 JUNE 2019
PRESENT: Guy Lonsdale (Chairman), Councillor Dennis, Jayne Karlsen and Natasha McLaren.
Also in attendance: Darren Stevens (Director of Corporate Resources), Julian Neilson (Head of Finance), Graham Ferry (Pensions Manager), Kevin Dervey (Head of Investments), Jennifer Gregory (Assistant Pensions Manager) and Liz Vollans (Assistant Pensions Manager).
Also in attendance: Press - 0 Public - 0
The Board met at Goole Leisure Centre.
154 APOLOGIES FOR ABSENCE - Apologies for absence were submitted on behalf of Julie Davey and Linda Bowen.
155 DECLARATIONS OF PECUNIARY AND NON-PECUNIARY INTEREST - All members of the Board declared a non-pecuniary interest in Minutes 157 to 167 as members of the Local Government Pension Scheme.
156 MINUTES - Resolved - That the minutes of the meeting of the Local Pension Board held on 22 February 2019 be approved as a correct record.
157 REVIEW OF INTERNAL CONTROLS AND ASSURANCE OF REPORTS - The Director of Corporate Resources submitted a report which covered the findings of the work undertaken to assess the internal controls and procedures in place at:
Schroder Investment Management Limited and Border to Coast Pension Partnership, the Pension Fund’s External Investment Managers. State Street Global Services the Pension Fund’s global custodian. The investment section, the Pension Funds’ internal Investment Manager. The Pension Administration section.
The conclusions of the report in respect of Schroder Investment Management, State Street Global Services, the investment section and pension administration section were that each of these managers had adequate risk controls and procedures in place. The report relating to Border to Coast Pension Partnership was not yet available and would be reported to the Local Pension Board at its next meeting on 1 November 2019.
The Investment Strategy Statement (ISS) effective from 1 April 2018 required an annual written statement from the Investment Managers that they had adhered to the principles set out in the ISS, letters of compliance with the ISS, for the financial year ended 31 March 2019, from the Director of Corporate Resources and Schroder Investment Management were attached to the report. The letters of compliance from State Street Global Services and Border to Coast Pension Partnership had been received following publication of the report.
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The Pension Fund’s independent advisor, Rowan Worrall, periodically provided an updated list of directorships and shareholdings. Any potential conflict of interest with the Pension Fund would be disclosed in the investment risk management schedule of the relevant quarter report.
Resolved - That the report be noted.
158 UPDATE ON PENSION ADMINISTRATION STRATEGY - The Director of Corporate Resources submitted a report which detailed the proposed amendments to the Pension Administration Strategy (PAS) which was previously approved by the Board at its meeting on 30 June 2017 and the Pension Committee at its meeting on 29 September 2017. Following the statutory consultation with scheme employers, the PAS came into force on 1 January 2018.
The amended PAS had been drafted in accordance with Regulation 59 of the Local Government Pension Scheme (LGPS) Regulations (2013). The proposed amendments were to update the performance targets for East Riding Pension Fund and for the scheme employers taking account of statutory timescales and the introduction of Monthly Data Collection (MDC). Additional scheme employer responsibilities had been added, including the supply of information following a change of payroll provider. Based on recommendations from the Board an updated PAS would be considered for approval by the Pensions Committee on 26 July 2019.
Resolved - That the revised Pensions Administrations Strategy be recommended for approval to the Pensions Committee.
159 UPDATE ON MONTHLY DATA COLLECTION PILOT - The Director of Corporate Resources submitted a report which informed the Board that the East Riding Pension Fund procured the Monthly Data Collection (MDC) software in December 2017. However lengthy delays in installing a working version of the software meant that work could not commence on the development until October 2018. The report provided an update to the Board on the significant amount of work that had been completed in the last six month to review and redevelop the workflow processes. The Fund was close to completing all of the bespoke development needed and had started a period of testing for each of the five stages within MDC. During development it became apparent that elements of the MDC process could be utilised in other areas and this had brought efficiencies forward in these areas, allowing for live testing of the software before full implementation.
Resolved - That the report be noted.
160 UPDATE ON ERPF ONLINE SERVICES FOR SCHEME EMPLOYERS - The Director of Corporate Resources submitted a report which informed the Board that since April 2018, ERPF online services had been the primary method of communication between the East Riding Pension Fund and its 321 scheme employers (as at 31 March 2019). All scheme employers were now signed up to ERPF online services and significant development had been undertaken to utilise the automation and security of the system. The report provided an update to the Board on how ERPF online services had developed during this period including the key development to move all of the monthly contributions reconciliation. The Fund had worked in partnership with Civica to develop the next version of employer online services. The upgrade would be available from autumn 2019.
Resolved - That the report be noted.
161 UPDATE ON ERPF MEMBER SELF SERVICE - The Director of Corporate Resource submitted a report which informed the Board that the East Riding Pension Fund had
B:\DDPC\CR\Democratic\Local Pension Board\Minutes\21jun19.docx (ie/dd) 2 Pensions 21 June 2019 procured a member self-service platform from Civica the Funds pension software provider. ERPF Member Self Service (ERPFMSS) would enable members to view their pension data, update their personal information, perform calculations to aid retirements planning and retire online. The report detailed the project plan for the implementation which had a projected completion date of June 2020. The fund would be developing a member engagement strategy to implement ERPFMSS and a further report would be brought to the Board on 1 November 2019.
Resolved - That the project plan be approved.
162 SCHEME EMPLOYER YEAR END RETURN EXERCISE 2018-19 - The Director of Corporate Resources submitted a report which detailed the progress to date of the 2018-19 year end return exercise. All scheme employers were required to submit year end returns which included member pay details to enable the East Riding Pension Fund to issue annual benefit statements by 31 August 2019. The results for 2018-19 show 261 (85%) scheme employers in the fund submitted a valid year end return by 14 June. The fund was now in the process of completing the 2018-19 year end return exercise to enable the annual benefit statements for active members to be issued by 31 August 2019. The Board was provided with an update on the current return figures following publication of the report.
Resolved - That the report be noted.
163 DRAFT ANNUAL REPORT OF THE LOCAL PENSION BOARD FOR PENSION FUND REPORT AND ACCOUNTS - The Director of Corporate Resources submitted a report which informed the Board that East Riding of Yorkshire Council as administering authority with prime responsibility for establishing the East Riding Pension Fund Local Pension Board (the Board), considered it appropriate and consistent with good governance for the Board to produce an annual report for inclusion in the East Riding Pension Fund annual report and accounts for 2018-19. The reporting requirements were for the Board and the Fund to determine. In order to help members consider these requirements a draft report was attached to the report for consideration.
Resolved - That the format and contents of the Annual Report for inclusion in the Fund’s Annual Report and Accounts for 2018-19 be approved.
164 ITEMS FOR INFORMATION - The Board was presented with the Pensions Committee minutes from 15 March and 26 April 2019 and the LAPFF Business Meeting report from April 2019.
The Board considered the membership of the East Riding Pension Fund Pensions Committee and in particularly, representation from the other local authorities within the Fund. Details were given on the attendance of the other local authority representatives and it was suggested that a letter could be written to the three local authorities to thank their members for their contribution to the Pensions Committee and to encourage their future attendance at Pensions Committee meetings.
Resolved - (a) That the Minutes of the Pension Committee held on 15 March and 26 April 2019 be received;
(b) that the report on the LAPFF Business meeting held in April 2019 be noted, and
B:\DDPC\CR\Democratic\Local Pension Board\Minutes\21jun19.docx (ie/dd) 3 Pensions 21 June 2019
(c) that a letter be written to the three local authorities thanking them for their members’ contribution to the Pensions Committee and encouraging their attendance at future Pensions Committee meetings.
165 BORDER TO COAST PENSION PARTNERSHIP ANNUAL CONFERENCE - The Board was informed that the annual conference would take place on 10 and 11 October and that the East Riding Pension Fund had been allocated ten places. A letter would be sent out to Board members and Pension Committee members seeking expressions of interest in attending the conference.
Guy Lonsdale informed the Committee that Local Pension Board Chairs had met at the Border to Coast Pension Partnership Offices in Leeds and gave details of the discussions that had been held.
166 EXCLUSION OF THE PRESS AND PUBLIC - Resolved - That the press and public be excluded from the meeting for consideration of Minutes 167 and 168 on the grounds that they are likely to involve disclosure of exempt information as defined in Paragraph 3 of Part 1 of Schedule 12A of the Local Government Act. In making its decision the Board confirmed having regard to all the circumstances it was satisfied that the public interest in maintaining the exemption outweighed the public interest in disclosing the information.
167 SHAREHOLDER VOTING RECORD - QUARTER ENDED 31 MARCH 2019 - The Director of Corporate Resources submitted a report which informed the Board of the voting record of the Internal and External Investment Manager for the quarter ended 31 March 2019. Of the 22 proposals voted, the Internal Manager voted in accordance with the UK Corporate Governance Code on 100% of occasions.
Schroeder Investment Management had provided the voting record for its discretionary equity portfolios for the quarter ended 31 March 2019. Of the 212 proposals voted, the Manager voted in accordance with its stated policy on 95.3% of occasions.
Border to Coast Pension Partnership had provided its voting record for the quarter ended 31 March 2019. Of the 914 proposals voted the Manager voted in accordance with its stated policy on 99.8% of occasions.
Resolved - That the report be noted.
168 UPDATE ON BORDER TO COAST PENSION PARTNERSHIPS - The Director of Corporate Resources submitted a report which reminded the Board that Border to Coast Pension Partnership was an alternative Investment Fund Manager authorised by the Financial Conduct Authority and wholly owned by 12 Local Government Pension Schemes administering authorities which included East Riding of Yorkshire Council. Border to Coast operated investment funds for those administering authorities to invest, invest a Pension Fund assets, based on their strategic allocation. The assets currently under management across the four live sub-funds had reached £8.8bn and was expected to exceed £10bn when the Local Equity Alpha Fund was launched in July 2019. Officers would continue to monitor the development of the pool and further updates would be provided to the Pensions Committee and Local Pension Board.
Resolved - That the report be noted.
B:\DDPC\CR\Democratic\Local Pension Board\Minutes\21jun19.docx (ie/dd) 4 EAST RIDING OF YORKSHIRE COUNCIL 4 Report to: East Riding Pension Fund Local Pension Board 1 November 2019
Review of the Local Pension Board’s Terms of Reference
Report of the Director of Corporate Resources
A. Executive Summary
In accordance with the Public Service Pensions Act 2013, the East Riding Pension Fund Local Pension Board (the Board) was established in 2015 to assist the East Riding of Yorkshire Council, as administering authority, with all aspects of governance and administration of the Local Government Pension Scheme (LGPS). The inaugural meeting took place on 2 October 2015 and the Board approved the Terms of Reference.
The Terms of Reference are reviewed annually and, on 4 November 2016, the Board agreed to increase the annual frequency of meetings from two to three in 2017. On 2 November 2018, the Board considered the annual frequency of meetings following the publication of the results of the Pensions Regulator’s (TPR) public service governance and administration survey in May 2018 and agreed to continue to meet three times per annum.
The Board also considered the number of times a Board member may seek re-election and agreed that a member may serve for a period of two terms. However, in the circumstances where no replacement could be found, that member could be re-appointed for a third term of office. Section 3 of the Terms of Reference was subsequently amended and the current Terms of Reference are attached as Appendix 1.
The Board is now requested to review the Terms of Reference and consider any required amendments.
B. Recommendations
It is recommended that the:
(i) Board reviews the Terms of Reference and considers the future annual frequency of meetings; and
(ii) Terms of Reference continue to be reviewed on an annual basis.
C. Equality Implications
Equality implications have been considered and no negative impacts upon protected characteristic groups were identified.
1. Background
1.1 The Public Service Pensions Act 2013 requires local pension boards to be established to assist administering authorities with all aspects of governance and administration of the LGPS. A
5 EAST RIDING PENSION FUND PENSION BOARD
TERMS OF REFERENCE
1. Introduction
The purpose of this document is to set out the Terms of Reference for the Pension Board (the Board) of the East Riding Pension Fund.
2. Responsibility and Role of the Board
The responsibility of the Board, as defined by sections 5(1) and (2) of the Public Service Pensions Act 2013, is to assist the Administering Authority (East Riding of Yorkshire Council) as Scheme Manager in ensuring the effective and efficient governance and administration of the Local Government Pension Scheme (LGPS) including:
securing compliance with the LGPS Regulations and other legislation relating to the governance and administration of the LGPS; securing compliance with requirements imposed in relation to the LGPS by the Pensions Regulator; and, such other matters as the LGPS Regulations may specify.
The Administering Authority retains ultimate responsibility for the administration and governance of the scheme. The role of the Board is to support the Administering Authority to fulfil that responsibility and secure compliance with any requirements imposed by the Pensions Regulator.
In its role, the Board will have oversight of the administration and governance of the Fund including:
the effectiveness of the decision making process; the direction of the Fund and its overall objectives; the level of transparency in the conduct of the Fund’s activities; and, the administration of benefits and contributions.
Subject to further details, the activity of the Board will include:
reviewing the Fund’s governance and policy documents; reviewing compliance with the Fund’s governance and policy documents; reviewing the administrative and investment performance of the Fund; reviewing shareholder voting and engagement arrangements; reviewing the Fund’s Risk Register; reviewing Audit and Assurance reports; and, reviewing the Fund’s website.
6 3. Membership
The Board shall consist of six voting members and be constituted as follows:
three Employer Representatives – Administering Authority (1), other scheme employers (ie organisations other than the Administering Authority who, under the Regulations, can participate in the LGPS) (2); and, three Scheme Member Representatives – active members (1), pensioner members (1), active/pensioner or deferred member (1).
Elected Members and Officers involved in the management and administration of the Fund are not permitted to become Board members.
Members of the Board will serve for a term of three years following which they may either retire from the Board or seek nomination for an additional term. Members may serve for a maximum period of two terms. However, in the circumstances where no replacement can be found, that member may be re- appointed for a third term of office. The term of office may otherwise come to an end:
for Scheme Member Representatives if they cease to be a member of the relevant group; and, for Employer Representatives who are councillors if they cease to hold office as a Councillor.
The Chair of the Board will be elected by the Board at its first meeting and will serve for a period of three years.
The Board may, with the approval of the Administering Authority, co-opt persons to advise and support them. Co-optees are not Board members and do not have voting rights. Due to the specialist knowledge and understanding required, Members will not be permitted to send substitutes to meetings when they are unable to attend themselves.
4. Appointment of Board Members
Three Employer Representatives:
. one Employer Representative will be a Councillor from East Riding of Yorkshire Council who is not a member of the Pensions Committee and will be selected by the Council having taken account of their relevant experience, their capacity to represent other scheme employers and their knowledge and understanding of the LGPS; and, . two Employer Representatives to be nominated by the employer’s forum – having demonstrated their relevant experience, their capacity to represent other scheme employers and their knowledge and understanding of the LGPS. In the event of there being more than two nominations, the Scheme Manager will carry out a selection process.
7 Three Scheme Member Representatives:
To be identified as follows: the Administering Authority shall contact all Scheme Members including unions and professional associations affiliated to the Authority advising them of the role, the necessary knowledge and understanding required and the process applying toward becoming a Board Member; individual Scheme Members may put themselves forward; there will then be a selection process carried out by the Scheme Manager to assess relevant experience, their capacity to represent scheme members and their knowledge and understanding of the LGPS.
Members in all categories will only be appointed to the Pension Board by the Administering Authority if they either meet the knowledge and skills requirements set out in the relevant regulations and guidance (see Section 9) or commit to do so within three months of the appointment date.
5. Meetings
The Board shall meet three times a year, at the Council’s Offices in Goole during working hours.
An extraordinary meeting will be called when the Chair considers this necessary and/or in circumstances where the Chair receives a request in writing by 50% of the voting membership of the Board.
6. Quorum
A quorum will comprise three of the six members of which at least one shall be an Employer Representative and one a Scheme Member Representative.
7. Decision Making
Each Member of the Board will have an individual voting right but it is expected that the Board will, as far as possible, reach a consensus.
8. Standards of Conduct and Conflicts of Interest
The principles included in the East Riding of Yorkshire Council’s Code of Conduct for Members will apply to all Members of the Board. The Code is set out in the Council’s Constitution http://www2.eastriding.gov.uk/council/committees/the- council/council-constitution-political-control-and-councillor-information/. In accordance with s5(5) of the Public Service Pensions Act 2013, a Board Member must not have a financial or other interest that could prejudice them in carrying out their Board duties. Conflicts of interest shall be managed taking into account both the regulations set out in East Riding of Yorkshire Council’s Constitution and the advice provided by the Pensions Regulator. This does not include a financial or other interest arising merely by virtue of being a member of the LGPS.
8 9. Knowledge and Skills
Following appointment, each Member of the Board should be conversant with:
the legislation and associated guidance of the LGPS; and, any document recording policy about the administration of the LGPS which is for the time being adopted by the Fund.
The Administering Authority will provide a training programme which all Board Members will be required to attend.
10. Accountability
The Board will refer all relevant recommendations and decisions to the Pensions Committee of the Administering Authority and, where appropriate to Full Council. It will present a report on its work each year within the Pension Fund’s Annual Report and Accounts . 11. Publication of Pension Board Information
The Administering Authority will publish up to date information on the Council’s website including:
the names of the Board Member; the Board’s Terms of Reference; and, papers, agendas and minutes of Board meetings.
12. Data Protection
The Administering Authority is and remains the data controller responsible for Data Protection Act compliance.
13. Expense Reimbursement
Board Members will be reimbursed travel and subsistence costs in line with the Administering Authority’s Members Allowance Scheme.
The establishment of the Local Pension Board was approved on 25 February 2015 by East Riding of Yorkshire Council.
9 report setting out the proposed composition and Terms of Reference for the Board was approved by the Pensions Committee on 6 February 2015.
1.2 The proposed composition and Terms of Reference for the Board were then recommended to Full Council and were adopted on 25 February 2015.
1.3 In accordance with the Terms of Reference, three employer representatives and three scheme member representatives were appointed to the Board and approved the Terms of Reference at its first meeting on 2 October 2015.
1.4 At the Board meeting on 4 November 2016, it was agreed to increase the annual frequency of meetings from two to three in 2017. Section 5 of the Terms of Reference was subsequently amended.
1.5 On 2 November 2018, the Board also considered the number of times a Board member may seek re-election and agreed that a member may serve for a period of two terms. However, in the circumstances where no replacement could be found, that member could be re-appointed for a third term of office. Section 3 of the Terms of Reference was subsequently amended and the current Terms of Reference are attached as Appendix 1.
2 Frequency of meetings
2.1 On 23 February 2018, officers of the Fund led a training session for Board members on the role of TPR and the standards required for administering the LGPS. As part of the training session, Board members completed the 2018 survey.
2.2 In May 2018, TPR issued the results of the 2018 survey which highlighted the finding that over 43% of public service pension schemes hold fewer than four meetings per annum. TPR’s view was that this provided “inadequate opportunity for pension boards to effectively carry out their role and raises concerns about the quality of governance”.
2.3 On 2 November 2018, the Board considered the results of the 2018 survey for the LGPS funds specifically which highlighted that 66% of LGPS funds held Board meetings at least quarterly. The Board considered that the current frequency of meetings was sufficient to deliver its work plan and therefore felt that, in accordance with the work plan in place at that time, the number of meetings should continue to be three per annum.
2.4 In September 2019, TPR published its engagement report based on engagement discussions conducted with 10 LGPS funds between October 2018 and July 2019. The report looked at various risk areas including local pension board knowledge and understanding and recommended that a local pension board should meet an appropriate number of times per annum, at least quarterly.
3 Issues for consideration
3.1 Taking account of TPR’s preference for quarterly meetings as a minimum, Board members are requested to consider whether the current annual frequency of Board meetings is sufficient to carry out their role to assist the Scheme Manager in ensuring the effective and efficient governance and administration of the LGPS.
3.2 Board members are also requested to consider if there are any further changes that they would wish to make to the Terms of Reference.
10 Darren Stevens Director of Corporate Resources
Contact Officer: Julian Neilson Head of Finance Telephone Number: 01482 394100 E-mail: [email protected]
Contact Officer: Graham Ferry Pensions Manager Telephone Number: 01482 394171 Email: [email protected]
11
EAST RIDING OF YORKSHIRE COUNCIL 5 Report to: East Riding Pension Fund Local Pension Board 1 November 2019
Local Pension Board Work Plan 2020
Report of the Director of Corporate Resources
A. Executive Summary
The Public Service Pensions Act 2013 requires local pension boards to be established to assist administering authorities with all aspects of governance and administration of the Local Government Pension Scheme (LGPS). To meet those requirements, the East Riding Pension Fund Local Pension Board (the Board) determined its own work plan for 2019 and covered a number of topics at each meeting.
The Board is now requested to agree the work plan for 2020 including future meeting dates.
B. Recommendations
It is recommended that the Board:
(i) Agrees the dates of meetings for 2020; (ii) Considers and agrees the items to be included on the work plan for 2020; and (iii) Reviews the Board content on the website.
C. Equality Implications
Equality implications have been considered and no negative impacts upon protected characteristic groups were identified.
1. Introduction
1.1 Regulation 106(1) of the LGPS Regulations 2013 specifies that pension boards will have responsibility for assisting the administering authority to:
Secure compliance with:
- the Regulations; - any other legislation relating to the governance and administration of the LGPS; and - the requirements imposed by The Pensions Regulator in relation to the LGPS.
Ensure the effective and efficient governance and administration of the LGPS.
1.2 The Terms of Reference set out the activity of work to be considered by the Board in order to meet the Board’s responsibilities and this is reproduced at paragraph 2.1.
1.3 The Board is empowered to agree its priorities and determine its own schedule of work within the work plan.
12 2. Work plan
2.1 The work plan of the Board will include:
reviewing the Fund’s governance and policy documents reviewing compliance with the Fund’s governance and policy documents reviewing the administrative and investment performance of the Fund reviewing shareholder voting and engagement arrangements reviewing the Fund’s risk register reviewing Audit and Assurance reports reviewing the Fund’s website
2.2 Although the activity of work in paragraph 2.1 has been designed to ensure the Board’s responsibilities are met, it is the Board’s decision which areas of work will take precedence and the agreed work plan should be a responsive tool which will be updated on a rolling basis following each meeting.
2.3 To enable the Board to consider issues and make recommendations to the Pensions Committee at the appropriate time, the following draft work plan and timing of meetings is proposed:
21 February 2020
(i) Review of the Fund’s Investment Strategy Statement (ahead of consideration by the Pensions Committee on 13 March 2020) (ii) Review of the Governance Policy Statement (ahead of consideration by the Pensions Committee on 13 March 2020) (iii) Review of performance of internal and external manager (iv) Update on the 2019 Actuarial Valuation results (v) Review of the Funding Strategy Statement (vi) Update on the Guaranteed Minimum Pension reconciliation project (vii) Review of Communications policy (viii) Review of Fund’s risk register
19 June 2020
(i) Review of internal controls and assurance reports (ii) Actuarial Valuation as at 31 March 2019 (iii) Member Engagement Strategy (iv) Update on Monthly Data Collection (v) Draft Annual Report of the Local Pension Board for Pension Fund Report and Accounts (vi) Cyber Security
6 November 2020
(i) ISA 260 plus Annual Report and Accounts (ii) Review of Terms of Reference (iii) Pension Fund Annual Performance Review 2019-20 (iv) Local Pension Board Work Plan 2021 (v) Local Pension Board Training Program 2021 (vi) Review of the Fund’s risk register
13 Each Meeting
(i) Shareholder voting and engagement activities (ii) Minutes from Pensions Committee (iii) Summary of Local Authority Pension Fund Forum (LAPFF) business meetings (iv) Update on Border to Coast Pensions Partnership
2.4 The Board may wish to highlight areas which arise through the course of the year, for example, to monitor the performance of employers in submitting monthly employer and employee contribution returns and suggest ways to improve data quality through working with employers.
3. Next Steps
3.1 Once the Board has agreed the work to be carried out over the next 12 months, the work plan will be published on the East Riding Pension Fund website (www.erpf.org.uk) along with details of future meeting dates.
3.2 Board members are requested to review Board content on the website including biographies and make suggestions for further content. The website currently includes the following information:
Details of the Board members including interests Code of Conduct for the East Riding Pension Fund Local Pension Board Work plan 2019 Agenda and Minutes of Pension Board meetings Terms of Reference for the Board Job Description and Person Specification
Darren Stevens Director of Corporate Resources
Contact Officer: Julian Neilson Head of Finance Telephone Number: 01482 394100 E-mail: [email protected]
Contact Officer: Graham Ferry Pensions Manager Telephone Number: 01482 394171 Email: [email protected]
14
6 EAST RIDING OF YORKSHIRE COUNCIL
Report to: East Riding Pension Fund Local Pension Board 1 November 2019
Local Pension Board Training Programme 2020
Report of the Director of Corporate Resources
A. Executive Summary
The purpose of this report is for Members of the East Riding Pension Fund Local Pension Board (the Board) to consider specific Local Government Pension Scheme (LGPS) topics for their Training Program for 2020. Training sessions, based on the agreed topics, will be arranged to meet individual and group training requirements.
B. Recommendations
It is recommended that Board members consider and agree the training required for 2020 to meet their knowledge and understanding requirements.
C. Equality Implications
Equality implications have been considered and no negative impacts upon protected characteristic groups were identified.
1. Introduction
1.1 The Public Service Pensions Act 2013 requires that every individual who is a member of a Local Pension Board must have a certain level of knowledge and understanding about the scheme regulations and policies in order to fulfil their role. This requirement is covered in greater detail in The Pension Regulator’s Code of Practice No 14: Governance and Administration of Public Service Pension Schemes (2015).
1.2 In the context of the LGPS, Board members require knowledge and understanding of the legislative framework of the LGPS, the roles and responsibilities of the administering authority and scheme employers as well as investment matters, actuarial valuations, accounting and auditing.
1.3 Four of the six Board members last assessed their knowledge and understanding requirements by completing a questionnaire in December 2018. The results showed that the Board members rated their knowledge and understanding of the eight subject areas as being 3.25 on average where 1 is no knowledge and 5 is highly skilled. The other two Board members are in the process of completing a questionnaire. Officers have used the results from the questionnaires to arrange the training sessions held during 2019 on:
The 2019 actuarial valuation led by the Fund’s actuary Management of employer risk led by officers of the Fund
15
EAST RIDING OF YORKSHIRE COUNCIL 7
Report to: East Riding Pension Fund Local Pension Board 1 November 2019
Pension Fund Risk Register
Report of the Director of Corporate Resources
A. Executive Summary
This report presents the six monthly review of the Pension Fund’s risk register.
This latest review was considered and approved by the Pensions Committee at its meeting on 26 July 2019. No new strategic risk areas have been identified during this latest review.
The residual risk score for Risk 1 – ‘The Pension Fund’s assets do not meet expected liabilities when they fall due’ has been reduced from 15 to 10, as the Fund’s triennial actuarial valuation targets a 66% likelihood of success in 20 years’ time and therefore it is considered that this risk is unlikely to materialise in the medium term.
The inherent risk score for Risk 2 – ‘The Fund is unable to meet the requirements of Government policy on pooling investments across LGPS funds’ has been reduced from 16 to 4 and the risk is now considered to have reduced to a level where it can be removed from the register, as the Fund has successfully transitioned 35% of its assets to Border to Coast and is actively engaged with Border to Coast to transfer more assets over the next two years.
With regard to Risk 3 – ‘The potential for disruption, monetary losses and adverse investment performance from the transfer of assets and personnel into Border to Coast Pensions Partnership Limited’, the transfer of personnel has already taken place and the reference to personnel is now removed.
The residual risk score for Risk 8 – ‘Failure to report a breach of the law to the Pensions Regulator (TPR)’ has been reduced from 4 to 2 and the risk is now considered to have reduced to a level where it can be removed from the register, as the legal duty to report a breach to the Regulator is now embedded in the Fund’s processes and highlighted in key Fund documents, including the Pension Administration Strategy.
The risk register has been updated for news/issues since the previous review and is attached at Appendix 1, and the key issues are summarised in this report at paragraph 2.6.
This report also reports any breaches of the law which require reporting to the Pensions Regulator. There are no new breaches to report since the last review on 1 February 2019.
B. Recommendations
It is recommended that:
the Local Pension Board reviews the Pension Fund’s updates to the Pension Fund Risk Register, as described in paragraphs 2.5 and 2.6;
16 the Local Pension Board considers whether they wish to make any recommendations to the Pensions Committee in respect of the revised Risk Register.
C. Equality Implications
Equality implications have been considered and no negative impacts upon protected characteristic groups were identified.
1. Background
1.1 East Riding of Yorkshire Council recognises the importance of effective risk management. Risk management is the process by which the Pension Fund systematically identifies, assesses and seeks to mitigate the risks associated with its activities, and is a key component of the overall governance process. Effective risk management is a clear indicator of good governance and a risk register is the primary control document for the identification, assessment and monitoring of key risks.
1.2 Risk is defined as a condition, act, situation or event with the ability or potential to impact on the Fund either by enhancing or inhibiting performance, attainment of objectives, or meeting stakeholder expectations.
1.3 The Fund’s key objectives are to:
ensure the long term solvency of the fund and that sufficient funds are available to meet all benefits as they fall due for payment;
administer the fund effectively and efficiently in accordance with regulations; and
communicate effectively with all key stakeholders.
1.4 The Pension Fund’s risk register is attached as Appendix 1. It presents the key risks inherent in the Pension Fund using the principles laid down in the Council’s risk management strategy. The record of the breaches of the legal requirements that govern the Pension Fund are updated on a semi-annual basis in conjunction with the Pension Fund’s risk register.
1.5 The risk register is monitored by the Local Pension Board as well as the Pensions Committee. The Board has made no recommendations for changes to the risk register following its latest review which took place on 22 February 2019.
2. Pension Fund Risk Register
2.1 The risk register identifies 10 key strategic risks to the Pension Fund. For each risk, the register includes:
a brief description of each risk; the potential consequences; the inherent risk before any risk controls have been implemented; a description of the controls currently in place to mitigate the risk; the residual risk as a result of the controls already in place;
17 additional control requirements that have been identified; the effectiveness of the current controls; and any internal or external developments that may impact the risk.
2.2 Each individual risk has been scored using the matrix laid down in the Council’s risk management strategy amended appropriately for the Pension Fund. The scoring is in two parts – the likelihood of the risk occurring and the impact on the Pension Fund were the risk to occur.
2.3 Likelihood is assessed in accordance with the following scale.
Likelihood Score Criteria Almost certain 5 Expected to occur in any given year Likely 4 Expected to occur once every two years Possible 3 Expected to occur once every two to five years Unlikely 2 Expected to occur once every five to ten years Remote 1 Expected to occur once every ten years +
2.4 The criteria for impact are as follows:
Impact Score Domain Service Delivery Financial Loss Reputation Catastrophic 5 No service > 10% of the Total loss of delivered Fund’s assets public confidence Major 4 Service level 5 – 10% of the Sustained adverse reduced by > 25% Fund’s assets publicity in national media Moderate 3 Service level 1 – 5% of the Significant adverse reduced by 5 – Fund’s assets publicity in 25% national media Minor 2 Service level 0.1 – 1% of the Significant adverse reduced by 1 – 5% Fund’s assets publicity in local media Insignificant 1 Service level < 0.1% of the Minor adverse reduced by < 1% Fund’s assets publicity in local media
2.5 The risk register is reviewed by the Pensions Committee every six months. This latest review was considered and approved by the Pensions Committee at its meeting on 26 July 2019. No new strategic risk areas were identified during this latest review. The risk scores were considered as part of the review to ensure that they reflect the current position of each risk. The scores for each risk are disclosed in the risk register attached as Appendix 1. The Pensions Committee agreed to the following amendments to the risk register:
18 The residual score for Risk 1 – ‘The Pension Fund’s assets do not meet expected liabilities when they fall due’ has been reduced from 15 to 10, as the Fund’s triennial actuarial valuation targets a 66% likelihood of success in 20 years’ time and therefore it is considered that this risk is unlikely to materialise in the medium term.
The inherent risk score for Risk 2 – ‘The Fund is unable to meet the requirements of Government policy on pooling investments across LGPS funds’ has been reduced from 16 to 4, and the residual risk score from 9 to 3. The risk is now considered to have reduced to a level where it can be removed from the register, as the Fund has successfully transitioned 35% of its assets to Border to Coast Pensions Partnership and is actively engaged with Border to Coast to transfer more assets over the next two years. The Pension Fund and its officers are actively engaged with Border to Coast and the eleven other pooling partners to deliver on the requirements of pooling and the majority of the Funds’ assets will transition over the next 18 to 24 months.
With regard to Risk 3 – ‘The potential for disruption, monetary losses and adverse investment performance from the transfer of assets and personnel into Border to Coast Pensions Partnership Limited’, the transfer of personnel has already taken place and therefore the reference to personnel is now removed. In total, six investment professionals from the internal team have joined to Border to Coast, including the previous Head of Investments.
The residual risk score for Risk 8 – ‘Failure to report a breach of the law to the Pensions Regulator (TPR)’ has been reduced from 4 to 2 and the risk is now considered to have reduced to a level where it can be removed from the register, as the legal duty to report a breach to the Regulator is now embedded in the Fund’s processes and highlighted in key Fund documents, including the Pension Administration Strategy.
2.6 Each risk has been updated for any news/issues occurring since the previous review. The key news items are as follows:
Risk 4 – Actuarial assumptions in respect of membership are significantly different than expected
2.6.1 Monthly data collection is under development and pilot data is being received from employers. The employer upload for employer contributions has been utilised ahead of implementation. The Fund is validating membership data for the 2019 valuation and rectifying any errors identified. Scheme employers have been encouraged to reconcile the data the Fund holds with their own membership data.
2.6.2 A consultation is taking place on changes to the valuation cycle and management of employer risk for LGPS funds. This includes a proposal to remove the requirement for further education corporations, sixth form colleges and higher education corporations to offer membership of the LGPS to non-teaching staff. The Fund has 10 scheme employers in this category.
Risk 5 – Failure by Fund to carry out administrative duties and meet the requirements of The Pensions Regulator Code of Practice 14 – Administration.
2.6.3 Several revised controls are being introduced including:
The Pension Administration Strategy has been reviewed and, following Pensions Committee approval and consultation, will be implemented in October 2019.
19 Performance targets monitored have been updated to include statutory disclosure requirements. Procurement of member tracing services has taken place to enable the Fund to locate over 2,000 gone away deferred members whose current address is not currently held.
2.6.4 By the statutory deadline of 30 June 2019, 91% of scheme employers had submitted an accurate year end return file for the period to 31 March 2019.
2.6.5 In preparation for the 2019 valuation, a significant number of scheme employers have carried out data cleansing exercises by comparing their own data with that held by the Fund. This early validation of data will be beneficial to the actuary and the employer when carrying out the triennial valuation and determining the future employer contribution rate.
Risk 7 – Failure to establish adequate business continuity and data security arrangements
2.6.6 The 2018/19 Pensions Administration Audit Report recommended that the business continuity plans should be updated to ensure that all pensions functions can be maintained in the event of loss of key resources and that all staff should be familiar with the procedures to ensure that contingency measures are implemented effectively. The business continuity plans were reviewed and updated in conjunction with the Council’s Emergency Planning Service in July 2019.
3. Record of Breaches
3.1 On 25 September 2015, the Pensions Committee agreed the procedure for reporting breaches of the law to the Regulator, as required by Code of Practice No. 14 – ‘Governance and Administration of Public Service Pension Schemes’. Previous breaches have been reported to the Pensions Committee in previous instances of this report. There are no new breaches to report since the last review on 1 February 2019.
4. Conclusion
4.1 The risk register identifies the key risks inherent in the Pension Fund, an estimate of the severity of each risk, a summary of current control measures, the effectiveness of current controls, the identification of additional control measures, and any internal or external developments that impact the risks.
4.2 The risk register will continue to be reviewed and reported to the Pensions Committee and the Local Pensions Board every six months.
Darren Stevens Director of Corporate Resources
Contact Officer: Julian Neilson Head of Finance Telephone Number: 01482 394100 E-mail: [email protected]
Contact Officer: Kevin Dervey Head of Investments Telephone Number: 01482 394135 E-mail: [email protected]
20 2. Next steps
2.1 Four of the six Board members attended the Border to Coast Pension Partnership Annual Conference on 10-11 October 2019 where the topics covered included Border to Coast’s investment capabilities, partner fund perspectives, investment outlook, managing climate change risk, and strategic asset allocation.
2.2 It is noted that the majority of Board members have completed The Pensions Regulator (TPR) Public Service Toolkit e-learning modules. Board members wishing to complete the e-learning modules should visit TPR’s website at:
www.thepensionsregulator.gov.uk/public-service-schemes.
2.3 Officers are proposing to arrange training sessions in February and June 2020 to cover the following key risk areas:-
Administration, data and communication Internal controls and complaint handling Contributions, employer compliance and funding affordability Pension Board knowledge and understanding, relationship between Board and Scheme manager and conflicts of interest Fraud, mitigation of scams and cyber security
Darren Stevens Director of Corporate Resources
Contact Officer: Julian Neilson Head of Finance Telephone Number: 01482 394100 E-mail: [email protected]
Contact Officer: Graham Ferry Pensions Manager Telephone Number: 01482 394171 Email: [email protected]
21 Risk Ref: 1
Risk Name: The Pension Fund’s assets do not meet expected liabilities when they fall due
Risk Owner: KD/GF
Risk Score: Highest Impact Likelihood Total Risk Score
Inherent 5 5 25
Residual 5 2 10
Direction of Travel
Do the above scores reflect the current position? Yes
Controls: List of controls:
Strategic asset allocation, including appropriate diversification of assets, determined on a triennial basis following the latest triennial valuation and agreed by Members, Advisers, and Investment Managers. Actuarial valuation process focuses on real returns on assets, net of price and pay increases.
Tactical asset allocation determined on a quarterly basis by Pensions Committee in light of financial market conditions and following advice from Advisers and Investment Managers.
The Investment Strategy Statement discloses the permitted asset classes, allocation, and ranges in order to provide an appropriate level of diversification.
Investment management responsibilities split between internal and external investment managers with ability to switch funds under management between the internal and external investment managers. Robust investment process including detailed research and analysis. Key personnel changes at investment managers are highlighted to the Pensions Committee on a quarterly basis. Ability to terminate external investment managers’ contract in its entirety.
Detailed analysis of Fund performance on an absolute basis and relative to the actuarial rate of return and the Fund-specific benchmark. Performance monitored by the Head of Finance and Director of Corporate Resources on a quarterly basis and reviewed by Pensions Committee on an annual basis.
Treasury Management Policy establishes limits on investments, institutions, and counterparties. Maintain a minimum level of liquid investments to meet liquidity requirements and analyse Fund liquidity position on a weekly basis. Operational Treasury Management Board meets on a regular basis to review investment criteria. Treasury Management activity reviewed by the Pensions Committee on a semi-annual basis. Treasury Management Policy reviewed by the Pensions Committee on an annual basis.
A significant proportion of the Fund’s assets have either explicit e.g. index-
22 linked bonds or implicit inflation linkage e.g. property, infrastructure. The Fund can invest in inflation protection products subject to LGPS investment regulations.
Employers pay for their own salary awards and are reminded of the geared effect on pension liabilities of any bias in pensionable pay rises towards longer serving employees.
Independent assurance received on internal controls of the Fund’s investment managers on an annual basis.
Continual focus on investment costs including fees, expenses, and transaction costs.
Triennial review of employers’ contribution rates based on actuarial review of assets, liabilities and required contribution rates.
New controls:
None.
Effectiveness of Controls:
At 31 March 2019, the Fund has out-performed its specific benchmark by 0.4% over 1 year, by 0.7% p.a. over 3 years, and by 0.5% p.a. over 5 years. The internal investment manager has out-performed its specific benchmark by 0.6% p.a. over 1 year, by 0.3% p.a. over 3 years, and by 0.3% p.a. over 5 years. The external investment manager, Schroders Investment Management, has under-performed its specific benchmark by 2.8% over 1 year, by 0.4% p.a. over 3 years, but out-performed by 0.1% p.a. over 5 years. Border to Coast Pensions Partnership became an external manager on 1 July 2019 and has out- performed its benchmark since inception by 0.3%
Annual assurance from internal and external auditors that the Fund, its investment managers, and its custodian have appropriate controls in place.
Internal Revised treasury management policy approved by Pensions Committee on 15 News/Related March 2019. Issues: A revised Investment Strategy Statement approved by Pensions Committee on 16 March 2019.
Triennial valuation work with the Funds actuary is underway.
External None. News/Related Issues:
23
Risk Ref: 2
Risk Name: The Fund is unable to meet the requirements of Government policy on pooling investments across LGPS funds
Risk Owner: KD
Risk Score: Highest Impact Likelihood Total Risk Score
Inherent 4 1 4
Residual 3 1 3
Direction of Travel
Do the above scores reflect the current position? Yes
Controls: List of controls:
The Pension Fund has assumed a leading role in the creation of its selected pooling arrangement – Border to Coast Pensions Partnership which meets the Government’s stated criteria for pooling.
The Fund (through representation on the Border to Coast Joint Committee and through East Riding of Yorkshire Council as shareholder) has full participation and decision making ability into how the pooling arrangement is managed and monitored.
The Pensions Committee receives a detailed update regarding the implementation of pooling on a regular basis.
New controls:
None.
Effectiveness of Controls:
Border to Coast became fully operational on 2 July 2018. The process of transitioning assets from partner funds to Border to Coast has begun and is expected to continue for the next 2 years.
Internal Formal confirmation that the Border to Coast Authorised Contractual Scheme News/Related prospectus has been approved by the Financial Conduct Authority and filed. Issues: All of the senior executive and non-executive positions have been filled and the transfer of staff under TUPE regulations has been completed.
The East Riding Pension Fund has opted-up under the new MIFID II regulations and is now recognised by Border to Coast as a professional
24
investor.
The “go live” date of 2 July was achieved with the successful launch of the first internally managed UK Equity fund. This was followed a week later with the equally successful launch of the Overseas Developed Markets sub-fund. An Investment Advisory Agreement is in place to allow advice to be received from Border to Coast for any possible future Alternative investments.
The East Riding Pension Fund transferred £1.57bn of UK equities followed by the transfer of £210m of European equities, representing almost 35% of the total Fund.
External Border to Coast Pensions Partnership Ltd will hold its inaugural Annual News/Related General Meeting in July 2019. Issues:
25
Risk Ref: 3
Risk Name: The potential for disruption, monetary losses, and adverse investment performance from the transfer of assets into Border to Coast Pensions Partnership Limited
Risk Owner: KD
Risk Score: Highest Impact Likelihood Total Risk Score
Inherent 4 3 12
Residual 4 2 8
Direction of Travel
Do the above scores reflect the current position? Yes
Controls: List of controls:
FCA regulation of Border to Coast
Investment professionals experienced staff transferred from internally managed partner funds
Border to Coast governance structure
Monitoring and direction by retained investments staff, the Section 151 Officer and the Pensions Committee
Use of transitional advisors and managers to undertake transition of assets with a ‘duty of care’ to the fund.
Close communication between Border to Coast Limited and its Third Party Administrator (Northern Trust), and the Pension Fund and its custodian (State Street), with regards to the transfer of assets.
Effectiveness of Controls:
The success of the 2018-19 transition in terms of process, cost and effectiveness has provided assurance on effectiveness of controls.
Internal Border to Coast continue to develop new products in Alternatives and Fixed News/Related Income which will become available to partner funds during 2019 and later. Issues: The Private Equity Sub-fund is fully operational and the Infrastructure Sub- fund will be available from July 2019. Private Credit is expected to go live in October 2109 with Investment Grade Bonds expected shortly thereafter. East Riding Pension Fund is expected to transfer assets into both these sub funds.
External None.
26 News/Related Issues:
27
Risk Ref: 4
Risk Name: Actuarial assumptions in respect of membership are significantly different than expected
Risk Owner: GF/LV
Risk Score: Highest Impact Likelihood Total Risk Score
Inherent 3 4 12
Residual 3 3 9
Direction of Travel
Do the above scores reflect the current position? Yes
Controls: List of controls:
Mortality assumptions are set at valuation using ‘Club Vita’.
Employers are charged the strain cost of non-ill health retirement.
Employers have the option to take out ill health liability insurance.
Participation in Tell us Once and LGPS NI Database.
Implementation of latest early retirement strain factors.
New controls:
Membership monitoring reports are produced on a quarterly basis.
Monitoring of employer contributions through monthly data collection employer upload.
Effectiveness of Controls:
Assurance from Fund’s actuary that controls remain effective.
Internal Monthly data collection is under development and pilot data is being received News/Related from employers. The employer upload for employer contributions has been Issues: utilised ahead of implementation. The Fund is validating membership data for the 2019 valuation and rectifying any errors identified. Scheme employers have been encouraged to reconcile the data the Fund holds with their own membership data.
External A consultation is taking place on changes to the valuation cycle and News/Related management of employer risk for LGPS funds. This includes a proposal to Issues: remove the requirement for further education corporations, sixth form colleges and higher education corporations to offer membership of the LGPS
28
to non-teaching staff. The Fund has 10 scheme employers in this category.
29
Risk Ref: 5
Risk Name: Failure by Fund to carry out administrative duties and meet the requirements of The Pensions Regulator Code of Practice 14 (TPR Code 14) – Administration
Risk Owner: GF/LV/KD
Risk Score: Highest Impact Likelihood Total Risk Score
Inherent 5 5 25
Residual 2 2 4
Direction of Travel
Do the above scores reflect the current position? Yes
Controls: List of controls:
Scheme employers are informed of statutory responsibilities at employer meetings, through monthly employer bulletins and online. Employer training is provided as required or identified.
Data quality checks are carried out in accordance with The Pensions Regulator (TPR) requirements for common and conditional data.
Dedicated training officer and structured training programme in place for internal staff and regular training events for employers. External training is completed as required along with attendance at seminars and conferences to keep informed of new developments and best practice.
UPM facility to test calculations and processes ensures benefits are calculated in accordance with current Regulations and legislation changes are implemented correctly.
Electronic workflow system monitors the volume and type of work to ensure resources are in place to mitigate the impact of unforeseen customer demands.
CIPFA benchmarking performance targets are reported monthly.
Annual audit of fundamental systems by Internal Audit.
Membership of Pensions Advisory Network, North East Pension Officers Forum (NEPOF), National Communications Working Group and Local Authority Pension Fund Forum (LAPFF) to keep informed of new developments and best practice.
Consider and respond to all Ministry for Housing, Communities and Local Government (MHCLG) consultation papers.
30 Regular contact with Fund advisors including external investment manager, independent advisor, actuary, external auditors and AVC provider.
Compliance Manual updated on an annual basis and signed by all internal investment staff.
Actuarial advice is subject to professional requirements such as peer review and advice is delivered via formal meetings with Elected Members and recorded appropriately.
Local Pension Board assists the Fund in complying with LGPS regulations.
Pensions Section Service Plan 19/20 ensures that scheme record keeping and administration is compliant with TPR Code 14.
The Pension Administration Strategy implemented from 1 January 2018.
Common and conditional data reporting is taking place on a quarterly basis. The results from this are recorded on the data improvement plan and action taken to correct data held.
The contact manager database ensures the Fund has the most up to date employer contacts.
New controls:
Performance targets monitored have been updated to include statutory disclosure requirements.
Procurement of member tracing services has taken place to enable the Fund to locate over 2,000 gone away deferred members whose current address is not currently held.
Effectiveness of Controls:
The findings from the internal audit report issued in February 2019 indicated a satisfactory level of assurance on the controls operated over the administration of pensions.
Independent verification and quality control procedures including external verification by the Fund’s auditor.
Informal acknowledgement by the Fund’s actuary that the Fund’s data is of a high quality compared to other client funds.
Internal The Pension Administration Strategy has been reviewed and subject to News/Related Pensions Committee approval and consultation, will be implemented in Issues: October 2019.
By the statutory deadline of 30 June 2019, 91% of scheme employers had submitted an accurate year end return file for the period to 31 March 2019.
In preparation for the 2019 valuation, a significant number of scheme
31 employers have carried out data cleansing exercises by comparing their own data with that held by the Fund. This early validation of data will be beneficial to the actuary and the employer when carrying out the triennial valuation and determining the future employer contribution rate.
Two Multi Academy Trusts (MATs) are submitting monthly data and this is being used to test the new procedures.
External None. News/Related Issues:
32
Risk Ref: 6
Risk Name: Failure to recruit and retain an adequately skilled workforce and to provide sufficient training to Local Pension Board and Committee members. (TPR Code 14 – Governing the Scheme)
Risk Owner: GF/LV/KD
Risk Score: Highest Impact Likelihood Total Risk Score
Inherent 3 5 15
Residual 2 3 6
Direction of Travel
Do the above scores reflect the current position? Yes
Controls: List of controls:
Relevant staff members have completed competency based recruitment training and ERYC competency framework is applied as part of the recruitment and selection process.
Any corporate changes which may arise to the recruitment and selection process are considered and applied.
Relevant staff undertaken attendance management training. Attendance reviewed monthly and dealt with in accordance with corporate policy.
EDRs and learning development skills matrix used to identify skill gaps and training requirements.
Staff members are encouraged to obtain relevant qualifications, including formal investment management qualifications e.g. CFA, IMC and pensions administration qualifications, e.g. CIPP.
Workforce development action plan in place to identify future workforce requirements, training needs and recruitment/retention measures.
Review of vacant posts and re-evaluation /regrading/ restructuring considered as appropriate.
Succession planning within Sections.
Detailed records of rationale for investment decisions.
Key processes are documented.
Induction and training programme for Members and Officers.
Formal training programme for Pensions Committee and Local Pension Board
33 members.
Advertising extended to include local newspapers resulting in an increase in the number and quality of applicants.
Annual review of the training needs analysis for the Local Pension Board.
Use of the apprenticeship levy to fund bespoke courses for Pensions section staff.
Assistant Pensions Manager undertaking the Certificate in Leadership Studies.
Engaging external trainers on trustee effectiveness.
Applications for some vacancies are advertised by submission of CV only, streamlining and improving the recruitment process and the number and quality of applicants.
New controls: None.
Effectiveness of Controls:
Quality of staff recruited to posts and low number of staff resignations demonstrate that controls remain effective. The 2018 CIPFA benchmarking results indicate that the number of staff with at least 10 years pensions experience is in line with the CIPFA group average, with the Fund having 46% of its staff falling into these categories compared to the group average of 45%.
Results of 2018 review of the training needs analysis for the Local Pension Board highlight that the Board members on average self-assess their knowledge between 3 and 4 on a scale of 1 to 5 where 1 is no skill and 5 is highly skilled.
Internal A training session for Local Pensions Board members was held on 21 June News/Related 2019 on the topical issue of ‘Changing the Valuation Cycle’. Issues: An induction session on the East Riding Pension Fund was provided to members of the Pension Committee on 14 June 2019.
As part of the succession planning for the pensions section, an internal secondment to cover 50% of the Pensions Manager post following flexible retirement has been implemented.
New staffing arrangements in respect of the Investment section post-pooling are being developed.
External There continues to be a national shortage of senior and experienced LGPS News/Related staff with an ever increasing number of external advertisements being posted
34
Issues: to LGPS Funds by the Local Government Pensions Committee.
35 Risk Ref: 7
Risk Name: Failure to establish adequate business continuity and data security arrangements
Risk Owner: GF/LV/KD
Risk Score: Highest Impact Likelihood Total Risk Score
Inherent 5 5 25
Residual 3 2 6
Direction of Travel
Do the above scores reflect the current position? Yes
Controls: List of controls:
IT systems are operated in line with corporate policies and procedures to ensure secure storage and safe transmission of data, including sensitive data.
Internal staff complete e-learning and read policies in respect of IT security and data protection.
Pensions section has a Data Protection Link Officer and attendance takes place at the GDPR working group meetings, workshops and training as required. The Fund is GDPR compliant.
UPM has facility to restrict and control access to reduce risk of fraud and ensure audit trails are in place.
Procurement process assesses technical ability and financial stability of each IT system.
Disaster recovery and business continuity plans in place for each IT system.
Regular reconciliation of custody data to internal records.
Funds under management can be transferred to the external investment manager.
ERPF online services ensures secure data transfer and comprehensive contact database to ensure data shared with the right employer contact.
Memorandum of understanding issued to all scheme employers setting out their responsibilities in relation to shared data.
Virtualisation of servers provides secure system backups and unlimited secure data storage capability.
36
Data Protection Impact Assessments are carried out for any new projects.
New controls:
A rolling audit of employer user accounts has commenced to verify that all active users of ERPF online services are still required and updates are made where necessary.
Effectiveness of Controls:
Assurances from Audit, IT and the Information Governance Project Manager confirm that controls remain effective.
The 2017/18 Pension Fund Investment Audit Report recommended that the business continuity plans be reviewed to take account of the impact of investment pooling. The pension fund’s post – pooling requirements have recently been resolved and the business continuity plan for investments will now be reviewed.
The 2018/19 Pensions Administration Audit Report recommended that the business continuity plans should be updated to ensure that all pensions functions can be maintained in the event of loss of key resources and that all staff should be familiar with the procedures to ensure that contingency measures are implemented effectively. The business continuity plans were reviewed and updated in conjunction with the Council’s Emergency Planning Service in July 2019.
Internal A review of microfiche held in off-site storage is taking place. News/Related Issues: Work with IT is underway to develop the Fund’s own cyber security policy in line with TPR guidance.
External None News/Related Issues:
37
Risk Ref: 8
Risk Name: Failure to report a breach of the law to the Pensions Regulator (TPR)
Risk Owner: GF/LV/KD
Risk Score: Highest Impact Likelihood Total Risk Score
Inherent 3 5 15
Residual 2 1 2
Direction of Travel
Do the above scores reflect the current position? Yes
Controls: List of controls:
All relevant persons aware of their legal duty to report a breach through the Fund’s Procedure for Reporting Breaches including members of the Pensions Committee and the Local Pension Board, and officers of Fund employers.
Members and officers required to undertake e-learning programme on the Regulator’s website.
All reported and unreported breaches are presented to the Pensions Committee and the Local Pension Board on a six monthly basis (see Appendix 2).
The Pensions Administration Strategy sets out the timescales for complying with TPR guidance including unsatisfactory performance and reporting to TPR.
Pensions section targets are issued monthly and reviewed by OMT.
A data improvement plan was produced following an analysis of the results from the common and conditional data reporting.
New controls:
Monthly performance targets have been updated to include statutory disclosure requirements.
Effectiveness of Controls:
The Fund ensured the 2018 ABS exercise was completed on time for those employers that provided the data. Scheme employers who failed to provide the data on time were contacted by the Fund and were asked to put plans in place to ensure the deadline for submitting the year end return in 2019 would be met.
38
Internal The Pension Administration Strategy has been updated to ensure compliance News/Related with statutory deadlines. Issues:
External TPR has published a regulatory intervention report outlining how it worked News/Related with a fund’s scheme manager to improve their governance and Issues: administration.
39
Risk Ref: 9
Risk Name: A Scheme employer becomes financially unviable and unable to pay contributions required
Risk Owner: GF/LV
Risk Score: Highest Impact Likelihood Total Risk Score
Inherent 2 5 10
Residual 1 2 2
Direction of Travel
Do the above scores reflect the current position? Yes
Controls: List of controls:
The Fund requires all admitted bodies to undertake a risk assessment to assess whether a bond, indemnity or guarantor should be put in place.
Requirement for a bond is assessed on an annual basis.
Cessation Valuation reports are commissioned from the Fund Actuary when the Admitted Body no longer has active members.
Option for admitted bodies to pool with letting authorities subject to Fund approval.
Financial health checks carried out on new and existing employers by the Council’s Senior Governance Officer.
Use of Hymans online reporting tool to assess impact of market movements and contributions on employer funding positions and to measure cessation debt.
New controls:
The Fund has implemented Hymans Employer Asset Tracker (HEAT) to improve the accuracy of the allocation of employer assets ensuring more detailed funding positions are available.
An employer database has been developed with Hymans to capture employer governance information and key events. This database will be regularly maintained and shared with Hymans.
Effectiveness of Controls:
Actuarial cessation valuation reports give assurance that any outstanding pension liabilities will not be picked up by other Fund employers.
40
Internal Officers attended a LGPS Governance workshop with Eversheds in April News/Related 2019. Issues: The Fund is consulting with Multi Academy Trusts (MATs) to review the way academies that are part of a trust are set up and managed. This may result in MATs being treated as the scheme employer and reduce the risk for each individual academy.
External The New Fair Deal to the LGPS consultation was carried out in early 2019. It News/Related will introduce the idea of deemed employers in the LGPS as a way of avoiding Issues: the complexity of admission agreements. Details of the outcome from the consultation are awaited.
A consultation is taking place on changes to the valuation cycle and management of employer risk for LGPS funds. This includes a proposal to change the exit payment regime for smaller and less financially robust employers. The consultation also proposes to allow scheme employers a degree of flexibility in spreading exit payments over a period agreed by the administering authority.
41 Risk Ref: 10
Risk Name: Significant reduction in individual scheme employer membership
Risk Owner: GF/JG
Risk Score: Highest Impact Likelihood Total Risk Score
Inherent 3 3 9
Residual 2 3 6
Direction of Travel
Do the above scores reflect the current position? Yes
Controls: List of controls:
Membership totals are monitored on a quarterly basis, which incorporates redundancy or outsourcing exercises.
Financial Control Team monitors non unitary employer contributions monthly.
Material changes of 10% of membership are referred to the Fund actuary.
Employers with reducing membership are required to pay deficit contributions as fixed monetary payments, except for academy conversions where the local authority deficit is included in the calculation of the academy contribution rate.
Various methods are used to communicate the benefits of LGPS to members and employers.
Number of members electing for 50/50 section are monitored.
Use of Hymans online reporting tool to assess impact of market movements and contributions on employer funding positions and to measure cessation debt.
New controls:
Monitoring of employer contributions through monthly data collection employer upload.
Effectiveness of Controls:
Assurances from External and Internal Audit and the Fund actuary, who issue revised Rates and Adjustments certificates where appropriate, confirm that controls remain effective.
The 2018/19 Pensions Administration Audit report highlighted that further controls were needed for the monitoring of employer contributions. This will
42
be met by the monitoring of employer contributions through monthly data collection.
Internal None. News/Related Issues:
External None. News/Related Issues:
43 8 EAST RIDING OF YORKSHIRE COUNCIL
Report to: East Riding Pension Fund Local Pension Board 1 November 2019
Update on Scheme Employer Year End Return Exercise 2018-19
Report of the Director of Corporate Resources
A. Executive Summary
This report gives a detailed overview of the 2018-19 year end return exercise. All scheme employers are required to submit year end returns, which include member pay details to enable the East Riding Pension Fund (“the Fund”) to issue annual benefit statements by 31 August 2019.
The results for 2018-19 again showed an improvement from the previous year with 99.4% of scheme employers in the Fund submitting their year end return before the deadline compared with 96% of scheme employers in 2017-18. The number of active members receiving annual benefit statements increased from 29,344 in 2017-18 to 31,833 in 2018- 19.
The Fund is now in the process of completing the 2018-19 year end return exercise including the issue of improvement notices to those scheme employers, listed in Appendix 1, that did not provide an accurate year end return by the statutory deadline of 30 June 2019 and notifying those active scheme members who did not receive an annual benefit statement by 31 August 2019.
B. Recommendation
That the report be noted.
C. Equality Implications
Equality implications have been considered and no negative impacts upon protected characteristic groups were identified.
1. Background
1.1 Regulation 80(4) of the Local Government Pension Scheme (LGPS) Regulations 2013 sets out the information that each scheme employer must provide to the administering authority in respect of each employee who has been an active member during a scheme year including details of the total employee and employer contributions paid for each of their members. Regulation 80(3) stipulates that this information must be provided to the administering authority within three months of the end of each scheme year. This information is known as the year end return and the return for 2018-19 from each scheme employer was required by 30 June 2019.
44 1.2 Under Regulation 89, the Fund is required to issue annual benefit statements to each of its active, deferred, deferred pensioner and pension credit members within five months of the end of each scheme year. To meet the 31 August deadline, it is vital that the year-end returns are completed accurately and promptly by all scheme employers so that the Fund can validate all the data received, load the data to all member records and investigate all errors and warnings before issuing annual benefit statements within two months. Administering authorities who do not meet the deadline must report the breach of Regulation 89 to the Pensions Regulator.
1.3 The timetable for the completion of the 2018-19 year end return exercise was agreed and issued to all scheme employers during February 2019 along with the full specification of the required data and a checklist to help employers compile the data was sent out by email in the same month.
1.4 The agreed timetable was as follows:
scheme employers to submit year end returns by 12 April 2019
15 April 2019 to 25 May 2019 – the Fund to check year end returns to validate data for loading and posting to the member records
the Fund to notify scheme employers by 1 June 2019 where there were any queries and scheme employers to have until 14 June 2019 to resubmit an accurate year end return
17 June 2019 to 19 July 2019 – the Fund to load and post correct year end returns received on or before 15 June 2019 and
end of July 2019 - data to be sent to Print and Design for the issue of annual benefit statements by 31 August 2019
1.5 The data submitted by scheme employers in the 2018-19 year end return will be used in the valuation calculations. The quality of this membership data can affect the outcome of the valuation when assessing individual employer liabilities. It was therefore imperative that scheme employers ensured that necessary checks were undertaken before submitting the year end return.
2 Current Position
2.1 By 14 June 2019 deadline, 85% of scheme employers had already submitted a valid year end return. During the period 14 June 2019 and 31 July 2019, a further 45 year end returns were received, validated and loaded on to UPM for the production of annual benefit statements and the 2019 valuation. Of the 308 expected returns, only two employers failed to provide valid data in time for the main extract. The annual benefit statement data was extracted in line with the published time table on 2 August 2019.
2.2 The process for validating and loading the year end returns and running the CARE (Career Average Revalued Earnings) calculations required for the production of annual benefit statements was streamlined this year. The Fund’s Member Services team also did an additional check to the contributions data control sheet. This allowed the team to assess whether the file balanced to the contributions that the Fund had received and meant that files that did balance could be processed straight away without the need to be checked by the Fund’s Financial Control team.
45 2.3 A new method of running the annual benefit statement extract was also used. In previous years, the extract had needed to be split into alpha groups and run via individual PCs which took around one week to complete a full extract. This year, the extract was completed using the Windows task runner on the server reducing the production time from one week to one day.
2.4 Using the Windows task runner to extract the data meant that files could be processed right up to the day before the data was due for extraction. This resulted in only two of the 308 files expected for 2018-19 missing the main annual benefit statement run.
2.5 It also allowed the valuation data to be extracted simultaneously and in time for the upload to the Hymans Robertson (the Fund’s actuary) data portal by 9 August 2019.
2.6 A total of 30,954 annual benefit statements were sent on the main run to Print & Design. A further 879 annual benefit statements were calculated manually and sent before the deadline of 31 August 2019. This included employees for one of the two scheme employer files outstanding at the time of the main extract.
2.7 Only 1,170 queries were created during the 2018-19 year end exercise. This has resulted in more members receiving a statement then in previous years and indicates that the data received from employers was of better quality this year.
2.8 The following table provides an analysis of the 2018-19 year end return exercise compared with the 2016-17 and 2017-18 year end return exercise.
2016-17 2017-18 2018-19 Employer returns Number of expected returns 267 291 308 Number of returns received by data extract 240 280 306 deadline Percentage of Employers meeting deadline 90% 96% 99.4% Active annual benefit statements Number of annual benefit statements issued to 28,727 29,344 31,833 active members Number of annual benefits statements not issued Not available 4,043 3,103 due to outstanding processes Number of annual benefit statements not issued 1,691 707 40 due to employers not submitting a return Percentage of active annual benefit statements Not available 86% 91% issued Deferred annual benefit statements Number of annual benefit statements issued to 34,591 35,050 34,378 deferred members Number of annual benefit statements not issued to 4,226 4,939 4,958 deferred members due to “gone away” address Percentage of annual benefit statements issued to 89% 88% 87% deferred members
46 2.9 The analysis above highlights the success of the 2018-19 year end exercise. This is a reflection on the additional engagement carried out by the Fund with scheme employers due to the 2019 valuation and is a testimony to the continued hard work and dedication of the Fund’s staff.
2.10 Only Shoreline Housing Partnership is still to submit a valid 2018-19 year end return and the Fund is continuing to work with the scheme employer to obtain a valid return.
2.11 Although all other returns were received and processed by 31 August 2019, 16 scheme employers failed to submit a valid file by the statutory deadline of 30 June 2019. These employers are listed in Appendix 1.
3 Next steps
3.1 The following are the Fund’s key objectives for the remainder of the 2018-19 year end return exercise:
to issue an improvement notice to all scheme employers that failed to provide an accurate year end return file by 30 June 2019 in line with the Pension Administration Strategy. The notice will advise scheme employers that they are in breach of Regulation 80(3) of the LGPS Regulations 2013 and will request each employer to complete an Employer Action Plan for the 2019-20 year end return exercise;
to issue annual benefit statements to scheme members of Shoreline Housing Partnership when the year-end return has been received;
to notify those scheme members who did not receive an annual benefit statement of the reason why a statement was not issued.
Darren Stevens Director of Corporate Resources
Contact Officer: Julian Neilson Head of Finance Telephone Number: 01482 394100 E-mail: [email protected]
Contact Officer: Jenny Gregory Assistant Pensions Manager Telephone Number: 01482 394153 E-mail: [email protected]
47 Appendix 1
Scheme employers who did not provide an accurate year end return file by 30 June 2019
Barrow upon Humber Parish Council Hull Charterhouse Trustees Hull Resettlement Humberston Park Special School ISS Facilities Services PFI Kingstown Works Melbourne Community Academy Brigg Mellors Catering Services Ltd (Cottingham) Mellors Catering Services Ltd (Holderness College) St Bede’s Academy Shoreline Housing Partnership The Chief Constable of Humberside The Riverside Group Ltd Winifred Holtby Academy Winterton Town Council Woldgate School and Sixth Form College
Return received after data extract date (2 August 2019)
Woldgate School and Sixth Form College
No return submitted by 31 August 2019
Shoreline Housing Partnership
48
9 EAST RIDING OF YORKSHIRE COUNCIL
Report to: East Riding Pension Fund Local Pensions Board 1 November 2019
PENSION FUND ANNUAL REPORT AND ACCOUNTS 2018–19
Report of the Director of Corporate Resources
A. Executive Summary
The final version of the Pension Fund Annual Report and Accounts 2018–19 is attached as Appendix 1. The accounts have been audited and an unqualified audit opinion was issued ahead of the statutory deadline of 31 July 2019.
The Pension Fund Annual Report and Accounts are due to be approved by the Pensions Committee on 1 November 2019. Once this has taken place, Mazars will certify that their audit of the accounts is complete in accordance with the requirements of the Local Audit and Accountability Act 2014 and the Code of Audit Practice.
B. Recommendation
That the report be noted.
C. Equality Implications
Equality implications have been considered and no negative impacts upon protected characteristic groups were identified.
1. Introduction
1.1 The Annual Report summarises the performance of the fund which was valued at £5.058bn at 31 March 2019 and returned 6.8% for the year ended 31 March 2019 compared to the strategic benchmark of 6.4%.
1.2 The financial statements included in the Pension Fund Annual Report and Accounts 2018–19 (included as Appendix 1) have been audited by the Fund’s external auditor, Mazars. The Annual Report and Accounts includes the auditor’s report on page 136 which states that the pension fund financial statements are consistent with the pension fund financial statements included in the annual published statement of accounts of East Riding of Yorkshire Council for the year ended 31 March 2019 and comply with applicable law and the Code of Practice on Local Authority Accounting in the United Kingdom 2018/19.
1.3 Mazars’ Annual Audit Letter summarises the key findings in relation to their 2018-19 external audit of East Riding of Yorkshire Council and the East Riding Pension Fund, and is included as Appendix 2. This confirms their opinion that the financial statements
49 give a true and fair view of the Council and Pension Fund’s financial position as at 31 March 2019 and of its expenditure and income for the year then ended, and have been prepared properly in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2018/19, as stated on page 2.
1.4 The Pension Fund Annual Report and Accounts are due to be approved by the Pensions Committee on 1 November 2019. Once this has taken place, Mazars will certify that their audit of the accounts is complete in accordance with the requirements of the Local Audit and Accountability Act 2014 and the Code of Audit Practice.
Darren Stevens Director of Corporate Resources
Contact Officer: Julian Neilson Head of Finance Telephone Number: 01482 394100 E-mail: [email protected]
Contact Officer: Kevin Dervey Head of Investments Telephone Number: Ext. 4135 E-mail: [email protected]
50 2018/2019 Annual Report & Accounts
Pensions Regulator Scheme Registration Number 10079121 51 East Riding Pension Fund Annual Report and Accounts 2018/2019 contents
Section Page
Foreword 3
The Local Government Pension Scheme 4
Scheme Management and Advisers 7
Risk Management 9
Financial Performance 17
Administrative Management Performance 21
Investment Policy and Performance 23
Scheme Administration Report 34
Report of the Actuary 50
Actuarial Valuation 53
Governance 54
Statement of Responsibilities 61
Accounts 62
Funding Strategy Statement 89
Investment Strategy Statement 117
Communication 128
Local Pension Board 132
Auditor Report 136
Contacts 137
contents 2 52 East Riding Pension Fund Annual Report and Accounts 2018/2019 foreword
The Fund was created on the reorganisation of local government in 1974 and East Riding of Yorkshire Council became the Administering Authority on 1 April 1996. At 31 March 2019 the Fund was valued at £5.058bn, having paid out £197.2m during the year for the benefit of Scheme members. This is an increase in the Fund value of £272m from 31 March 2018, due to some capital appreciation in the major equity markets resulting from continued loose monetary policy, ongoing strength in corporate earnings and a further improvement in investor risk sentiment. The strongest returns were seen in the Alternatives Sector, in particular Infrastructure and Private Equity. In addition, sterling returns from overseas investments received a significant boost due to the depreciation of the currency in the aftermath of the EU referendum. The Fund also benefitted from the strong performance of the internal manager and the recently appointed pooling partner, Border to Coast Pensions Partnership (Border to Coast). At 31 March 2019 the number of employers in the Fund was 321 (31 March 2018: 300). The increase during the year was due mainly to the continued conversion of schools to academy status. All employees, other than teachers, of the Administering Authority and the majority of the Scheme Employers are entitled to participate in the Scheme. Employees of Scheme Employers classed as designating bodies, such as town and parish councils, and employees of the 65 Admission Bodies may be nominated for membership by their employer. Teachers, police officers and firefighters have separate pension arrangements. Although membership is not compulsory, it is automatic for all employees who have a contract of employment that is for at least 3 months and who are under the age of 75. Employees have freedom of choice to leave the Scheme and make alternative pension arrangements. At 31 March 2019 the total membership records administered by the East Riding Pension Fund was 114,882, an increase of 1.8% in the year (2018: 112,882). For active members, each separate employment contract is classed as a record where an individual has multiple employments, and the number of active member records has increased by 0.5% to 40,234 (2018: 40,043). For pensioner members each pension entitlement is classed as a record where an individual is in receipt of more than one pension and the number of pensioner member records, including the pensions paid to spouses and dependants of the former scheme members, has increased by 6.3% to 31,470 (2018: 29,611). All the membership figures are based on the up to date position recorded on the pension administration system, with all previous years restated on a consistent basis. The average pension payment is £4,531.78 per annum, equivalent to a weekly payment of £86.91. The Fund generated a return of 6.8% for the year to 31 March 2019 compared to the strategic benchmark return of 6.4%. Over the three years to 31 March 2019 the Fund returned 10.4% per annum, compared to the strategic benchmark return of 9.7% per annum and the long term investment objective of 6.0% per annum. The Fund continues to be managed in a cost effective manner with total pension administration, investment management, and oversight and governance costs equating to just 0.14% (2018: 0.13%) of funds under management. The key challenges for the Fund in the year ahead is to maintain the strong investment performance in a lower return environment whilst continuing to manage the transition of assets to Border to Coast, the Fund’s chosen entity to satisfy the Government’s requirement for pooling of investments. The Fund is participating fully in the pooling process and will ensure that there is appropriate governance oversight of the activities of our pooling partner.
Julian Neilson Head of Finance East Riding of Yorkshire Council 2 September 2019
foreword 3 53 East Riding Pension Fund Annual Report and Accounts 2018/2019 the local government pension scheme
Legal Framework The Local Government Pension Scheme (LGPS) has been in existence since 1922 and has developed into a comprehensive scheme providing pensions for all members and their spouses, civil partners or eligible cohabitating partners and eligible children. The current scheme, LGPS 2014, is a Career Average Revalued Earnings (CARE) scheme. The scheme rules for LGPS 2014 are contained within the LGPS Regulations 2013 (Statutory Instrument Number 2013 No. 2356) and subsequent amendments and the Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014 (Statutory Instrument Number 2014 No 525). Amendments to LGPS 2014 are made under the Public Service Pensions Act 2013. Details of the main provisions of LGPS 2014 can be found at lgpsregs.org/schemeregs/lgpsregs2013.php. The Regulations specify the type and amounts of pension and other benefits payable in respect of scheme members who leave, retire or die, and also fix the member contributions rates payable on an ongoing basis. Employees have freedom to opt-out and make their own pension provision. Employer contribution rates are set by the Fund’s Actuary every three years following the valuation of the Fund, in order to maintain the solvency of the Fund. New rates were set by the Actuary from 1 April 2017 to 31 March 2020 following the 2016 Actuarial Valuation. Whilst the Regulations are fixed on a national basis, the LGPS is managed by a designated Administering Authority, and throughout England and Wales there are 89 such authorities. East Riding of Yorkshire Council is responsible for administering “The East Riding Pension Fund” for the benefit of its own employees and the employees of the scheme employers and admission bodies. Full details of the employers participating within the Fund are shown on pages 5 and 6. Teachers, Police Officers and Firefighters are excluded from the LGPS, as they are members of separate statutory pension schemes. The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 make the provision in relation to the management and investment of pension funds held by administering authorities required to maintain pension funds by the Local Government Pension Scheme Regulations 2013. HM Revenues and Customs has granted the LGPS ‘exempt approval’ for the purposes of the Income and Corporation Taxes Act 1988. Since April 2006, the LGPS has been classified as a registered public service pension scheme under Part 4 of Chapter 2 of the Finance Act 2004. It complies with the relevant provisions of the Pension Schemes Act 1993, the Pensions Act 1995, the Pensions Act 2004 and meets the Government’s new standards under the automatic enrolment provisions of the Pensions Act 2008.
The East Riding Pension Fund Local Pension Board As required under section 5 of the Public Service Pensions Act 2013 and regulation 106 of the LGPS Regulations 2013 (as amended), the East Riding Pension Fund Local Pension Board (ERPFLPB) was established on 25 February 2015 and is made up of three employer representatives and three member representatives. The ERPFLPB is responsible for assisting East Riding of Yorkshire Council (as administering authority) in securing compliance with the LGPS regulations, overriding legislation and guidance from the Pensions Regulator. Details of the activities of the ERPFLPB can be found on the East Riding Pension Fund website at erpf.eastriding.gov.uk/local-pension-board
the local government pension scheme 4 54 East Riding Pension Fund Annual Report and Accounts 2018/2019
Fund Membership The 321 employers, including East Riding of Yorkshire Council, with an interest in the Fund are listed below:
ADMINISTERING AUTHORITY East Riding of Yorkshire Council
SCHEDULE 2 EMPLOYERS (255) Adeleiade Primary Academy Emergency Services Fleet Management Kirton in Lindsey Town Council Ainthorpe Primary Academy (Humberside) Limited Laceby Acres Airmyn Park Primary School Endike Primary School Lisle Marsden Academy Alderman Cogan Primary Academy Endsleigh Holy Child VC Academy Littlecoates Primary Academy Anlaby Common Parish Council Enfield Academy of New Waltham Longhill Primary Academy Appleton Primary Academy Epworth Academy Macaulay Academy Archbishop Sentamu Academy Epworth Town Council Malet Lambert Academy Ashwell Academy Estcourt Primary Academy Marfleet Primary Academy Aspire Academy Fairfield Academy Market Weighton Town Council Barrow upon Humber Parish Council Francis Askew Primary School Maybury Primary Academy Barton upon Humber Town Council Franklin College Melbourne Community Academy Beacon Academy Frederick Holmes Academy Melior Community College Academy Beverley and North Holderness Internal Ganton School Mersey Academy Drainage Board Gilberdyke Academy Middlethorpe Academy Bellfield Academy Goole High School Mountbatten Academy Beverley Grammar School Goole Town Council Neasden Primary Academy Beverley Town Council Great Coates Primary Academy New Waltham Academy Biggin Hill Primary Academy Griffin Primary Academy Newbald Parish Council Bishop Burton College Grimsby Institute of Further and Higher Newington Academy Bottesford Town Council Education Newland School for Girls Bricknell Primary Academy Hall Road Academy Newland St John’s CE Academy Bridgeview School Havelock Academy North Cave Parish Council Bridlington Town Council Healing Primary School North East Lincolnshire Council Brigg Town Council Healing Science Academy Limited North Eastern Inshore Fisheries and Broadacre Primary Academy Hedon Town Council Conservation Authority Broughton Town Council Hessle Community Academy North Ferriby Parish Council Buckingham Primary Academy Hessle Town Council North Lincolnshire Council Bude Park Primary Academy Hibaldstow Academy North Lindsey College Bursar Primary Academy Highlands Primary Academy Oasis Academy Henderson Avenue Burton upon Stather Parish Council Holderness Academy and Sixth Form College Oasis Academy Immingham Cambridge Park Academy Hook C of E Primary School Oasis Academy Nunsthorpe Canon Peter Hall Academy Hornsea Town Council Oasis Academy Parkwood Chiltern Primary School Howden School Oasis Academy Wintringham Christopher Pickering Primary School Hull College Old Clee Primary Academy Cleethorpes Academy Hull Culture and Leisure Limited Ormiston Maritime Academy Cleeve Primary Academy Hull Trinity House Academy Ormiston South Parade Academy Clifton Primary Academy Humber Bridge Board Ouse and Humber Drainage Board Collingwood Academy Humber University Technical College Outwood Academy Brumby Compass Academy Humberside Fire Authority Outwood Academy Foxhills Coritani Academy Humberside Magistrates’ Courts Committee Outwood Junior Academy Brumby Cottingham Croxby Primary Academy Humberston Academy Paisley Primary Academy Cottingham High School Humberston Cloverfields Academy Parkstone Primary Academy Craven Primary Academy Humberston Park Academy Patrington CE Primary Academy Crowle Academy Hunsley Primary School Pearson Primary School Dorchester Primary Academy Huntcliff Academy PHASE Driffield School ICT 4 Collaboration Phoenix House PRU Driffield Town Council Immingham Town Council Pilgrim Academy Dunswell Primary Academy Ings Primary School Pocklington Junior School Easington CE Primary Academy John Leggott College Pocklington Town Academy East Ravendale Academy John Whitgift Academy Priory Primary Academy East Riding College Kelvin Hall School Quay Academy Eastfield Primary Academy (Immingham) Kingston Upon Hull City Council Reynolds Primary Academy Eastfield Academy (Hull) Kingstown Works Limited Rise Academy Edward Heneage Academy Kingswood Academy Riston Primary Academy Elliston Primary Academy Kingswood Parks Primary Academy Rokeby Park Academy Elloughton cum Brough Parish Council Kirk Ella and West Ella Parish Council Ron Dearing UTC the local government pension scheme 5 55 East Riding Pension Fund Annual Report and Accounts 2018/2019
Rowley Parish Council Spring Cottage Academy University of Lincoln St Anthonys Primary Academy Springfield Primary Academy Waltham Leas Primary Academy St Augustine Webster Academy Sproatley Endowed Primary Academy Wansbeck Academy St Bede’s Academy Stamford Bridge School Weelsby Primary Academy St Bernadette’s Academy Stepney Primary Academy Welholme Primary Academy St Charles RC Primary Academy Stockwell Academy Welton Parish Council St George’s Primary Academy Stoneferry Primary School Westcott Primary Academy St James’ CE Academy Strand Academy Westwoodside Academy Sullivan Centre St Joseph’s Academy Wheeler Academy Sutton Park Primary Academy St Mary Queen of Martyrs VC Academy Whitehouse Pupil Referral Unit Swanland Parish Council St Mary’s Academy Wilberforce College St Mary’s Catholic Academy Swanland Primary School Academy Trust William Barcroft Junior Academy St Mary’s College Thanet Primary Academy Willoughby Road Primary Academy St Nicholas Primary Academy The Axholme Academy Willows Academy St Norbert’s Academy The Boulevard Academy Winifred Holtby Academy St Peter’s CE Primary Academy The Boulevard Centre Winterton Academy St Richards RC Primary School The Chief Constable of Humberside Police Winterton Town Council St Thomas More Academy The Green Way Academy Withernsea Primary Academy St Vincents VC Academy The Marvell College Withernsea Town Council Scartho Junior Academy The Parks Academy Scawby Academy The Police and Crime Commissioner for Wold Academy Sevenhills Academy Humberside Woldgate School and Sixth Form College Sidmouth Primary Academy The St Lawrence Academy Wolfreton School and Sixth Form College Sigglesthorne Primary Academy The Snaith School Woodland Primary Academy Signhills Academy The Vale Academy Woodlands Primary Academy Signhills Infants Academy Thoresby Academy Workforce Skills Limited Sirius Academy North Thorpepark Academy Worlaby Academy Sirius Academy West Thrunscoe Primary Academy Wybers Wood Academy South Axholme Academy Tollbar Academy Limited Wyke College South Hunsley School and Sixth Form College Tweendykes Academy Yarborough Primary Academy Southcoates Primary Academy Ulceby St Nicholas Primary School Yorkshire and Humberside Grid for Learning
ADMISSION BODIES (65) Aspen’s Services Ltd (Pilgrim Tolbar) Compass Contract Services (UK) Limited Mountain Healthcare Ltd Aspen’s Services Ltd (Tolbar MAT) (Wolfreton) North East Lincolnshire Clinical Barnado’s ENGIE Services Limited Commissioning Group Bulloughs Cleaning Services Limited Havelock Housing Association Limited NPS Humber Limited City Health Care Partnership CIC Hull and Goole Port Health Authority Ongo Homes Limited Hull Charterhouse Trustees Civica UK Limited Pickering and Ferens Homes Hull Resettlement Project Limited Compass Contract Services (UK) Limited Pinnade Housing Limited (Delta MAT) Humber NHS Foundation Trust (Hull) Pocklington School Humber NHS Foundation Trust Compass Contract Services (UK) Limited Robertson Facilities Management Limited (East Riding of Yorkshire Council) (East Ravendale) Robertson Facilities Management Limited PFI Humbercare Limited Compass Contract Services (UK) Limited Sewell Facilities Management Limited Humberside Independent Care Association (Hessle Academy Community Trust) Shoreline Housing Partnership Limited Independent Cleaning Services Limited Compass Contract Services (UK) Limited Sodexo Limited (Chiltern) (Howden School) Sodexo Limited (Beacon Academy) Independent Cleaning Services Limited Sodexo Limited Nunsthorpe Compass Contract Services (UK) Limited (Driffield) (Humberston Academy) Independent Cleaning Services Limited Sodexo Limited (Oasis Community Learning) Compass Contract Services (UK) Limited (Hessle Trust) T(n)S Catering Management Ltd (Lisle Marsden) Independent Cleaning Services Limited (Ise Education Trust) Compass Contract Services (UK) Limited (Wolfreton) T(n)S Catering Management Ltd (Old Clee) Interserve (Facilities Management) Ltd (Delta - Melior) Compass Contract Services (UK) Limited ISS Facility Services PFI T(n)S Catering Management Ltd (Delta - Willoughby Road) (The Vale) KGB Cleaning Services Limited Compass Contract Services (UK) Limited Lincolnshire Partnership NHS Taylor Shaw Limited (Waltham Leas) Foundatiom Trust Taylor Shaw Limited (Frederick Gough) Compass Contract Services (UK) Limited Lincs Inspire Limited Taylor Shaw Limited (Winterton Community Academy) Mellors Catering Services Limited (The St Lawrence Academy) Compass Contract Services (UK) Limited Mellors Catering Services Limited The Deep (EMIH) Limited (Winterton Junior School) (Cottingham) The Riverside Group Limited Compass Contract Services (UK) Limited Mellors Catering Services Limited University of Lincoln Students’ Union (Wolds Learning Partnership) (South Holderness College) University of York the local government pension scheme 6 56 East Riding Pension Fund Annual Report and Accounts 2018/2019 scheme management and advisers
Fund Managers Director of Corporate Resources Schroder Investment Management (UK) Limited East Riding of Yorkshire Council 1 London Wall Place County Hall London Beverley HU17 9BA EC2Y 5AU
River and Mercantile 30 Coleman Street London EC2R 5AL
Pool Provider Border to Coast Pension Partnership Limited (wef 1 July 2018) 5th Floor Toronto Square Toronto Street Leeds LSI 2HJ
Secretary to the Director of Corporate Resources Pensions Committee East Riding of Yorkshire Council County Hall Beverley HU17 9BA
Custodian State Street Bank and Trust Company Quartermile 3 10 Nightingdale Way Edinburgh EH3 9EG
AVC Provider Prudential Craigforth, Stirling FK9 4UE
Actuary Hymans Robertson LLP 20 Waterloo Street Glasgow G2 6DB
Legal Adviser Director of Corporate Resources East Riding of Yorkshire Council County Hall Beverley HU17 9BA
Banker NatWest Bank 60 Market Place, Beverley HU17 8AH
Fund Accountant/ Director of Corporate Resources Director of Finance East Riding of Yorkshire Council County Hall Beverley HU17 9BA
Fund Auditor Mazars LLP 5th Floor 3 Wellington Place Leeds LS1 4AP scheme management and advisers 7 57 East Riding Pension Fund Annual Report and Accounts 2018/2019
Scheme Administrator Director of Corporate Resources East Riding of Yorkshire Council County Hall Beverley HU17 9BA
Fund Adviser MJ Hudson Allenbridge 8 Old Jewry London EC2R 8DN
Performance State Street GS Performance Services Measurement Quartermile 3 10 Nightingdale Way Edinburgh EH3 9EG
Officers Darren Stevens Julian Neilson Director of Corporate Resources Head of Finance East Riding of Yorkshire Council East Riding of Yorkshire Council County Hall County Hall Beverley HU17 9BA Beverley HU17 9BA
Kevin Dervey Graham Ferry Head of Investments Pensions Manager East Riding Pension Fund East Riding Pension Fund PO Box 164 PO Box 118 Church Street Church Street Goole DN14 5YZ Goole DN14 5YU
Management Arrangements of Fund The arrangements for the management of the Fund are: • The Pensions Committee meet at quarterly intervals to determine overall strategy, to review retrospectively detailed implementation of policy and to consider performance, with a further four meetings being held to consider other matters; • The fixed income portfolio is managed by the Corporate Resources Directorate; • The UK equity portfolio is managed by Border to Coast Pension Partnership; • Overseas investments are managed by Schroder Investment Management and Border to Coast Pension Partnership; • Alternative assets are managed by the Corporate Resources Directorate; • The derivatives portfolio is managed by River and Mercantile; • The Corporate Resources Directorate administers obligations to pensioners and Fund contributors.
Custodial Arrangements Investments managed by the Director of Corporate Resources and Schroder Investment Management (UK) Limited are held by State Street Bank and Trust Company in the nominee name of The East Riding Pension Fund. State Street Bank and Trust Company are also empowered to carry out stock lending on behalf of the Fund (see note E to the accounts).
scheme management and advisers 8 58 East Riding Pension Fund Annual Report and Accounts 2018/2019
risk management
East Riding Pension Fund recognises the importance of effective risk management including the identification and management of its key risks. Risk is defined as a condition, act, situation or event with the ability or potential to impact on the Fund either by enhancing or inhibiting performance, attainment of objectives or meeting stakeholder expectations. Risk management is the process by which the Pension Fund systematically identifies, assesses and seeks to mitigate the risks associated with its activities, and is a key component of the overall governance process. Effective risk management is a clear indicator of good governance and a risk register is the primary control document for the identification, assessment and monitoring of key risks. The Fund’s key objectives are to: • ensure the long term solvency of the fund and that sufficient funds are available to meet all benefits as they fall due for payment; • administer the fund effectively and efficiently in accordance with regulations; and • communicate effectively with all key stakeholders The Fund’s risk management strategy includes a risk register which identifies its key risks, details the consequence of those risks, and highlights the controls which are currently in place to mitigate those risks. For each risk the register includes: • a brief description of each risk; • the potential consequences; • an estimate of the severity of the risk before any risk controls have been implemented; • a description of the controls currently in place to mitigate the risk; • the revised severity of the risk as a result of the controls already in place; and • additional control requirements that have been identified. The Fund’s risk register is reviewed on a semi-annual basis by the Pensions Committee and the latest risk register is included below. In the interests of brevity the risk scores, which are based on the likelihood of the risk occurring and the potential impact on the Fund, have been omitted from the table.
risk management 9 59 East Riding Pension Fund Annual Report and Accounts 2018/2019
The Fund’s risk register is included below.
No. Risk Controls
1 The Pension Fund’s assets do not meet Strategic asset allocation, including appropriate diversification of assets, expected liabilities when they fall due determined on a triennial basis following the latest triennial valuation and agreed by Members, Advisers, and Investment Managers. Actuarial valuation process focuses on real returns on assets, net of price and pay increases. Tactical asset allocation determined on a quarterly basis by Pensions Committee in light of financial market conditions and following advice from Advisers and Investment Managers. The Investment Strategy Statement discloses the permitted asset classes, allocation, and ranges in order to provide an appropriate level of diversification. Investment management responsibilities split between internal and external investment managers with ability to switch funds under management between the internal and external investment managers. Robust investment process including detailed research and analysis. Key personnel changes at investment managers are highlighted to the Pensions Committee on a quarterly basis. Ability to terminate external investment managers’ contract in its entirety. Detailed analysis of Fund performance on an absolute basis and relative to the actuarial rate of return and the Fund-specific benchmark. Performance monitored by the Head of Finance and Director of Corporate Resources on a quarterly basis and reviewed by Pensions Committee on an annual basis. Treasury Management Policy establishes limits on investments, institutions, and counterparties. Maintain a minimum level of liquid investments to meet liquidity requirements and analyse Fund liquidity position on a weekly basis. Operational Treasury Management Board meets on a regular basis to review investment criteria. Treasury Management activity reviewed by the Pensions Committee on a semi- annual basis. Treasury Management Policy reviewed by the Pensions Committee on an annual basis. A significant proportion of the Fund’s assets have either explicit e.g. index-linked bonds or implicit inflation linkage e.g. property, infrastructure. The Fund can invest in inflation protection products subject to LGPS investment regulations. Employers pay for their own salary awards and are reminded of the geared effect on pension liabilities of any bias in pensionable pay rises towards longer serving employees. Independent assurance received on internal controls of the Fund’s investment managers on an annual basis. Continual focus on investment costs including fees, expenses, and transaction costs.
risk management 10 60 East Riding Pension Fund Annual Report and Accounts 2018/2019
No. Risk Controls
2 The Fund is unable to meet the The Pension Fund has assumed a leading role in the creation of its requirements of Government policy selected pooling arrangement – Border to Coast Pensions Partnership on pooling investments across LGPS which meets the Government’s stated criteria for pooling. funds The Fund (through representation on the Border to Coast Joint Committee and through East Riding of Yorkshire Council as shareholder) has full participation and decision making ability into how the pooling arrangement is managed and monitored. The Pensions Committee receives a detailed update regarding the implementation of pooling on a regular basis. 3 The potential for disruption, monetary • FCA regulation of Border to Coast losses, and adverse investment • Investment professionals experienced staff transferred from performance from the transfer of internally managed partner funds assets and personnel into Border to Coast Pensions Partnership Limited • Border to Coast governance structure • Monitoring and direction by retained investments staff, the Section 151 Officer and the Pensions Committee 4 Actuarial assumptions in respect of Mortality assumptions are set at valuation using ‘Club Vita’. membership are significantly different Employers are charged the strain cost of non-ill health retirement. than expected Employers have the option to take out ill health liability insurance. Participation in Tell us Once and LGPS NI Database. Implementation of latest early retirement strain factors.
risk management 11 61 East Riding Pension Fund Annual Report and Accounts 2018/2019
No. Risk Controls
5 Failure by Fund to carry out Scheme employers are informed of statutory responsibilities at administrative duties and meet employer meetings, through monthly employer bulletins and online. the requirements of The Pensions Employer training is provided as required or identified. Regulator Code of Practice 14 (TPR Data quality checks are carried out in accordance with The Pensions Code 14) – Administration Regulator (TPR) requirements for common and conditional data. Dedicated training officer and structured training programme in place for internal staff and regular training events for employers. External training is completed as required along with attendance at seminars and conferences to keep informed of new developments and best practice. UPM facility to test calculations and processes ensures benefits are calculated in accordance with current Regulations and legislation changes are implemented correctly. Electronic workflow system monitors the volume and type of work to ensure resources are in place to mitigate the impact of unforeseen customer demands. Annual audit of fundamental systems by Internal Audit. Membership of Pensions Advisory Network, North East Pension Officers Forum (NEPOF), National Communications Working Group and Local Authority Pension Fund Forum (LAPFF) to keep informed of new developments and best practice. Consider and respond to all Ministry for Housing, Communities and Local Government (MHCLG) consultation papers. Regular contact with Fund advisors including external investment manager, independent advisor, actuary, external auditors and AVC provider. Compliance Manual updated on an annual basis and signed by all internal investment staff. Actuarial advice is subject to professional requirements such as peer review and advice is delivered via formal meetings with Elected Members and recorded appropriately. Local Pension Board assists the Fund in complying with LGPS regulations. Pensions Section Service Plan 18/19 ensures that scheme record keeping and administration is compliant with TPR Code 14. The Pensions Administration Strategy implemented from 1 January 2018. Common and conditional data reporting is taking place on a quarterly basis. The results from this are recorded on the data improvement plan and action taken to correct data held. The contact manager database ensures the Fund has the most up to date employer contacts.
risk management 12 62 East Riding Pension Fund Annual Report and Accounts 2018/2019
No. Risk Controls
6 Failure to recruit and retain an Relevant staff members have completed competency based recruitment adequately skilled workforce and to training and East Riding of Yorkshire Council competency framework is provide sufficient training to Local applied as part of the recruitment and selection process. Pension Board and Committee Any corporate changes which may arise to the recruitment and members. (TPR Code 14 – Governing selection process are considered and applied. the Scheme) Relevant staff undertaken attendance management training. Attendance reviewed monthly and dealt with in accordance with corporate policy. EDRs and learning development skills matrix used to identify skill gaps and training requirements. Staff members are encouraged to obtain relevant qualifications, including formal investment management qualifications e.g. CFA, IMC and pensions administration qualifications, e.g. CIPP. Workforce development action plan in place to identify future workforce requirements, training needs and recruitment/retention measures. Review of vacant posts and re-evaluation /regrading/ restructuring considered as appropriate. Succession planning within Sections. Detailed records of rationale for investment decisions. Key processes are documented. Induction and training programme for Members and Officers. Formal training programme for Pensions Committee and Local Pension Board members. Advertising extended to include local newspapers resulting in an increase in the number and quality of applicants. Annual review of the training needs analysis for the Local Pension Board. Use of the apprenticeship levy to fund bespoke courses for Pensions section staff.
risk management 13 63 East Riding Pension Fund Annual Report and Accounts 2018/2019
No. Risk Controls
7 Failure to establish adequate IT systems are operated in line with corporate policies and procedures business continuity and data security to ensure secure storage and safe transmission of data, including arrangements sensitive data. Internal staff complete e-learning and read policies in respect of IT security and data protection. Pensions section has a Data Protection Link Officer and attendance takes place at the GDPR working group meetings, workshops and training as required. The Fund is GDPR compliant. UPM has facility to restrict and control access to reduce risk of fraud and ensure audit trails are in place. Procurement process assesses technical ability and financial stability of each IT system. Disaster recovery and business continuity plans in place for each IT system. Regular reconciliation of custody data to internal records. Funds under management can be transferred to the external investment manager. ERPF online services ensures secure data transfer and comprehensive contact database to ensure data shared with the right employer contact. Memorandum of understanding issued to all scheme employers setting out their responsibilities in relation to shared data. Virtualisation of servers provides secure system backups and unlimited secure data storage capability. 8 Failure to report a breach of the law to All relevant persons aware of their legal duty to report a breach through the Pensions Regulator (TPR) the Fund’s Procedure for Reporting Breaches including members of the Pensions Committee and the Local Pension Board, and officers of Fund employers. Members and officers required to undertake e-learning programme on the Regulator’s website. All reported and unreported breaches are presented to the Pensions Committee and the Local Pension Board on a six monthly basis (see Appendix 2). The Pensions Administration Strategy sets out the timescales for complying with TPR guidance including unsatisfactory performance and reporting to TPR. Pensions section targets are issued monthly and reviewed by OMT. A data improvement plan was produced following an analysis of the results from the common and conditional data reporting.
risk management 14 64 East Riding Pension Fund Annual Report and Accounts 2018/2019
No. Risk Controls
9 A Scheme employer becomes The Fund requires all admitted bodies to undertake a risk assessment to financially unviable and unable to pay assess whether a bond, indemnity or guarantor should be put in place. contributions required Requirement for a bond is assessed on an annual basis. Cessation Valuation reports are commissioned from the Fund Actuary when the Admitted Body no longer has active members. Option for admitted bodies to pool with letting authorities subject to Fund approval. Financial health checks carried out on new and existing employers by the Council’s Senior Governance Officer. Use of Hymans online reporting tool to assess impact of market movements and contributions on employer funding positions and to measure cessation debt. 10 Significant reduction in individual Membership totals are monitored on a quarterly basis, which scheme employer membership incorporates redundancy or outsourcing exercises. Financial Control Team monitors non unitary employer contributions monthly. Material changes of 10% of membership are referred to the Fund actuary. Employers with reducing membership are required to pay deficit contributions as fixed monetary payments, except for academy conversions where the local authority deficit is included in the calculation of the academy contribution rate. Various methods are used to communicate the benefits of LGPS to members and employers. Number of members electing for 50/50 section are monitored. Use of Hymans online reporting tool to assess impact of market movements and contributions on employer funding positions and to measure cessation debt.
In addition, an investment management risk schedule is reviewed by the Pensions Committee on a quarterly basis which considers issues such as Fund performance, regulation and compliance, and personnel and structure. Other risks pertaining to the Fund are disclosed in the Funding Strategy Statement (pages 89 to 116) and Note X Disclosure Relating to Financial Instruments (pages 79 to 87).
risk management 15 65 East Riding Pension Fund Annual Report and Accounts 2018/2019
Internal Controls and Assurance The Investment Strategy Statement requires an annual written statement from the Investment Managers that they have adhered to the principles set out in the statement. Statements are received from the Director of Corporate Resources, Schroder Investment Management, River and Mercantile and Border to Coast Pensions Partnership. In addition, assurance to assess the internal controls and procedures at Schroder Investment Management, Border to Coast Pensions Partnership and State Street Global Services, the Fund’s custodian, is also sought. • Schroder Investment Management prepares an Internal Controls report which covers the control objectives and procedures relating to its investment activities. The report is audited by PricewaterhouseCoopers in accordance with International Standard on Assurance Engagement (ISAE) 3402, issued by the International Accounting and Assurance Standards Board, and the Institute of Chartered Accountants in England and Wales Technical Release AAF 01/06. • Border to Coast Pension Partnership have been provided with a Controls Assurance review by their auditors KPMG which covers the part year of trading in 2018/19 prior to receiving a full controls review in subsequent years. • State Street Global Services prepares Service Organisation Control reports on its General Fund Accounting and Custody controls and its Information Technology controls. These reports are audited by Ernst & Young in accordance with attestation standards established by the American Institute of Certified Public Accountants (AICPA) and the ISAE 3402. • River and Mercantile Annual Report and Accounts includes an independent audit report by their auditors BDO. All of these assurance reports included unqualified opinions and no material issues were identified.
Audit During the financial year the East Riding of Yorkshire Council Internal Audit section reviewed the operations of the Investments and Pensions Administration sections to ensure that there were adequate controls and procedures in place. The results of these audits are shown in the table below:
Control Effectiveness Risk Exposure
Investments Satisfactory Assurance Moderate
Pensions Administration Satisfactory Assurance Moderate
risk management 16 66 East Riding Pension Fund Annual Report and Accounts 2018/2019 financial performance
Analytical Review The following tables provide a brief review of the major movements in the Fund Account and the Net Assets Statement for the financial year. More detail is provided in the Investment Policy and Performance report on pages 23 to 38.
Fund Account 2017/18 2018/19 Notes
£000 £000
Net Contributions/ - 101,117 -68,413 Pre-paid contributions received from 3 employers 2018/19 Benefits
Return on Investments 150,066 340,327 Positive returns in majority of asset classes
Net increase in the Fund 251,183 271,914
Net Asset Statement 2017/18 2018/19 Notes
£000 £000
Fixed Interest 562,550 613,819
Index-linked 33,884 36,499
Equities 1,919,577 447,658 Transition to Border to Coast (Pooled Funds)
Derivatives 71,573 70,396
Pooled Funds 2,047,388 3,720,195 Transition to Border to Coast (Pooled Funds)
Cash 129,730 155,171
Other 13,808 12,568
Total Investment Assets 4,778,510 5,056,306
Analysis of pension contributions The following table provides an analysis of contributions:
2018/19 2017/18 Total On Time Late Total On Time Late
£000 £000 % £000 % £000 £000 % £000 %
Employer – Primary 72,738 70,652 97.1 2,086 2.9 209,556 207,676 99.1 1,880 0.9 Employee – Primary 36,042 35,325 98.0 718 2.0 35,916 35,309 98.3 607 1.7
108,780 105,977 97.4 2,804 2.6 245, 472 242,985 99.0 2,487 1.0
In total, 100 monthly contribution payments were received late, of which 62 were received within 1 month of the due date, 14 were received within 1 and 3 months, and 24 were received after more than 3 months. In total, 114 monthly contribution payments were received late, of which 80 were received within 1 month of the due date, 21 were received within 1 and 3 months, and 13 were received after more than 3 months.
financial performance 17 67 East Riding Pension Fund Annual Report and Accounts 2018/2019
Outturn The following tables show the outturn for the Fund Account and the Net Asset Statement for the two years to 31 March 2019.
2017/18 2018/19
Fund Account Forecast Actual Forecast Actual
£000 £000 £000 £000
Contributions 267,000 267,390 132,000 128,754
Payments (155,000) (166,273) (170,000) (197,167)
Management expenses (6,530) (6,530) (7,050) (7,258)
Net investment income 153,600 164,962 176,004 133,895
Change in market value 108,168 (8,546) 353,105 213,690
Net increase in the Fund 367,238 251,183 484,059 271,914
Contributions and payments are based on current expectations; the administration, investment management, and oversight and governance expenses are based on current budgets; and the net investment income and change in market value are based on the long term forecast returns for each asset class.
2017/18 2018/19
Net Asset Statement Forecast Actual Forecast Actual
£000 £000 £000 £000
Equities 2,924,536 2,805,061 2,924,536 447,658
Bonds 497,696 596,434 619,695 650,318
Derivatives 0 71,573 70,028 70,396
Cash 237,506 129,730 132,584 155,171
Property 527,937 543,898 574,900 580,603
Alternatives 699,416 618,006 661,266 3,139,592
Other - 13,808 15,000 12,568
Total Investment Assets 4,887,091 4,778,510 5,063,668 5,056,306
financial performance 18 68 East Riding Pension Fund Annual Report and Accounts 2018/2019
Operational Expenses
2017/18 2018/19 2019/20
Budget Actual Budget Actual Budget
£000 £000 £000 £000 £000
Pensions Administration
Employees 1,428 1,347 1,407 1,454 1,577
Supplies and Services 492 315 570 365 507
Professional Fees 150 181 181 119 111
Central costs 199 198 199 199 169
2,269 1,796 2,357 1,995 2,364
Investment Management
Employees 796 775 812 497 275
Supplies and Services 363 184 163 128 127
External Fund Manager 1,993 2,513 2,499 3,859 3,879
Custodian 137 127 120 117 120
Stock Lending 150 162 200 68 0
Professional Fees 10 17 15 121 0
Central costs 70 70 70 70 70
LGPS Pooling Costs 342 71 264 262 220
3,861 3,919 4,143 5,122 4,691
Oversight and Governance 400 635 550 638 640
Total 6,530 6,350 7,050 7,755 7,695
The CIPFA guidance ‘Accounting for LGPS Management Costs’ recommends the disclosure of management fees for pooled investments that are not included in the investment management costs with a corresponding adjustment to the Fund Account and Net Asset Statement. These management costs have been obtained using financial information available for each of the Fund’s unquoted pooled investments and in 2018/19 amounted to £16.394m, split between management fees (£14.601m) and performance fees (£1.793m) (2017/18 £15.177m, split between management fees of £13.305m and performance fees of £1.872m). However, it should be noted that the accounting periods of these investments may differ from the Fund’s accounting period and, therefore, the costs incurred may not be directly comparable. As a result, it has been deemed prudent to show these costs in a note rather than adjust the Fund Account and the Net Assets Statement as per the recommended guidance.
financial performance 19 69 East Riding Pension Fund Annual Report and Accounts 2018/2019
Analysis of Pension Overpayments
2014/15 2015/16 2016/17 2017/18 2018/19 Total
£ £ £ £ £ £
Overpayments recovered 7,146.00 10,416 93,262 65,134 42,635 218,594
Overpayments written off
Deaths 5,753 7,010 7,487 3,672 3,859 27,782
Axis Payroll Check 0 0 0 0 0 0
P GM 0 27,812 11,430 0 0 39,242
Total 5,753 34,823 18,917 3,672 3,859 67,024
Annual Payroll (net) 107,481,388 110,001,025 111,488,388 116,419,949 122,741,476 568,132,226
Write offs as % of Payroll <0.1% <0.1% <0.1% <0.1% <0.1% <0.1%
Number of cases - Written off 356 317 446 253 151 1,523
Number of cases - Recovered 15 18 314 206 136 689
Number of cases - in process of recovery 45 26 12 27 16 126
financial performance 20 70 East Riding Pension Fund Annual Report and Accounts 2018/2019 administrative management performance
East Riding of Yorkshire Council has been a member of the CIPFA Pensions Administration benchmarking club since 2005. On an annual basis the Pensions Section completes a comprehensive questionnaire containing a breakdown of budget costs between pensions administration and other functions within the section including communications, IT, accountancy and the commissioning of actuarial work. Data is also provided on LGPS members, Fund employers, workloads, staffing, IT arrangements, industry standard performance indicators and current best practice. The 2018 CIPFA Pensions Administration benchmarking club report, issued in November 2018, compared the performance of East Riding of Yorkshire Council in 2017/18 with 32 local authorities who administer the Local Government Pension Scheme (LGPS). The key findings for 2017/18 were: • The annual cost of administering the LGPS per member. The key benchmark for Pensions Administration is the cost of administering the LGPS per member and the Fund’s cost for 2017/18 was £18.07 (2016/17: £17.62) compared to the average of £21.16 (2016/17: £20.12). The table below is an analysis of the Fund’s cost per member compared with the average cost for the authorities in the benchmarking club.
East Riding Pension Fund Average
£ £
Staff 7.95 9.26
Payroll 1.72 1.13
Direct costs e.g. communications and actuarial fees 1.23 2.47
Overheads e.g. IT, accommodation, central charges 7.21 6.88
Income (0.04) (0.35)
Total cost per member 18.07* 21.16*
* difference between the total cost and the sum of the sub averages is due to rounding and quality control methods applied by CIPFA • The annual cost of employing a full time equivalent (FTE) member of staff to administer the LGPS. The Fund’s staff cost for 2017/18 was £26,676 pa per FTE staff (2016/17: £27,371 pa) compared to the average of £34,034 pa (2016/17: £34,159 pa).
Five Year Analysis of Fund Membership Data The figures in the tables below and graphs opposite show key statistics and illustrate trends over the last five years:
2015 2016 2017 2018 2019
Active Members 37,472 39,227 39,475 40,043 40,234
Deferred Beneficiaries 36,859 37,450 41,585 43,228 43,178
Deferred Members 35,113 35,358 38,817 39,989 39,671
F rozen Refunds 1,746 2,092 2,768 3239 3,507
Pensions in Payment 26,408 26,698 28,625 29,611 31,470
Total Membership 100,739 103,375 109,685 112,882 114,882
administrative management performance 21 71 East Riding Pension Fund Annual Report and Accounts 2018/2019
Five Year analysis of Fund Membership
FUND MEMBERSHIP
120,000 110,000
100,000
90,000
80,000
70,000
60,000
50,000 Number of Members 40,000
30,000
20,000
10,000
2015 2016 2017 2018 2019
Year Ending 31 March
Active Members Deferred Members Pensions in Payment
administrative management performance 22 72 East Riding Pension Fund Annual Report and Accounts 2018/2019 investment policy and performance
Asset Allocation The strategic asset allocation of the Pension Fund is determined on a triennial basis in conjunction with the actuarial valuation exercise. It aims to meet the long term target rate of return with an acceptable level of risk and includes an appropriate diversification of asset classes. The strategic asset allocation is agreed by the Pensions Committee and the Fund’s advisers and investment managers. The Pensions Committee determines the tactical asset allocation of the Pension Fund on a quarterly basis in light of financial market conditions and following advice from the Fund’s advisers and investment managers. The Pensions Committee also regularly reviews the long term investment strategy to ensure that it remains appropriate. Following the triennial review in 2016/17 the Fund’s strategic asset allocation, which was effective 1 April 2017, is as follows:
Strategic Allocation Range Equities 55% +/- 10% Bonds ¹ 19% +/- 5% Property 11% +/- 3% Alternatives 15% +/- 3% ¹ Including Cash
Details of the Largest Equity Investments as at 31 March 2019
Market % Market % Top 15 UK Equities Value Investment Top 15 Overseas Equities Value Investment £m Assets £m Assets
HSBC Holdings 89.2 1.8 Nestle 17.8 0.4 Royal Dutch Shell ‘A’ 268.1 1.6 Roche Holdings AG 14.8 0.3 BP 62.3 1.2 SAP SE 8.6 0.2 Astrazeneca 62.0 1.2 Itochu Corporation 6.6 0.1 Glaxosmithkline 58.7 1.2 Softbank Group 6.4 0.1 Royal Dutch Shell ’B’ 58.6 1.2 Sanofi 6.3 0.1 Diageo 57.0 1.1 Mitsubishi UFJ Financial Group 6.2 0.1 British American Tobacco 41.3 0.8 Adidas 5.8 0.1 Unilever 40.4 0.8 Nokia 5.7 0.1 Prudential 40.1 0.8 Akzo Nobel 5.6 0.1 BHP Group 39.2 0.8 Danone 5.4 0.1 Lloyds Banking 34.8 0.7 SMC Corporation 5.3 0.1 Reckitt Benckiser 34.2 0.7 UPM-Kymmene 5.3 0.1 Rio Tinto 32.6 0.7 Toyota Industries Corporation 5.2 0.1 National Grid 27.0 0.5 Lonza 5.2 0.1
investment policy and performance 23 73 East Riding Pension Fund Annual Report and Accounts 2018/2019
Details of Institutional Unit Trusts as at 31 March 2019
Market % Global Equity Funds Value Investment £m Assets
Schroder Funds
SGST North America Equity Fund 285.7 5.7
Institutional Pacific Fund 138.7 2.7
Emerging Markets Fund 175.9 3.5
Developing Markets Fund 54.9 1.1
Japan Smaller Companies Fund 8.3 0.2
Property Funds The Fund holds a portfolio of 36 Property investments valued at £580.6m as at 31 March 2019 in listed, pooled, and limited partnership structures. Each investment is selected on the basis of its expected risk-adjusted return and its contribution to the Fund’s target return for the asset class with sector and geographic exposure reflecting the preferred areas of investment.
Investment Markets Significant capital appreciation in the majority of equity markets and the positive impact of currency depreciation on the sterling returns from overseas investments were the main contributors to performance. This was partly offset by weaker relative returns in Property.
Performance data for the year ended 31 March 2019 1 UK 8.2% North America 16.7 Europe Ex - UK -2.7% Equities Japan -0.7% Pacific Ex - Japan 10.7% Emerging Markets -1.4% UK Government 4.0% Fixed UK Corporate 3.4% Income Overseas Bonds 8.3% Multi Asset Credit 7.1% Property 3.4% Other Cash 0.8%
Source: WM Performance Statistics -5 0 5 10 15 20 25 30 35 40
1 The table shows the Fund’s returns in each asset class within the strategic asset allocation
investment policy and performance 24 74 East Riding Pension Fund Annual Report and Accounts 2018/2019
Equities • Global equity markets were relatively strong during the year with the exceptions of Japan and Emerging Markets mainly due to a strong rally in the final quarter when investors reacted positively to news that the US Federal Reserve was pausing its monetary tightening cycle. Further the markets responded positively to signs of a rapprochement between the US and China on trade wars. This has subsequently proved to be premature with tensions continuing throughout the first half of 2019. • The best performing equity region, in sterling terms, was North America driven by the prospect of loose monetary policy and that trade negotiations with China appeared to be reaching a positive conclusion on tariffs which would avoid a damaging future trade war. • Emerging Markets was the weakest performer during the year as the slowdown in global trade undermined the near-term earnings outlook. The prospect of lower earnings expectations had a negative impact on emerging equity markets. • The UK delivered a positive return, ahead of the rate of inflation, despite the ongoing uncertainty resulting from the decision to exit the EU and the potential instability during the protracted exit negotiations. Corporate balance sheets remain strong and should support future capital investment and takeover activity. • Europe suffered as a result of the global trade dispute as well as relatively weak domestic demand and a slowdown in investment expenditure. Brexit-related economic weakness and sovereign debt issues began to have a negative impact on economic growth, investor sentiment and corporate earnings in the region. • Japan continued to benefit from a weaker currency, ultra loose monetary policy, relatively attractive valuations and improvements in corporate governance. Domestic companies benefitted from the additional fiscal stimulus and the postponement of the proposed increase in the consumption tax. • The Pacific region proved volatile during the year but recovered in the final quarter due to the change in the US Federal Reserve monetary policy as concerns over weak global growth emerged. Economic growth in the region is susceptible to a potential slowdown in China, falling commodity prices and rising US interest rates.
Fixed Income • Bond yields remain low in historical terms due to low interest rate expectations in the majority of countries. Yields are expected to increase eventually in the longer term as monetary conditions normalise, although they are likely to remain below long run averages. In addition, bond markets are becoming increasingly nervous that governments will turn to fiscal policy (with an associated increase in debt levels) rather than monetary policy to stimulate growth. • In the UK market, ten year bond yields fell below 1.0% in response to increasing Brexit worries, lower future interest rate expectations and investors looking for safe haven assets. Yields remain significantly below the long term average (c. 4%) and they are expected to remain relatively low in the short term although they are likely to rise in the longer term reflecting higher interest rates and inflation expectations resulting from the BOE normalisation strategy. • In Overseas developed markets yields fell to historically low levels due to expectations of a loosening in monetary policy as global economic growth appeared to be slowing. Negative interest rates have become entrenched in Japan and much of continental Europe as economic growth slows and future interest rate expectations move lower. • Emerging market bonds recovered during the year supported by continuing economic growth, relatively low inflation which remained within target in most countries and the slow and steady normalisation of interest rates designed to avoid disruption in financial markets. • Investment-grade corporate bonds performed in line with government bonds as spreads remained stable. High yield bonds outperformed throughout the year as investors searched for yield in higher risk markets.
Property
investment policy and performance 25 75 East Riding Pension Fund Annual Report and Accounts 2018/2019
• The UK property market stabilised during the year although returns from some traditional sectors were lower due to minimal capital growth and falling rental growth. • Demand for industrial sector assets continued to be strong as e-commerce distribution centres drove demand. Constrained supply in London and the South East, as well as some major urban areas in other parts of the UK, is accentuating rental growth. • In the office sector, regional office markets have seen a prolonged period of net absorption and falling vacancy rates, supporting steady rental growth over the last few years. While fundamentals remain strong in central London, rents have been largely flat or falling, which may be due to the high proportion of lettings to flexible office providers. • The retail sector faced a difficult period as consumer confidence was below the levels of the previous year due to uncertainty over Brexit and the effect it may have on consumer disposable income. High street retail rents continue to fall as tenant distress is prompting major adjustments to rental values. The shopping centre sector also continues to suffer from falling occupier demand and waning investor interest.
Market Outlook • Global economic growth slowed notably in the second half of 2018 due to rising trade tensions, tightening financial conditions and a decline in growth in China. Risks to the future outlook are increasing due to weak trade growth and lower capital investment. The rate of expansion may have peaked in some major economies and growth has become less uniform. Key risks include uncertainty over trade policy in the US and Europe, geopolitical tensions in the Middle East and Asia regions, volatile oil prices and the impact of monetary tightening in advanced economies. Global inflation remained relatively low mainly due to non-oil commodity prices remaining at lower levels, though inflationary pressures may build as a result of stronger labour markets in some developed economies. Within the developing economies inflation remains relatively high, but stable, in some countries notably Russia, Brazil and South Africa. • Equity markets continue to benefit from loose monetary policy and valuations remain above the long term average although Emerging Markets continue to trade at a significant discount to developed markets following recent relative under-performance. Earnings expectations have proved volatile during the year which could have a negative impact on markets in the short term. Valuation measures are above their long term average and earnings growth is moderating. Corporate activity increase significantly during the second half of the year as companies attempt to maintain growth through acquisition – an indicator that we are in the latter stages of the market cycle. There remains a significant risk that equity markets are likely to generate below average returns and that there is a sharp correction in the medium term. • The long bull market in global bonds appeared to be coming to an end during the second half of 2018 as US interest rates began to rise and unconventional quantitative easing programs came to an end. The move higher in interest rates to more normal levels was cut short in response to the global slowdown and the US/China trade dispute. Consequently bond yields remain unattractive to long term investors although they are likely to increase in the medium term. Rates are expected to remain relatively low as there are very few inflationary pressures and monetary policy will continue to be accommodative. Corporate bond spreads, both investment grade and sub-investment grade, have stabilised around their long term average but may be susceptible to a correction in the event of an economic slowdown and a deterioration in credit quality. Alternative credit investments, such as direct lending or mezzanine debt, offer better risk-adjusted returns as well as an illiquidity premium. • Overall, the UK property sector continued to perform well although some sectors, notably shopping centre and high street retail continue to suffer as a result of uncertainty over Brexit. Steady rental growth was experienced across most sectors but this is unlikely to continue in the medium term and capital growth is likely to remain constrained. Consequently, returns are likely to moderate further in the short term which should mean that niche investments such as student accommodation and social housing are likely to perform relatively well. • In recent years investors have had to adjust to a lower return environment, particularly in traditional asset classes, resulting in a switch in focus from return generation to capital protection. A diversified portfolio across a range of non-correlated alternative asset classes should help maintain returns and provide a higher level of capital protection.
investment policy and performance 26 76 East Riding Pension Fund Annual Report and Accounts 2018/2019
Investment performance The following table shows the performance of the Fund relative to its strategic benchmark:
Annualised performance 1 year 3 years 10 years 20 years
East Riding Pension Fund 6.8% 10.4% 11.1% 6.4%
Strategic benchmark 6.4% 9.7% 10.9% 6.5%
Source: State Street Investment Analytics
The Fund subscribes to the Pensions Investment Research Consultants (PIRC) advisory voting service which provides voting recommendations based on industry best practice. Further details of PIRC’s voting guidance is shown in the “UK Shareowner Voting Guidelines 2016” guidance document which is available at www.pirc.co.uk. However, the Fund will interpret the application of these principles according to its own views of best practice. There are also other issues outside of these principles on which the Fund will take a view. The external investment manager will vote in accordance with its “Investment and Corporate Governance” policy which is available at www.schroders.com. The Fund’s investment managers can exercise their discretion not to vote in accordance with best practice. Where this discretion is exercised, the rationale for this decision is reported to the Pensions Committee. The exercise of any other rights attaching to a particular investment will be considered on a case by case basis. The Pensions Committee reviews the Fund’s corporate governance and voting activity on a quarterly basis. The voting activity of the Pension Fund during the financial year is summarised in the following table:
Number of Number of Voted in accordance with Not voted in accordance with meetings resolutions stated policy stated policy
519 6,633 6,556 77
Statement of Compliance with the UK Stewardship Code for Institutional Investors This statement of compliance was updated in March 2017 in response to the FRC’s assessment of signatories’ quality of reporting against the Code and subsequent categorisation. The statement of compliance will be reviewed on an annual basis. East Riding Pension Fund has been categorised as a Tier 1 asset owner and Schroder Investment Management Limited has been categorised as a Tier 1 asset manager. This demonstrates that both signatories “provide a good quality and transparent description of their approach to stewardship and explanations of an alternative approach where necessary”. The East Riding Pension Fund supports the UK Stewardship Code and, as part of its commitment to best practice, seeks to apply the Principles in the Code to its investment activity. The management of the Fund’s assets is split between the internal investment manager and Schroder Investment Management Limited. Schroder’s Statement of Compliance with the UK Stewardship Code can be viewed at www.frc.org.uk.
Principle 1 – Institutional investors should publically disclose their policy on how they will discharge their stewardship responsibilities. The Fund takes its responsibilities as a shareholder seriously and seeks to adhere to the Principles of the Stewardship Code. It views stewardship as part of the responsibilities of share ownership, and, therefore, an integral part of the investment strategy. The Fund believes that active stewardship will help to deliver high standards of corporate governance which will contribute positively to business performance over time by: • encouraging accountability between directors, shareholders, and other stakeholders; • strengthening the integrity of relationships between these bodies; and • improving transparency in the way companies are run.
investment policy and performance 27 77 East Riding Pension Fund Annual Report and Accounts 2018/2019
In practice, the Fund’s policy is to apply the Code through engagement with investee companies, the utilisation of its voting rights, an interpretation of best practice guidelines informed through the use of the Pensions Investment Research Consultants (PIRC) voting advisory service, existing arrangements with its external investment manager, and through membership of the Local Authority Pension Fund Forum (LAPFF). Further details of PIRC’s voting guidance is shown in the “UK Shareowner Voting Guidelines 2016” guidance document which is available at www.pirc.co.uk and further information regarding the engagement activities of the LAPFF is available at www.lapfforum.org. The Pension Fund considers that social, environmental, and governance considerations can have a material impact on the value of its investments and should form part of its investment managers’ investment processes. Therefore, the Fund will take into account the guidance issued by LAPFF, which highlights corporate governance issues at investee companies and recommends appropriate voting action, and any other appropriate guidance and information, in determining any relevant social, environmental, or governance considerations when selecting, retaining, and realising any of its investments. However, the overriding objective for the Pensions Committee will be to discharge its fiduciary duty in managing the Fund’s investments in the best interests of the scheme’s beneficiaries. The Fund’s investment managers can exercise their discretion not to vote in accordance with best practice. Where this discretion is exercised, the rationale for this decision is reported to the Pensions Committee on a quarterly basis. The exercise of any other rights attaching to a particular investment will be considered on a case by case basis. In general, the Fund’s engagement activities will be based on the importance of the issue, the materiality of the Fund’s exposure to companies affected by the issue, and an assessment of the likelihood of success in the event of engagement. The Pensions Committee reviews the Fund’s corporate governance and voting activity and discusses the reasons for engagement, or lack of it, with its investment managers on a quarterly basis. In addition, the Fund publishes summary details of corporate governance and voting activity in its Annual Report and Accounts.
Principle 2 – Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publically disclosed. East Riding of Yorkshire Council, the administering authority of the East Riding Pension Fund, maintains and monitors a Register of Interests which is completed both by Members of the Pensions Committee and by the individual employees of the internal investment manager. These are published on the Council’s website and updated on a regular basis. In addition, Pension Committee members are required to make any declarations of interest prior to Committee meetings. These interests are disclosed in the Pension Fund’s Annual Report and Accounts. In accordance with the Fund’s Compliance Manual, individual employees of the internal investment manager require permission from the Head of Investments or, in the Head of Investments case, the Head of Finance prior to investing in any applicable investments on a personal basis. Individual employees are also required to disclose their personal investments on an annual basis. The Fund’s Compliance Manual is an internal control document and it is not considered appropriate to disclose this publicly. The interests and investments of the Fund’s independent advisor are disclosed to the Pensions Committee on a quarterly basis. The external investment manager’s policy on conflict of interests is disclosed in its Statement of Compliance with the UK Stewardship Code.
investment policy and performance 28 78 East Riding Pension Fund Annual Report and Accounts 2018/2019
Principle 3 – Institutional Investors should monitor their investee companies. The Pensions Committee delegates responsibility for managing the Fund’s assets to the Investment Managers, who are expected to monitor companies and intervene where necessary. The Fund subscribes to the Pension Investment Research Consultants (PIRC) voting and advisory service which provides voting recommendations based on industry best practice and receives an “Alerts” service from the LAPFF which highlights corporate governance issues of concern at investee companies. However, the Fund’s investment managers are not bound to exercise their vote in accordance with these recommendations. Issues on which the Fund has chosen to engage on in the recent past include: • Directors’ remuneration. • Separation of the roles of Chairman and Chief Executive. • Independence of non-executive directors. • Issue of company shares. • Environmental factors including carbon risk. • Labour relations. • Auditor rotation. The Fund is of the opinion that its corporate governance activities are significantly more effective if they are part of a larger group of like-minded investors, such as the LAPFF. The Fund is a supporter of the LAPFF’s work but is unable to commit resources to take a more active role in LAPFF’s engagement over and above its current membership role. The external investment manager discharges its corporate governance responsibilities in accordance with its Investment and Corporate Governance Policy, which is also based on industry best practice. The Fund’s investment managers present reports on their voting activity on a quarterly basis to the Pensions Committee which are then subject to challenge and debate. The Pensions Committee also receives regular reports summarising the issues being raised by LAPFF and its current areas of focus, with companies in which the Fund has current ownership specifically highlighted, which further informs this process. The Fund’s investment managers can exercise their discretion not to vote in accordance with industry best practice. Where this discretion is exercised, the rationale for this decision is reported to the Pensions Committee on a quarterly basis. The Fund’s investment managers may choose to be made insiders in a particular company for a short period of time. In these instances, no transactions are permitted to be made from the point of disclosure until the information has been disclosed to the wider market. The specific restrictions are disclosed in the Fund’s investment managers’ compliance documents. As stated above, the Fund’s internal investment manager’s Compliance Manual is considered to be a private document that will not be disclosed publicly.
Principle 4 – Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value. As highlighted above, responsibility for day-to-day interaction with companies is delegated to the Fund’s Investment Managers, including the escalation of engagement when necessary. Where special situations arise which are not covered by the Fund’s corporate governance strategy or where the policy is unclear, the Investment Managers will consult with the Director of Corporate Resources. Although willing to act alone, as the Fund typically holds a very small percentage of equity in individual companies, there are strong reasons to collaborate with other asset owners in order to present a stronger case. The Fund utilises its membership of the LAPFF, which co-ordinates collaborative engagement with companies, regulators and policymakers to protect and enhance shareholder value, in order to maximise its influence. If deemed appropriate, the Fund will participate in shareholder litigation. Any such actions and subsequent outcomes are reported to the Pensions Committee in order to monitor activity and assess effectiveness. investment policy and performance 29 79 East Riding Pension Fund Annual Report and Accounts 2018/2019
Principle 5 – Institutional investors should be willing to act collectively with other investors where appropriate. Collaborative engagement is a key part of a responsible investment strategy and the Fund will seek to work collectively with other institutional shareholders in order to maximise the influence it can have on individual companies. The Fund seeks to achieve this through membership of the LAPFF, which engages with companies over environmental, social and governance issues on behalf of its members, and also its relationship with the external investment managers. The Fund will also consider collaborating with other investors if it is considered to be appropriate and interested parties should contact the Fund’s Head of Investments, if they would like to discuss this further. The external investment manager’s policy on collaborative engagement is disclosed in its Statement of Compliance with the UK Stewardship Code. Principle 6 – Institutional investors should have a clear policy on voting and disclosure of voting activity. The Fund views its voting rights as a valuable instrument to: • protect shareholder rights; • minimise risk to companies from corporate governance failure; • enhance long term value; and • encourage corporate social responsibility. As such, the Fund seeks to exercise all voting rights attaching to its investments, where practical. Whilst it is the Fund’s intention to follow the principles of UK corporate governance best practice, the Fund will interpret the application of these principles according to its own views of best practice. There are also other issues outside of these principles on which the Fund will take a view. As a general rule, the Fund will vote in favour of resolutions which are in line with the UK Corporate Governance Code or comply with best practice. The Fund will vote against resolutions which do not meet these guidelines, or which represent a serious breach of best practice, or which will have a negative impact on shareholders rights. The Fund may abstain on resolutions which may have an adverse impact on shareholder rights, or represent a less significant breach of these guidelines, or where the issue is being raised for the first time with a company. The specific voting outcome will depend on the particular circumstances of the company and the types of resolution on the meeting agenda. The external investment manager is responsible for the exercise of voting rights attaching to investments that are managed by them on behalf of the Fund. The external investment manager will vote in accordance with its “Investment and Corporate Governance” policy which is available at www.schroders.com. Reports summarising the Fund’s voting activity are presented to the Pensions Committee on a quarterly basis, and the Fund publishes summary details of voting activity in its Annual Report and Accounts. The Fund has chosen not to disclose its full voting record as it does not consider that this will add any value to an external party’s understanding of its corporate governance and voting policy and practices. However, the Fund is required to respond to a formal request for information via the Freedom of Information Act 2000. The Fund engages in stock lending and seeks to recall stock on loan prior to a shareholder vote if it is deemed to be cost effective, suitable and practical. Examples of this will include resolutions that are not considered to be in accordance with the UK Corporate Governance Code or where the Fund has a material holding and could potentially influence the outcome of the vote. Principle 7 – Institutional investors should report periodically on their stewardship and voting activities. The Pensions Committee reviews a detailed corporate governance and voting report, which includes the voting activity of both the internal and external investment managers, on a quarterly basis. In addition: • The Administering Authority publishes the agendas and minutes of Pension Committee Meetings on its website – www.erpf.org.uk. • The Fund publishes details of its stewardship and voting activities in its Annual Report and Accounts. This includes summary details of voting activity, and activity undertaken through the LAPFF as well as other collaborative engagement. investment policy and performance 30 80 East Riding Pension Fund Annual Report and Accounts 2018/2019
Myners’ Principles The Myners’ Principles are a set of principles for good investment governance, originally created in 2001 and subsequently updated in 2008. The Local Government Pension Scheme (Investment and Management of Funds) Regulations 2009 required local government pension funds to produce a statement in their annual report regarding compliance with these Principles on a “comply or explain” basis. Although this is no longer required under the Local Government Pension Scheme (Investment and Management of Funds) Regulations 2016 it is still considered best practice.
Principle 1: Effective Decision-Making • Trustees should ensure that decisions are taken by persons or organisations with the skills, knowledge, advice, and resources necessary to take them effectively and monitor their implementation. • Trustees should have sufficient expertise to be able to evaluate and challenge the advice they receive and manage conflicts of interest.
Principle 2: Clear Objectives • Trustees should set out an overall investment objective for the scheme that takes account of the scheme’s liabilities, the strength of the sponsor covenant, and the attitude to risk of both the trustees and the sponsor, and clearly communicate these to advisers and investment managers.
Principle 3: Risk and Liabilities • In setting and reviewing their investment strategy, trustees should take account of the form and structure of liabilities. These include sponsor covenant strength, the risk of sponsor default, and longevity risk.
Principle 4: Performance Assessment • Trustees should arrange for the formal measurement of the performance of investments. • Trustees should also periodically make a formal policy assessment of their own effectiveness as a decision-making body and report this to scheme members.
Principle 5: Responsible ownership • Trustees should adopt or ensure their investment managers adopt the Institutional Shareholders’ Committee Statement of Principles on the responsibilities of shareholders and agents. • A statement of the scheme’s policy on responsible ownership should be included in the Statement of Investment Principles. • Trustees should periodically report to members on the discharge of such responsibilities.
Principle 6: Transparency and Reporting • Trustees should act in a transparent manner, communicating with stakeholders on issues relating to their management of investments, its governance and risks, including performance against objectives. • Trustees should provide regular communication to members in the form they consider most appropriate. The Pension Fund’s compliance with the Myners’ Principles is shown in the following table:
investment policy and performance 31 81 East Riding Pension Fund Annual Report and Accounts 2018/2019
Principle Evidence of compliance Effective The Pensions Committee meets on a quarterly basis to discuss current issues, future policy, and tactical Decision asset allocation. Making Working Groups are formed when an issue requires particular attention. A Working Group was set up in September 2016 to consider the Pension Fund’s strategic asset allocation following the initial results of the latest triennial actuarial valuation and to made recommendations to the Pensions Committee. The Committee have appointed suitably qualified investment managers to manage the investments of the Fund on their behalf. The Fund takes advice from its independent advisor and external investment manager, both of whom attend the quarterly Pensions Committee meetings. This is in addition to the advice received from the Director of Corporate Resources and the Fund’s actuary. A formal training programme, in accordance with the requirements of the CIPFA Knowledge and Skills Framework, has been implemented. Clear The overall Fund objective is directly linked to the risks and returns outlined in the Actuary’s report, Objectives with the expected return on investments contained within the Investment Strategy Statement. The Fund’s strategic asset allocation is specifically designed to achieve the fund objective, with tactical asset allocation reviewed at the quarterly meetings. Specific asset allocation weightings are detailed in the Investment Strategy Statement. In determining the Fund’s asset allocation, the Committee consider all asset classes in terms of their suitability and diversification benefits.
Risk and The Administering Authority has an active risk management programme in place including a Pension Liabilities Fund-specific risk register and risk management schedule. The Pension Fund’s risk register identifies the key risks inherent in the Pension Fund, an estimate of the severity of each risk, a summary of current control measures, and the identification of additional control measures. A description of the risk assessment framework used for potential and existing investments is included in the Investment Strategy Statement under “Risk and diversification of investments”. The Committee reviews the Pension Fund’s risk management schedule on a quarterly basis and the risk register on a semi-annual basis. Performance The performance of the Fund’s investment managers is assessed on a regular basis, using data provided Assessment by State Street Investment Analytics, a specialist performance measurement organisation. Investments made by the Fund’s investment managers are reviewed by the Committee on a quarterly basis. The internal and external fund managers have Fund-specific performance benchmarks that are reviewed on a regular basis. Peer group benchmarks are used for comparison purposes only.
Responsible The Committee’s policies on corporate governance, socially responsible investment, and shareholder Ownership voting are outlined in the Investment Strategy Statement.
Transparency The following core documents are published on the Pension Fund’s website: and Reporting - Pension Fund Annual Report and Accounts. In addition, a summary is sent annually to all Members in a newsletter - Investment Strategy Statement - Governance Compliance Statement - Funding Strategy Statement - Statement of Compliance with the FRC UK Stewardship Code - Pension Committee Agendas and Minutes
investment policy and performance 32 82 East Riding Pension Fund Annual Report and Accounts 2018/2019 scheme administration report
Administration The administration function for the Fund and 321 Scheme employers is provided by the following teams: • The Member Services team is responsible for the creation and maintenance of all member records. This includes calculating benefit entitlement for members leaving the scheme, both before and at retirement, dealing with incoming and outgoing transfer payments, and calculating benefits in respect of deceased members. The team also deal with annual and ad-hoc projects, for example loading and checking year end returns for all active scheme members and liaising with the Scheme employers to ensure accurate data is received and recorded. • The Systems and Web team is responsible for the development of the Universal Pensions Management (UPM) system, providing technical IT support to the section as well as maintaining the digital communication platforms. • The Financial Control team undertake routine and non-routine tasks and deal with monthly, quarterly, annual and triennial events. They also monitor, collect and reconcile payments required from Scheme employers in respect of employee and employer pension contributions, and rechargeable amounts due to the Fund. The team have responsibility for the payment of all the East Riding Pension Fund pensioners. Our website (www.erpf.org) is a principal source of information for both scheme employers and members. Telephone numbers are quoted on all our letters which means our stakeholders can communicate verbally with the pension fund staff or visit our offices in person. In September 2018 the Fund measured the scheme data so that this could be reported in the Pension Regulator (TPR) Scheme Return. The Fund is required to keep specific data on members and beneficiaries and is required to measure how much data is held and how accurate that data is. A score for both the common and scheme-specific data was reported based on a subset of member and beneficiary data. The results provided to TPR showed that 74% of scheme-specific and 90% of common data was present and accurate. By measuring this data TPR can determine behaviours which contribute to schemes being well run, and encourage better record keeping. A data review process is in place which will enable the Fund to review member data at least once a year. Steps have been taken to improve member data including correcting the data identified as incorrect and implementing data verification checks into work processes. Procurement of member tracing services has taken place to enable the fund to locate over 2,000 gone away deferred members whose current address is not currently held. Since 1 April 2018, EPRF online services has been the primary method of communication between the Fund and its scheme employers. All scheme employers are now signed up to ERPF online services and significant development has been undertaken to utilise the automation and security of the system. EPRF online services is now embedded within employer administration processes and the ongoing development of ERPF online services has achieved further efficiencies in terms of data quality and administration time to cope with the increasing number of new scheme employers. Every year all scheme employers are required to submit a year end return which includes member pay details to enable the Fund to issue annual benefit statements to members. The results for 2017/18 showed an improvement from the previous year with 96% of scheme employers in the Fund submitting their return before the deadline. To ensure that scheme employers had a secure platform to transfer scheme member data, scheme employers were asked to submit their year end return via ERPF online services. This also allowed the Fund to implement a mandatory employer checklist which needed to be completed before the files could be uploaded and further validations carried out by the Fund resulted in an overall increase in data accuracy. Consequently, the annual benefit statements for 29,344 active members were delivered to home addresses by the deadline of 31 August 2018. Throughout 2018/19, the Fund has been carrying out the Guaranteed Minimum Pension (GMP) reconciliation exercise which is a national project comparing the GMP information recorded at pension schemes with that held by Her Majesty
scheme administration report 33 83 East Riding Pension Fund Annual Report and Accounts 2018/2019
Revenue and Customs (HMRC). The reconciliation exercise aims to agree the contracted out liabilities held by the East Riding Pension Fund (the Fund) with those held by HMRC, to identify and resolve any discrepancies between the two sets of data, so that the Fund can be confident that the scheme records match HMRC records and that the correct level of pension is paid. In total, 13,392 data comparison queries were sent to HMRC using their automated solution. Of these queries, 12,898 were responded to using the automated solution and a further 494 required further investigation by HMRC’s clerical team. A closure report will be submitted by HMRC in 2019/20, once all queries submitted have been resolved. The next step will be for the Fund to carry out a GMP value analysis and, where the values differ, the GMP value provided by HMRC on the data file will be accepted by the Fund. The Pension Administration Strategy (PAS), which sets out what scheme employers and the Fund should expect from one another when administering the scheme, includes a number of key performance indicators (KPIs), which are monitored on a quarterly basis. Throughout 2018/19 the Fund identified a number of employers who failed to meet the KPI requirements. Training sessions to help scheme employers improve their performance and understand their responsibilities were provided during 2018/19 along with a number of site visits to support employers. The PAS was approved by Pensions Committee on 29 September 2017 and following a statutory consultation with scheme employers came into force on 1 January 2018. A copy of the PAS can be found on page 41.
Staffing numbers in the Pensions section There are 52 full time equivalent (FTE) posts in the Pensions section with 36 staff responsible for pensions administration work. This equates to a staff to fund member ratio of one FTE employee to 3,191 members, based on the total fund membership of 114,882. The Fund continually reviews the administration structure to ensure that sufficient resources are in place within the teams to enable the section to continue to deliver on the increasingly challenging day to day work, whilst also having the scope to carry out essential data work and other important projects. A dedicated training officer ensures that staff receive comprehensive training to ensure they are fully conversant with the UPM system and scheme regulations. Coaching and mentoring is provided to encourage succession planning.
Funding Strategy Statement and new employers There are 321 Scheme employers in the Fund including 65 admitted bodies. In total the Fund has 13 ceased employers with no active members but with some outstanding liabilities, as shown in the table below:
Active Ceased Total
Scheduled body 252 4 256
Admitted body 56 9 65
Total 308 13 321
During 2018/19, there were 47 new employers joining the Fund including 24 academies, four parish councils and one town council. As part of the management of admitted bodies, risk assessments are carried out to ensure that there is a strong covenant in place and that a new employer has the ability to meet its long term Fund commitments. There were 18 new admitted bodies in the Fund and four of the bodies provided evidence of a strong covenant by having a guarantor agreement in place. For the remaining 14 new admitted bodies, risk assessments were carried out to see if a bond was required and the following action was taken: • bonds were put in place for 10 admitted bodies; • pooling arrangements with the letting authority were agreed with one admitted body; and • following audit and legal advice, the Fund agreed that no bond was required initially for three admitted bodies. scheme administration report 34 84 East Riding Pension Fund Annual Report and Accounts 2018/2019
Communications The communications policy was updated for 2018/19 to take account of the introduction of ERPF online services which provides a secure platform to exchange electronic communications such as administration forms. All scheme employers are now signed up to ERPF Online Services and since October 2018 notifications via paper and e-mail are not accepted. All scheme member notifications must come via ERPF Online Services. This has improved data security and allowed efficiencies to be realised via automation.
The following communication activity took place during 2018/19: • 35,050 deferred members received an annual benefit statement; • 29,344 active members received an annual benefit statement; • 28,092 pensioner members received a combined P60/payslip newsletter; • All members received a newsletter in August 2018 detailing the changes to the LGPS Regulations in May 2018; • 4 individual meetings with new employers; • 8 workshops/training sessions for ERPF online Services, employer administration and monthly data collection; • Attendance at the National Communications Working Group; • Employers Annual General Meeting; • www.erpf.org.uk has been available as a resource for both scheme employers and scheme members; • 15 pre-retirement workshops have been hosted via Affinity Connect; and • The Fund’s 2017-2018 Report and Accounts has been published via www.erpf.org.uk. The scheme employer workshops and online learning is continuing to develop and establishing a strong scheme employer training programme will be a key aim of 2019-2020. The Fund’s communication methods and the ways in which the Fund engages with scheme members will play a significant role in ensuring the Fund’s future success, retaining members in the LGPS, discouraging opt outs, and encouraging non- members to reconsider the benefits of the LGPS. The updated version of the communications policy was approved by Pensions Committee on 15 March 2019 and can be found on page 128.
Developments for 2019/20 Continuing its commitment to the provision of digital services, the Fund has procured a member self-service platform. ERPF member self-service (ERPFMSS) will enable members to view their pension data, update their personal information, perform calculations to aid retirement planning and retire online. The Fund will be developing a member engagement strategy to implement ERPFMSS which has a projected completion date of June 2020. The Fund is close to completing all of the bespoke development needed within Monthly Data Collection (MDC) and has started a period of testing for each of the five key stages. The submission of payroll information by employers on a monthly basis instead of an annual basis will provide more up to date member data and help identify discrepancies between the Fund and Scheme employer records more quickly. From 1 April 2019, the Fund will utilise the MDC software to collect the monthly contribution data from scheme employers using the integrated upload and validation process. This software will validate the data at the point of upload and automatically update the employer file with the total contributions paid and the breakdown of contribution type allowing the contribution data to be audited from the point of upload.
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Audit The administration of pensions is regarded as one of the Council’s major financial systems and is reviewed on an annual basis. The findings from the internal audit report issued in February 2019 indicated a satisfactory level of assurance on the controls operated over the administration of pensions.
Internal Dispute Resolution Procedure The Internal Dispute Resolution Procedure (IDRP) is a way of dealing with complaints from active, deferred or pensioner members of the Local Government Pension Scheme (LGPS) about decisions relating to their pension benefits made by either their employer or by East Riding of Yorkshire Council (“the Council”), as the administering authority for the Fund. IDRP is a two stage process: • Scheme employers and the Council as administering authority have to make decisions about a member’s benefits under the rules of the LGPS. If for any reason a member is not happy about a decision that has been made, or not been made, about their LGPS membership or benefits, then members are encouraged to contact the Assistant Pensions Manager at the Fund who will seek to clarify or correct any misunderstandings or inaccuracies. If the member is still not happy, they can apply to the Fund to have their complaint reviewed under stage 1 of the IDRP. For complaints against the administering authority, the review under stage 1 is undertaken by another administering authority specified by the Council. This ensures that the stage 1 decision is independent of the Council. The member must apply for a review under stage 1 within 6 months of the date of the notification of the decision about which the member wishes to make a complaint. • If the member is dissatisfied with the stage 1 decision, they must move to stage 2 of the IDRP within 6 months of the stage 1 decision and this is reviewed by the Pensions Manager who will not have had any previous involvement in the complaint. If the member is still dissatisfied, they can contact the dispute resolution team of The Pensions Advisory Service (TPAS), free of charge. The team helps members and beneficiaries of pension schemes with disputes that they cannot sort out through mediation. Where the complaint or dispute cannot be resolved after the intervention of the dispute resolution team, the member has the right to refer their complaint to The Pensions Ombudsman (TPO), free of charge. There is no financial limit on the amount of money that TPO can make a party award the member. Its determinations are legally binding on all parties and are enforceable in court. Contact with TPO about a complaint needs to be made within three years of when the event(s) the member is complaining about happened or, if later, within three years of when the member first knew about it (or ought to have known about it). There is a discretion for those time limits to be extended. In 2018/19, there were two complaints which went to stage 2 against decisions made by the administering authority. Both complaints were upheld by the Pensions Manager at stage 2. There were five complaints which went to stage 2 against decisions made by Scheme employers under stage 1. Two complaints were dismissed by the Pensions Manager at stage 2 and three complaints were upheld and referred back to the Scheme employer for reconsideration.
scheme administration report 36 86 East Riding Pension Fund Annual Report and Accounts 2018/2019
Compliments The Fund received 28 compliments from members and Scheme employers expressing their satisfaction with the level of service, expertise and quality of information provided by the pensions teams. During 2018, the Fund undertook a Scheme employer satisfaction survey using an importance/satisfaction index. The results of this survey highlighted that Scheme employers were 78% satisfied with the service that the Fund provided and rated the use of electronic methods to do business as being of high importance.
Scheme Administration Table 1: Key performance information (Target 90% of Fund KPI%)
No. of cases % No. of cases No. of cases Process Fund KPI's completed completed completed within KPI within KPI
Deaths - Initial letter acknowledgement death of active/ 5 Days 910 867 95.27% deferred/pensioner member
Deaths - Letter notifying amount of 5 Days 407 262 64.37% dependant’s benefit
Retirements - Letter notifying estimate of retirement benefits 5 Days 1,883 1,375 73.02% (include all retirement types: normal, ill health, early, late etc
Retirements - Letter notifying actual of retirement benefits 5 Days 1,339 708 52.88% (include all retirement types: normal, ill health, early, late etc)
Deferment - calculate and notify 5 Days 766 708 92.43% deferred benefits
Transfers in - Letter detailing 10 Days 26 16 61.54% transfer in quote
Transfers out - Letter detailing 10 Days 303 147 48.51% transfer in quote
Refund - Process and pay a refund 5 Days 683 672 98.39%
Joiners - Send notification of joining 40 Days 4,130 3,950 95.64% the LGPS to scheme member
New Pensioners
Type of Retirement Number of Retirements
Ill Health 50
Early 1,342
Normal 713
scheme administration report 37 87 East Riding Pension Fund Annual Report and Accounts 2018/2019
Pension Administration Strategy
1. Aims and objectives
1.1. Introduction The East Riding Pension Fund (ERPF) administers the Local Government Pension Scheme (LGPS) on behalf of 265 Scheme employers ranging from the four unitary councils to colleges, academies, housing associations and admitted bodies within the historic Humberside area. It provides pension administration to over 100,000 Scheme members who are either actively contributing, have deferred benefits or are currently receiving a pension from ERPF. Legislative changes continue to challenge the LGPS with the introduction of the Career Average Revalued Earnings (CARE) scheme in 2014, the additional governance requirements from the introduction of Local Pension Boards (LPB) and the Pensions Regulator (tPR) and the national changes to contracting out and the state pension. During this period it is essential to communicate effectively with Scheme members to explain the changes and reassure them of the scheme’s stability and benefit structure. To achieve this it is vital that ERPF and the Scheme employers work closely together to provide a customer focused and professional service whilst continuing to increase efficiencies and value for money.
1.2. Purpose of the strategy The purpose of this strategy is to set out the processes and procedures that both Scheme employers and ERPF will follow to ensure effective communication and transfer of information. It will define the roles of both parties to form a clear understanding and expectation of what will be delivered. The strategy will also set out the level of performance that is expected of each party and how this will be measured and reported. Lastly the strategy sets out how underperformance will be managed with Scheme employers.
1.3. Key objectives The key objectives of the strategy are to ensure that: • ERPF and Scheme employers are aware of and understand their responsibilities under the LGPS regulations; • ERPF and Scheme employers are delivering their administrative functions; • benefits are administered in line with the LGPS regulations; • accurate records are maintained for calculating pensions and Scheme employer liabilities; • standards for both ERPF and Scheme employers are set, monitored and published appropriately; • an effective method of communication is in place between both ERPF and the Scheme employer and Scheme members; • training is provided to ensure that both ERPF and Scheme employers have the necessary skills to perform their functions; and • ERPF deliver an online administrative service for Scheme employers to improve security and efficiency.
2. Regulatory framework
2.1. The Regulations ERPF have made this strategy under regulation 59 of the Local Government Pension Scheme (LGPS) Regulations 2013. This regulation allows the administering authority to prepare a written statement on: • procedures for liaison and communication with Scheme employers in relation to which it is the administering authority;
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• the establishment of levels of performance which the administering authority and its scheme employers are expected to achieve in carrying out their Scheme functions by: • the setting of performance targets; • the making of agreements about levels of performance and associated matters; or • such other means as the administering authority considers appropriate. • procedures which aim to secure that the administering authority and its Scheme employers comply with statutory requirements in respect of those functions and with any agreement about levels of performance; • procedures for improving the communication by the administering authority and its Scheme employers to each other of information relating to those functions; • the circumstances in which the administering authority may consider giving written notice to any of its Scheme employers under regulation 70 (additional costs arising from Scheme employer’s level of performance) on account of that Scheme employer’s unsatisfactory performance in carrying out its Scheme functions when measured against the levels of performance established in Section five of the strategy; and • the publication by the administering authority of annual reports dealing with the extent to which that authority and its Scheme employers have achieved the levels of performance established and such other matters that it considers appropriate.
2.2. Preparing and amending the strategy In line with regulation 59 ERPF must consult with all Scheme employers when preparing or reviewing and making revisions to its pension administration strategy. ERPF must publish: • its pension administration strategy; and • where revisions are made to it, the strategy as revised. When the strategy is published and revised ERPF must send a copy to all of its Scheme employers and to the Secretary of State as soon as is reasonably practicable. Both parties must have regard to the pension administration strategy when carrying out their functions under these Regulations.
3. Communication
3.1. How we communicate with our Scheme employers To ensure that Scheme employers have the right support and information when providing information to ERPF we provide contact details for each area of the section. The current list of ERPF contact details can be found in appendix 1. Contact details are provided for: • Member maintenance team (MMT) – contact for queries regarding new joiners, early leavers, transfer of pensions and changes in Scheme member details; • Retirements, estimates and deaths (RED) – contact for all queries regarding retirements, estimates and deaths; • Training officer – contact for information on policies and training requests; • Financial control team – (FCT) – contact for queries regarding monthly submission of contributions, contribution rates and FRS17/FRS102/IAS19; • Internal disputes resolution procedure (IDRP) – contact for any complaints made under IDRP; • Online services & website – contact for any queries on our online services or website; and • Outsourcing/potential employers – contact if you are thinking of becoming a Scheme employer or outsourcing staff.
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In addition to the above ERPF take a multi channel approach when communicating with Scheme employers. This is set out in the table below:
Resource Delivered via Frequency
Dedicated area of www.erpf.org.uk with information Employer website Constant designed specifically for Scheme employers
Bulletins to Scheme employers with important Employer bulletins As and when required but at least 12 per year regulatory and procedural information
Designed for new Scheme employers entering the New employer meetings Fund or those taking back payroll/HR services in- As and when required house
A set of Scheme employer guides that explain forms Available on www.erpf.org.uk Employers guides and processes needed to administer ERPF Emailed on request
An opportunity for Scheme employers to cover new Employer workshops As and when required but at least 4 per year and/or complex topics in a workshop environment
An annual round up of scheme events and a Employers annual meeting presentation from the actuary explaining the November valuation results if a valuation year
Annual Report & Accounts Electronic Available online at www.erfp.org.uk
3.3. Additional contacts In addition to the three main contacts above Scheme employers are asked to nominate a contact for each of the following using the additional contacts form (appendix 3): Over 12 Month Transfer Request If a Scheme member has not transferred their pension within 12 months of joining ERPF they may ask you if the transfer can still go ahead, this is a Scheme employer’s discretion. Please enter the person who will consider the requests within your organisation. Internal Disputes Resolution Procedure (IDRP) From time to time we receive complaints from Scheme members that are covered by IDRP, these complaints need investigating under strict timescales and you must follow the correct procedure. You should nominate someone within your organisation to deal with IDRP and enter their details here. Supplier of the Year End Return Scheme employers are responsible for submitting a year end return detailing Scheme member and Scheme employer contributions and the relevant pay information to allow ERPF to reconcile their pension contributions and to send Scheme members an annual benefit statement and pension savings statements where applicable. This submission must be made by the date set by the Fund for that Scheme year. SS22a With each year end return an SS22a must be submitted that balances the year end and the payments made within the year. This could be different from the person that submits your year-end return. IAS19/FRS17/FRS102 You may need an IAS19/FRS17/FRS102 report for your accounts each year. Please supply the details of the person who will require this information. SU18 Contact When you submit your employee and employer contributions each month you should complete an SU18 form to go with your payment. Please provide the name of the person who will supply that form.
Pension Administration Strategy 43 90 East Riding Pension Fund Annual Report and Accounts 2018/2019
4. ERPF duties
4.1. Scheme administration ERPF will administer the LGPS in line with the current LGPS regulations and with regard to any overriding legislation in force at the time. The administration of the Scheme will take account of the statutory disclosure requirements and timescales.
4.2. Scheme responsibilities • create a Scheme member record for all new employees admitted to the LGPS; • collect and reconcile employer and employee contributions; • maintain and update Scheme members records with any changes received by ERPF; • at each triennial actuarial valuation ERPF will submit the required data in respect of each Scheme member and provide statistical information over the valuation period to the Fund Actuary so that he can determine the assets and liabilities for each Scheme employer; • communicate the results of the triennial actuarial valuation to the Fund to each Scheme employer; • provide every active, deferred and pension credit member with a benefit statement each year; • provide an estimate of any associated cost of retirement on request by the Scheme employer; • calculate and pay retirement benefits, deferred benefits and death in service benefits in accordance with LGPS rules, Scheme members’ options and statutory limits; and • comply with HMRC legislation.
4.3. Making decisions When ERPF make a decision regarding a Scheme member’s benefits under the Scheme they will be notified of the decision within ten working days and informed of their right of appeal under IDRP.
4.4. Discretions Under the LGPS Regulations 2013 and the LGPS (Transitional provision, Savings and Amendment regulations) 2014, ERPF have a number of discretions and a policy must be published on how these will be exercised. This policy will be reviewed, amended and publicised in line with the above regulations. A copy of ERPF’s discretions can be found here: www.erpf.org.uk/library-and-information
4.5. IDRP ERPF will nominate an officer to act as the adjudicator at both Stage 1 and Stage 2 of the appeals procedure where the complaint is against ERPF. ERPF will also nominate an officer to deal with Stage 2 complaints, where the Stage 1 appeal was made against the Scheme employer.
4.6. Performance levels The following levels of performance will be measured within the Fund and reported to East Riding Pension Funds Local Pension Board (ERPFLPB) for review and will be published in the Annual Report and Accounts each year:
4.3. Making decisions When ERPF make a decision regarding a Scheme member’s benefits under the Scheme they will be notified of the decision within 10 working days and informed of their right of appeal under IDRP.
Pension Administration Strategy 44 91 East Riding Pension Fund Annual Report and Accounts 2018/2019
Service Report Target Measures
Death in Deferment 90% of acknowledgement letters to be sent within 5 working days on receipt of all information - Acknowledgement
Death in Deferment 90% of payments to be made within 5 working days following receipt of all information - Benefits Payable
Death in Service 90% of payments to be made within 5 working days following receipt of all information - Benefits Payable
Death on Retirement 90% of payments to be made within 5 working days following receipt of all information - Benefits Payable
Death on Retirement 90% of acknowledgement letters to be sent within 5 working days following receipt of all information - Acknowledgement
Death on Retirement 90% of acknowledgement letters to be sent within 5 working days following receipt of all information Acknowledgement No Liability
Death in Service 90% of acknowledgement letters to be sent within 5 working days following receipt of all information - Acknowledgement
Deferred Retirement 90% of vouchers to be processed for payment within 5 working days on receipt of all information
Retirement - Quote 90% of letters and options to be provided to member within 5 working days of commencing a calculation
Retirement - Actual 90% of vouchers to be processed for payment within 5 working days on receipt of all information
Member Estimate 90% of Estimate and letter to be sent within 10 working days of producing a calculation
Employer Estimate 90% of Estimates and letter to be sent within 10 working days of producing a calculation
Joiners Welcome letter to be sent within 40 working days of receipt of all information
Refund Payments 90% of vouchers to be processed for payment within 5 working days on receipt of all information
Deferred Notification to Member 90% of notifications to member within 10 working days following receipt of all information
Transfer In Quotes 90% of quotes to be provided within 10 working days after receipt of all information
Transfer Out Quotes 90% of quotes to be provided within 10 working days after receipt of all information
Payroll Member Death Under or Overpayment to be calculated within 30 days - Calculate Under or Overpayment
5. Scheme employer duties
5.1. Responsibilities Scheme employers are responsible for ensuring that Scheme member and Scheme employer contributions are deducted at the correct rate, including any additional contributions and submitting data to allow the Fund to maintain Scheme member records and calculate benefits. ERPF is not responsible for verifying the accuracy of any information provided by the Scheme employer for the purpose of calculating benefits under the provisions of the LGPS. That responsibility rests with the Scheme employer. Any over payment of pension benefits as a result of inaccurate information being supplied by the Scheme employer shall be recovered from that Scheme employer.
Pension Administration Strategy 45 92 East Riding Pension Fund Annual Report and Accounts 2018/2019
In the event of ERPF being fined by tPR, this fine will be passed on to the relevant Scheme employer where that Scheme employer’s actions or inaction caused the fine.
5.2. ERPF Online services Scheme employers will administer the scheme using the ERPF Online services portal. This ensures security of data transferred between Scheme employers and the fund and gives Scheme employers access to Scheme member data and information. The main contacts as detailed in section 3.2 should authorise access for users by completing the user declaration form (appendix 4). An individual account and login will be created for use by the authorised user only. If the user no longer requires access to ERPF Online services it is the responsibility of all of the three main contacts to inform ERPF to cancel the account.
5.3. Discretionary powers The Scheme employer is responsible for exercising the discretionary powers given to them within the regulations. The Scheme employer is also responsible for compiling, reviewing and publishing its policy in respect of the key discretions as required by the regulations to its Scheme members. ERPF provide a standard template for discretionary policies which can be downloaded here: www.erpf.org.uk/employers/employer-discretions
5.4. Scheme member contribution bands Scheme employers are responsible for assessing and reassessing the contribution band that is allocated to a Scheme member. The Scheme employer must also inform the Scheme member of the band that they have been allocated on joining the scheme and when they have been reallocated to a different band.
5.5. Internal Disputes Resolution Procedure (IDRP) Scheme employers must nominate an adjudicator to deal with appeals at Stage one of the IDRP where the dispute is against a decision the Scheme employer has made or is responsible for making. Scheme employers are responsible for providing details of the IDRP and the adjudicator in writing to members when informing them of decisions they have made.
5.6. Year-end submission Scheme employers are responsible for submitting a year end return detailing Scheme member and Scheme employer contributions and the relevant pay information to allow ERPF to reconcile their pension contributions and to send Scheme members an annual benefit statement and pension savings statements where applicable. This submission must be made by 24 April.
Pension Administration Strategy 46 93 East Riding Pension Fund Annual Report and Accounts 2018/2019
5.7. Performance levels The following levels of performance will be measured within the fund and will be reported to ERPFLPB for review and will be published in the Annual Report and Accounts each year:
Approved method of Event for notification Timescale for submission Performance target submission
New member joins the ERPF Web New Starter Received within 3 weeks of the 90% of new starter forms scheme Bulk interface (by arrangement) member joining the scheme received within 3 weeks
Election to change scheme ERPF Web 50-50 Received within 6 weeks of the 90% of change of scheme section member changing the scheme elections notified within 6 weeks (50/50 & main scheme)
Early leavers (non ERPF Web Leaver Form Received within 6 weeks of the 90% of notifications received retirement) members last day of scheme within 4 weeks of the last day of membership membership
Retirements ERPF Web Notification of ERPF Web Notification of 100% of Notification of Retirement retirement to be received 10 Retirement forms received 10 ERPF Web Leaver Form days before the active members days before retirement date retirement date 90% of Web Leaver Forms ERPF Web Leaver Form to be received within 2 weeks of the received within 2 weeks of the members retirement date members retirement date
Deaths ERPF Web Leaver Form Received within 10 days of the 100% of notifications received date the employer received within 10 days of the date the notification of the death employer received notification of the death
Year-end submission Standard year-end template Received by the date set by the 100% of returns received SS22a Fund for each of the scheme years (31 March)
6. Scheme employer payments
6.1. Payments by Scheme employers Scheme employers will make all payments required under the LGPS regulations, and any related legislations, promptly to ERPF and /or its Additional Voluntary Contribution (AVC) provider, the Prudential, as appropriate.
6.2. Paying contributions Member and Scheme employer contributions can be paid over at any time and must be accompanied by a SU18 form and monthly break down. The breakdown as a minimum must gives details of all members, personal information such as NI Number and DOB, the employee and employer contributions paid and the member’s relevant pay. The latest date contributions can be paid is the 19th day of the month following the month in which the deductions were made. Where the 19th falls on a weekend or Bank Holiday, the due date becomes the last working day prior to the 19th.
6.3. Late payment Scheme employers will be reported to tPR where contributions are received late in accordance with the Regulator’s code of practice.
6.4. Payment method Contributions (but not AVCs) should be paid to ERPF by BACs payment direct to ERPF’s bank account.
6.5. Early retirement and Augmentation costs All Scheme employer’s early retirement costs will be paid by lump sum following the Scheme member’s retirement. All additional pension costs must be paid in full in one payment.
Pension Administration Strategy 47 94 East Riding Pension Fund Annual Report and Accounts 2018/2019
6.6. Interest on late payment In accordance with the LGPS regulations interest will be charged on any amount overdue from an employing authority by more than one month.
6.7. Scheme employer contributions In accordance with the LGPS regulations interest will be charged on any amount overdue from an employing authority by more than one month.
6.8. Actuarial Valuation An actuarial valuation of the Fund is undertaken every three years by the Fund’s actuary. The actuary balances the Fund’s assets and liabilities in respect of each Scheme employer and assesses the appropriate contribution rate for each Scheme employer for the subsequent three years.
6.9. Administration charges The cost of running ERPF is charged directly to the Fund and the Fund’s actuary takes these costs into account in assessing Scheme employers’ contribution rates.
7. Unsatisfactory performance
7.1. Measuring performance
ERPF The performance of ERPF will be monitored on a monthly basis using the UPM Civica pensions system. The statistics will be reported to ERPFLPB who will consider the performance of ERPF and decide on any action that needs to be taken. The minutes of the ERPFLPB meetings are available at www.erpf.org.uk for Scheme employers to review. Scheme employer’s interests are represented on the ERPFLPB by three Scheme employer representatives. All statistics will be published each year in the Fund’s Annual Report and Accounts.
Scheme employers The performance of Scheme employers will be monitored on a quarterly basis using the UPM Civica pensions system. Where a Scheme employer is performing at a satisfactory level, no action will be taken and performance levels will not be published, although will be available for Scheme employers to review at their request.
7.2. Unsatisfactory performance
ERPF If the performance of ERPF consistently falls below the standards outlined in this strategy ERPF will: • prepare a report for the ERPFLPB to consider any action that needs to be taken; • where necessary ERPF will self-report to tPR.
Scheme employers ERPF will seek, at the earliest opportunity, to work closely with Scheme employers to identify any areas of poor performance or misunderstanding, provide opportunities for necessary training and development and put in place appropriate processes to improve the level of service delivery in the future.
Pension Administration Strategy 48 95 East Riding Pension Fund Annual Report and Accounts 2018/2019
Where persistent and ongoing failure occurs and no improvement is demonstrated by a Scheme employer, and /or unwillingness is shown by the Scheme employer to resolve the identified issue, ERPF will take the following steps in line with the unsatisfactory performance procedure to resolve the situation in the first instance. ERPF will contact the Scheme employer contact to discuss the reason for the unsatisfactory performance and an informal improvement plan will be put in place with a suitable deadline for review and improvement. A letter will be sent to confirm agreement and outline the next steps of: • improvement notice; • administration charge; • interest for late payment if applicable. If the informal improvement notice is not successful ERPF will invite the Scheme employer to attend a formal improvement meeting and a further plan of improvement will be put in place with the Scheme employer. The details of this agreement will be sent as a formal improvement notice. Where a Scheme employer declines to discuss performance issues a formal improvement notice will be sent and an administration charge will be made. In addition any outstanding interest payments due to late payment will be charged. Where a formal improvement notice is not successful ERPF may: • add the Scheme employer to the Fund’s Risk Register; • report the Scheme employer to tPR or Scheme Advisory Board; and • escalate the case to the ERPFLPB/Pensions Committee. During this time ERPF will continue to work with the Scheme employer to resolve any performance issues and an administrative charge will be made for all additional work due to unsatisfactory performance.
7.3. Circumstances where the administering authority may levy costs associated with an Scheme employer’s poor performance Regulation 70 of the LGPS 2013 Regulations provide that an administering authority may recover from an Scheme employer any additional costs associated with the administration of the scheme incurred as a result of the unsatisfactory level of performance of that Scheme employer. Whilst ERPF will only consider this as a last resort there may be some instances where a charge is applied, for example: • in circumstances where the performance of the Scheme employer results in fines being levied on the ERPF by tPR, Pensions Ombudsman or other regulatory body, an amount up to the amount of that fine will be recharged to that Scheme employer. In addition, there will be an additional charge equal to any associated legal, actuarial and administrative costs ERPF has incurred as a result of the Scheme employer’s action or failure; and • where the improvement plan as outlined in the last section of this strategy is not being adhered to, the ERPFLPB may determine that any other additional costs will be recharged. In these circumstances the ERPFLPB will determine the amount to be recharged and how this is to be calculated. The Scheme employer in question will be provided with a copy of that report and will be entitled to attend the ERPFLB meeting when this matter is being considered.
8. Appendices
8.1. ERPF Contacts
8.2. Main Contacts form
8.3. Additional Contacts form
8.4. User declaration
Pension Administration Strategy 49 96 East Riding Pension Fund Annual Report and Accounts 2018/2019 report of the actuary
This statement has been prepared in accordance with Regulation 57(1)(d) of the Local Government Pension Scheme (Administration) Regulations 2013.
Description of Funding Policy The funding policy is set out in the East Riding of Yorkshire Council Funding Strategy Statement (FSS) dated March 2017. In summary, the key funding principles are as follows: • to ensure the long-term solvency of the Fund using a prudent long term view. This will ensure that sufficient funds are available to meet all members / dependents benefits as they fall due for payment; • to ensure that employer contribution rates are reasonably stable where appropriate; • to minimise the long-term cash contributions which employers need to pay to the Fund, by recognising the link between assets and liabilities and adopting an investment strategy that balances risk and return (NB this will also minimise the costs to be borne by Council Tax payers); • to reflect the different characteristics of different employers in determining contribution rates. This involves the Fund having a clear and transparent funding strategy to demonstrate how each employer can best meet its own liabilities over future years; and • to use reasonable measures to reduce the risk to other employers and ultimately to the Council Tax payer from an employer defaulting on its pension obligations. The FSS sets out how the Administering Authority seeks to balance the conflicting aims of securing the solvency of the Fund and keeping employer contributions stable. For employers whose covenant was considered by the Administering Authority to be sufficiently strong, contributions have been stabilised to return their portion of the Fund to full funding over 20 years if the valuation assumptions are borne out. Asset-liability modelling has been carried out which demonstrates that if these contribution rates are paid and future contribution changes are constrained as set out in the FSS, there is still around a 66% chance that the Fund will return to full funding over 20 years.
Funding Position as at the last formal funding valuation The most recent actuarial valuation carried out under Regulation 62 of the Local Government Pension Scheme Regulations 2013 was as at 31 March 2016. This valuation revealed that the Fund’s assets, which at 31 March 2016 were valued at £3,714 million, were sufficient to meet 88% of the liabilities (i.e. the present value of promised retirement benefits) accrued up to that date. The resulting deficit at the 2016 valuation was £512 million. Each employer had contribution requirements set at the valuation, with the aim of achieving full funding within a time horizon and probability measure as per the FSS. Individual employers’ contributions for the period 1 April 2017 to 31 March 2020 were set in accordance with the Fund’s funding policy as set out in its FSS.
report of the actuary 50 97 East Riding Pension Fund Annual Report and Accounts 2018/2019
Principal Actuarial Assumptions and Method used to value the liabilities Full details of the methods and assumptions used are described in the 2016 valuation report, available on the Funds website.
Method The liabilities were assessed using an accrued benefits method which takes into account pensionable membership up to the valuation date, and makes an allowance for expected future salary growth to retirement or expected earlier date of leaving pensionable membership.
Assumptions A market-related approach was taken to valuing the liabilities, for consistency with the valuation of the Fund assets at their market value. The key financial assumptions adopted for the 2016 valuation were as follows:
Financial assumptions 31 March 2016
% p.a.
Discount rate 4.0
Salary Increase Assumption 2.3
Benefit Increase Assumption (CPI) 2.1
* Consumer Prices Index ** Arithmetic addition *** Geometric addition The key demographic assumption was the allowance made for longevity. The life expectancy assumptions are based on the Fund’s VitaCurves with improvements in line with the CMI 2013 model, assuming the current rate of improvements has reached a peak and will converge to long term rate of 1.25% p.a. Based on the assumptions, the average future life expectancies at age 65 are as follows:
Males Females
Current Pensioners 21.7 years 24.2 Years
Future Pensioners* 23.7 years 26.4 years
*Currently aged 45 Copies of the 2016 valuation report and Funding Strategy Statement are available on request from East Riding of Yorkshire Council, the administering authority to the Fund.
report of the actuary 51 98 East Riding Pension Fund Annual Report and Accounts 2018/2019
Experience over the period since 31 March 2016 Since the last formal valuation, real bond yields have fallen placing a higher value on the liabilities but there have been strong asset returns over the three years. Both events are of broadly similar magnitude with regards to the impact on the funding position. The next actuarial valuation will be carried out as at 31 March 2019. The Funding Strategy Statement will also be reviewed at that time.
Douglas Green FFA Hymans Robertson LLP Fellow of the Institute and Faculty of Actuaries 20 Waterloo Street For and on behalf of Hymans Robertson LLP Glasgow 18 April 2019 G2 6DB
report of the actuary 52 99 East Riding Pension Fund Annual Report and Accounts 2018/2019 actuarial valuation
Legislation requires an actuarial valuation of the Fund every three years. The purpose of the valuation is to establish that the Fund is able to meet its liabilities to past and present contributors. The valuation is carried out in accordance with Regulation 62 of the Local Government Pension Scheme 2013 and the most recent valuation was carried out as at 31 March 2016 and resulted in a funding level of 88.0% (2013 78.2%). The next triennial valuation is due as at 31 March 2019 and any change in employers’ contribution rates as a result of that valuation will take effect from 1 April 2020. The results of the 2013 and 2016 valuations are set out in the tables below:
2013 2016
£m £m
Past Service Liabilities
Employees 1,559 1,538
Deferred Pensioners 739 835
Pensioners 1,640 1,853
Total Past Service Liabilities 3,938 4,226
Assets 3,078 3,714
Deficit -860 -512
The past service adjustment assumes that the deficit will be funded over a 20 year period. The improvement in the funding position in the three years to 31 March 2016 is mainly due to strong investment performance over the period. The liabilities have also increased due to a reduction in the future expected investment return, although this has been partially offset by lower than expected pay and benefit growth.
actuarial valuation 53 100 East Riding Pension Fund Annual Report and Accounts 2018/2019 governance
Governance Policy Statement East Riding of Yorkshire Council, as Administering Authority (and Scheme Manager) for the Local Government Pension Scheme is required by statute to publish a governance policy statement. The function of the Administering Authority is delegated to the Pensions Committee in accordance with the Constitution of the Council. The Pensions Committee consists of ten Members of the East Riding of Yorkshire Council. In addition, a Member from each of the other three unitary Councils in the East Riding Pension Fund, and four trade union representatives attend Committee meetings to ensure that views of other interested parties are properly considered by the Committee. Only the ten Members of the East Riding of Yorkshire Council have voting rights but all Members have equal access to relevant committee papers, documents and advice. In addition, the Members’ training programme is designed to help in evaluating expert advice. The Committee normally meets eight times a year, with at least four meetings devoted principally to investment business. The Committee does not establish any secondary committees or panels. There are no representatives of admitted bodies on the Committee, so the Committee holds an Annual Meeting to which all employers are invited. This provides them with the opportunity to raise any concerns they may have directly with the Committee, which then ensures they can be properly considered by the Committee. The Committee formally consults all employers on the Funding Strategy Statement every three years. There is no specific representation for deferred or pensioner members, but with the wide representation, including four trade union representatives, it is considered that their interests will be taken into account. The Investment Strategy Statement sets out how the Pension Fund will be invested, while the Annual Report, which is submitted to the Annual Meeting of the Fund, completes the cycle of accountability. The terms of reference for the Pensions Committee are included in the Constitution of the East Riding of Yorkshire Council which are available at www.eastriding.gov.uk.
East Riding Pension Fund Local Pension Board The East Riding Pension Fund Pension Board is established under the provisions of Regulation 106 of the Local Government Pension Scheme Regulations 2013 (as amended). The role of the Board includes: • securing compliance with the LGPS Regulations and other legislation relating to the governance and administration of the LGPS; • securing compliance with requirements imposed in relation to the LGPS by the Pensions Regulator; • ensuring the effective and efficient governance and administration of the Scheme, including the governance arrangements in respect of pooling; and • such other matters as the LGPS Regulations may specify. The Board meets three times a year and is made up of six members, three employer representatives and three scheme member representatives. The terms of reference for the Board are available on the Pension Fund’s website erpf.org.uk This governance policy statement complies with Regulation 55 of the Local Government Pension Scheme Regulations 2013 and the guidance issued by the Secretary of State in ‘Governance Compliance Statements Statutory Guidance – November 2008’. The Governance Policy Statement was approved by the Pensions Committee on 16 March 2018, will take effect from 1 April 2018, and is reviewed on an annual basis.
governance 54 101 East Riding Pension Fund Annual Report and Accounts 2018/2019
East Riding Pension Fund Pension Board - Appendix 1
Terms Of Reference
1. Introduction The purpose of this document is to set out the Terms of Reference for the Pension Board (the Board) of the East Riding Pension Fund.
2. Responsibility and Role of the Board The responsibility of the Board, as defined by sections 5(1) and (2) of the Public Service Pensions Act 2013, is to assist the Administering Authority (East Riding of Yorkshire Council) as Scheme Manager in ensuring the effective and efficient governance and administration of the Local Government Pension Scheme (LGPS) including: • securing compliance with the LGPS Regulations and other legislation relating to the governance and administration of the LGPS; • securing compliance with requirements imposed in relation to the LGPS by the Pensions Regulator; and, • such other matters as the LGPS Regulations may specify. The Administering Authority retains ultimate responsibility for the administration and governance of the scheme. The role of the Board is to support the Administering Authority to fulfil that responsibility and secure compliance with any requirements imposed by the Pensions Regulator. In its role, the Board will have oversight of the administration and governance of the Fund including: • the effectiveness of the decision making process; • the direction of the Fund and its overall objectives; • the level of transparency in the conduct of the Fund’s activities; and, • the administration of benefits and contributions. • Subject to further details, the activity of the Board will include: • reviewing the Fund’s governance and policy documents; • reviewing compliance with the Fund’s governance and policy documents; • reviewing the administrative and investment performance of the Fund; • reviewing shareholder voting and engagement arrangements; • reviewing the Fund’s Risk Register; • reviewing Audit and Assurance reports; and • reviewing the Fund’s website.
3. Membership The Board shall consist of six voting members and be constituted as follows: • three Employer Representatives – Administering Authority (1), other scheme employers (i.e. organisations other than the Administering Authority who, under the Regulations, can participate in the LGPS) (2); and • three Scheme Member Representatives – active members (1), pensioner members (1), active/pensioner or deferred member (1). • Elected Members and Officers involved in the management and administration of the Fund are not permitted to become Board members. • Members of the Board will serve for a term of three years following which they may either retire from the Board or seek nomination for an additional term. The term of office may otherwise come to an end: • for Scheme Member Representatives if they cease to be a member of the relevant group; and • for Employer Representatives who are councillors if they cease to hold office as a Councillor. governance 55 102 East Riding Pension Fund Annual Report and Accounts 2018/2019
The Chair of the Board will be elected by the Board at its first meeting and will serve for a period of three years. The Board may, with the approval of the Administering Authority, co-opt persons to advise and support them. Co-optees are not Board members and do not have voting rights. Due to the specialist knowledge and understanding required, Members will not be permitted to send substitutes to meetings when they are unable to attend themselves.
4. Appointment of Board Members Three Employer Representatives: • one Employer Representative will be a Councillor from East Riding of Yorkshire Council who is not a member of the Pensions Committee and will be selected by the Council having taken account of their relevant experience, their capacity to represent other scheme employers and their knowledge and understanding of the LGPS; and • two Employer Representatives to be nominated by the employer’s forum – having demonstrated their relevant experience, their capacity to represent other scheme employers and their knowledge and understanding of the LGPS. In the event of there being more than two nominations, the Scheme Manager will carry out a selection process. • Three Scheme Member Representatives: To be identified as follows: the Administering Authority shall contact all Scheme Members including unions and professional associations affiliated to the Authority advising them of the role, the necessary knowledge and understanding required and the process applying toward becoming a Board Member; individual Scheme Members may put themselves forward; there will then be a selection process carried out by the Scheme Manager to assess relevant experience, their capacity to represent scheme members and their knowledge and understanding of the LGPS. Members in all categories will only be appointed to the Pension Board by the Administering Authority if they either meet the knowledge and skills requirements set out in the relevant regulations and guidance (see Section 9) or commit to do so within three months of the appointment date.
5. Meetings The Board shall meet twice a year, at the Council’s Offices in Goole during working hours. An extraordinary meeting will be called when the Chair considers this necessary and/or in circumstances where the Chair receives a request in writing by 50% of the voting membership of the Board.
6. Quorum A quorum will comprise three of the six members of which at least one shall be an Employer Representative and one a Scheme Member Representative. 7. Decision Making Each Member of the Board will have an individual voting right but it is expected that the Board will, as far as possible, reach a consensus. 8. Standards of Conduct and Conflicts of Interest The principles included in the East Riding of Yorkshire Council’s Code of Conduct for Members will apply to all Members of the Board. The Code is set out in the Council’s Constitution www2.eastriding.gov.uk/council/committees/the-council/ council-constitution-political-control-and-councillor-information. In accordance with s5(5) of the Public Service Pensions Act 2013, a Board Member must not have a financial or other interest that could prejudice them in carrying out their Board duties. Conflicts of interest shall be managed taking into account both the regulations set out in East Riding of Yorkshire Council’s Constitution and the advice provided by the Pensions Regulator. This does not include a financial or other interest arising merely by virtue of being a member of the LGPS.
governance 56 103 East Riding Pension Fund Annual Report and Accounts 2018/2019
9. Knowledge and Skills Following appointment, each Member of the Board should be conversant with: • the legislation and associated guidance of the LGPS; and • any document recording policy about the administration of the LGPS which is for the time being adopted by the Fund. The Administering Authority will provide a training programme which all Board Members will be required to attend. 10. Accountability The Board will refer all relevant recommendations and decisions to the Pensions Committee of the Administering Authority and, where appropriate to Full Council. It will present a report on its work each year within the Pension Fund’s Annual Report and Accounts. 11. Publication of Pension Board Information The Administering Authority will publish up to date information on the Council’s website including: • the names of the Board Member; • the Board’s Terms of Reference; and • papers, agendas and minutes of Board meetings. 12. Data Protection The Administering Authority is and remains the data controller responsible for Data Protection Act compliance. 13. Expense Reimbursement Board Members will be reimbursed travel and subsistence costs in line with the Administering Authority’s Members Allowance Scheme.
Pensions Committee as at 31 March 2019 Members Number of meetings attended (max 8) Councillor E Aird 7 Councillor I Billinger 8 Councillor B Birmingham 2 Councillor J Head 2 Councillor D Healy 7 Councillor J Holtby 8 Councillor R Meredith 8 Councillor C Mole 5 Councillor M Stathers 6 Councillor N Wilkinson 7 Councillor J Whittle (substitute for Head) 3 Councillor R Jump (substitute for Head) 1
Unitary Councillor Representatives Councillor I Glover (North Lincolnshire) 4 Councillor D Watson (North East Lincolnshire) 1 Councillor P Webster (Hull City) 0
Trade Union Observers C Burn (GMB) 1 P Foster (Unison) (left December 2018) 4 N Jadhav (Unison) (joined December 2018) 2 D Harding (UNITE) 2 R Weightman (UNITE) 4
governance 57 104 East Riding Pension Fund Annual Report and Accounts 2018/2019
Report of the Pensions Committee The Pensions Committee is responsible for the administration of the East Riding Pension Fund in accordance with Statutory Regulations, under delegation contained in the Constitution of East Riding of Yorkshire Council. During the past year the Committee consisted of ten Members of East Riding of Yorkshire Council. In addition, a Member from each of the other three unitary Councils and four trade union representatives attend Committee meetings to ensure that the views of the other major employers and individual members of the scheme are taken into account. The Committee met quarterly to consider investment reports from the Director of Corporate Resources, the external managers and the independent advisor. The Committee also met on four further occasions to consider pension administration issues and to receive training as part of the member training programme. During the year the committee: • Approved the Investment Strategy Statement (ISS) which sets out in detail how the Fund is managed and the Governance Policy Statement which sets out in detail how the Fund is governed; • Approved the proposed amendments to the Fund’s Communication Policy; • Approved the Annual Report and Accounts 2017/18; • Reviewed the management of the Fund and analysed the performance of the Fund and individual investment managers; • Reviewed the current status of the Fund’s outstanding UK and Overseas Withholding Tax reclaims; • Reviewed the Fund’s Treasury Management policy and treasury activity during the year; • Reviewed the Fund’s corporate governance and voting activity; • Reviewed the audit and assurance reports of the Fund’s investment managers and the global custodian; • Reviewed the Fund’s expenditure against budget for the 2017/18 financial year and approved the budget for the 2018/19 financial year; • Reviewed the Fund’s strategic risk register; • Reviewed a number of the Fund’s pension administration policies; • Reviewed the Government Actuary Department’s (GAD) Section 13 report with regards to the 2016 actuarial valuation; • Received training as part of the Member training programme; • Received a number of reports on the development of Border to Coast, the pool selected by the Pension Fund to meet its requirements of the Government’s LGPS reform process; and • Approved the legal documentation relating to the creation of Border to Coast. For the year ended 31 March 2019, the Fund generated a return of 6.8%, compared to the strategic benchmark return of 6.4% and the Retail Price Index, which was 2.4% over the period. Significant capital appreciation in the majority of equity markets, the positive impact of currency depreciation on the sterling returns from overseas investments, and strong stock selection from the Fund’s internal manager and Border to Coast in the majority of asset classes were the main contributors to performance. Over the three years to 31 March 2019, the Fund has generated a return of 10.4% per annum, compared to the strategic benchmark return of 9.7% per annum and the long term investment objective of 6.0% per annum. Strong stock selection from the Fund’s investment managers has been the main contributor to performance over this period. The Government issued a consultation document in November 2015 which required LGPS funds to enter into pooling arrangements with other LGPS funds in order to generate economies of scale and facilitate investment in infrastructure. The Pension Fund is actively participating in the Border to Coast, a pool of 12 LGPS funds with c. £48bn in assets. Border to Coast became fully operational in July 2018 and is an alternative investment manager, authorised and regulated by the Financial Conduct Authority (FCA). It is wholly owned by the twelve LGPS administering authorities including East Riding of Yorkshire Council. During the year some £1.767bn of internally managed equities were successfully transitioned to Border to Coast. Other asset classes such as Alternatives and Fixed Income are expected to transition during the next
governance 58 105 East Riding Pension Fund Annual Report and Accounts 2018/2019
two years. It is important to note that this only relates to the pooling of assets and the associated management arrangements. The Pensions Committee will still be responsible for determining the Pension Fund’s strategic and tactical asset allocation and pension administration responsibilities will remain with East Riding of Yorkshire Council. It is anticipated that there will continue to be significant changes to the Local Government Pension Scheme in the next few years which will represent a considerable challenge to the Pension Fund. The Pensions Committee will strive to ensure the long term sustainability of the Pension Fund in the light of any proposed changes and ensure members are aware of their potential impact. Councillor Richard Meredith (wef May 2019) Councillor John Holtby (to May 2019) Chair 2 September 2019
Training and Development As an administering authority of the Local Government Pension Scheme, East Riding of Yorkshire Council recognises the importance of ensuring that all officers and members charged with the financial management and decision making with regard to the pension scheme are fully equipped with the knowledge and skills to discharge their duties and responsibilities. Training is provided for officers and members to enable them to acquire and maintain an appropriate level of experience, knowledge and skills. The Pensions Committee has designated the Interim Director of Corporate Resources to be responsible for ensuring that the authority’s training policies and strategies are implemented with respect to the Pensions Committee and officers managing the Pension Fund. The Council has implemented a training programme for members which reflects the recommended knowledge and skill levels set out in the CIPFA Pensions Finance Knowledge and Skills Framework. The programme consists of: • Dedicated training sessions delivered by senior officers or external providers at the quarterly Pensions (Administration) Committee and Local Pension Board meetings; and • Dissemination of information relating to current investment themes by senior officers and the Pension Fund’s external investment manager at the quarterly Pensions Committee meetings. In addition, the Pensions Committee has an independent advisor whose knowledge and experience is used to assist the Committee in the development of the strategic asset allocation of the Pension Fund, and also to understand and challenge the tactical asset allocation recommendations of the investment managers. The following training has been provided during the financial year: • Overview of Equities, Fixed Income and Property; • Responsible Investment and Environmental, Social and Governance factors; • Employer performance; • Demonstration of ERPF online services; • Role of The Pensions Regulator; and • Standards required for administering the LGPS. The Fund has in place a robust recruitment and selection procedure to ensure it appoints officers who are both capable and experienced. Formal training programmes within the office and through external qualifications courses (e.g. Chartered Financial Analyst) are in place to develop the experiences and skills of officers. A dedicated training manager ensures pension administration staff remain up to date with all changes to regulations and procedures. Development needs are formally reviewed on a six monthly basis through the Council’s Employee Development Review process.
governance 59 106 East Riding Pension Fund Annual Report and Accounts 2018/2019
In addition, officers maintain and develop their understanding and experience of investment and portfolio management as part of their career development. During the financial year this has included: • Continual critical analysis of external research; • Attendance at a number of conferences; • Meetings with economists and investment managers; • Active participation in internal investment strategy meetings; and • Membership and attendance at regional networks and the CIPFA Pensions Network As the officer nominated by the Pensions Committee responsible for ensuring that the authority’s training policies and strategies are implemented, the Interim Director of Corporate Resources can confirm that the officers and members charged with the financial management of, and decision making for, the pension scheme collectively possessed the requisite knowledge and skills necessary to discharge those duties and make the decisions required during the reporting period.
governance 60 107 East Riding Pension Fund Annual Report and Accounts 2018/2019 statement of responsibilities for the financial statements
Responsibility for the Financial Statements, which form part of this Annual Report, is set out below. a) The Administering Authority The Administering Authority is East Riding of Yorkshire Council. The Administering Authority is required to: • make arrangements for the proper administration of the financial affairs of the Fund and to secure that an officer has the responsibility for the administration of those affairs. In this Authority, that officer is the Head of Finance; • manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets; • approve the Statement of Accounts. b) The Head of Finance The Head of Finance is responsible for the preparation of the Fund’s Financial Statements in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom based on International Financial Reporting Standards (the Code). In preparing these financial statements, the Head of Finance has: • selected suitable accounting policies and then applied them consistently; • made judgements and estimates that were reasonable and prudent; • complied with the Code; • kept proper accounting records which were up to date; • taken reasonable steps for the prevention and detection of fraud and other irregularities; • assessed the Authority’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; • used the going concern basis of accounting on the assumption that the functions of the Authority will continue in operational existence for the foreseeable future; and • maintained such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Certificate I hereby certify that the following accounts give a true and fair view of the financial position of the East Riding Pension Fund as at 31 March 2019 and its income and expenditure for the financial year then ended.
Julian Neilson Section 151 Officer 31 July 2019 East Riding of Yorkshire Council County Hall Beverley, East Riding of Yorkshire, HU17 9BA
statementgovernance of responsibilities for the financial statements 61 108 East Riding Pension Fund Annual Report and Accounts 2018/2019 fund account, net assets statement and notes
Fund Account
2017/18 Dealings With Members and Employers Note 2018/19
£000 £000
Contributions
256,939 Contributions receivable G 119,882
9,927 Individual transfer values receivable 8,348
524 Group transfer values receivable 524
267,390 128,754
Benefits
-150,459 Benefits payable H -159,232
-15,814 Payments to and on account of leavers I -37,935
101,117 Net additions/withdrawals (-) from dealings with Members -68,413
-6,350 Management expenses J -7,258
94,767 Net additions/withdrawals (-) including Fund Management Expenses -75,671
Returns on investments
165,655 Investment income K 134,724
-693 Taxes on income L -829
Profit and losses (-) on disposal of investments and changes in the -8,546 M 213,690 market value of investments
156,416 Net Return on Investments 347,585
251,183 Net increase in the net assets available for benefits during the year 271,914
Net Assets of the Fund
4,534,622 Opening net assets as at 1 April 4,785,805
251,183 Surplus on the pension fund for the year 271,914
4,785,805 Closing net assets as at 31 March 5,057,719
fund account, net assets statement and notes 62 109 East Riding Pension Fund Annual Report and Accounts 2018/2019
Net Assets Statement
31 March 2018 Note 31 March 2019
£000 £000
0 Long Term Investments M 833
4,778,510 Investment Assets M 5,056,306
4,778,510 5,057,139
-6,928 Investment Liabilities -13,340
4,771,582 Total net investment 5,043,799
16,731 Current assets N 15,475
4,788,313 5,059,274
-2,508 Current Liabilities O -1,555
4,785,805 Net assets of the scheme available to fund benefits at 31 March 5,057,719
The Accounts summarise the transactions and deals with the net assets of the Fund and do not take into account liabilities to pay pensions and other benefits in the future. The above Net Assets Statement should be read in conjunction with the Actuarial Certificate (page 50) and Funding Strategy Statement (page 89).
fund account, net assets statement and notes 63 110 East Riding Pension Fund Annual Report and Accounts 2018/2019
Notes to the Accounts
A Fund Status The Fund is a funded defined benefits scheme.
B Audit of the East Riding Pension Fund Accounts These accounts are subject to external audit.
C Accounting Policies 1. General These Accounts have been prepared in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2018/19 based on International Financial Reporting Standards, which requires that the Fund’s Accounts comply with IAS 26 Accounting and Reporting by Retirement Benefit Plans, subject to the interpretations and adaptations detailed in the Code and the Statement of Recommended Practice on Financial Reports of Pension Schemes (the SORP). The accounts do not take account of liabilities to pay pensions and other benefits in the future. The accounts have been prepared on a going concern basis. 2. Changes in Accounting Policies 2.1 Previously, the Code required the disclosure of an analysis of debtors and creditors across public sector organisations. This is no longer a requirement. 3. Income a) Contributions income Normal contributions are accounted for on an accruals basis as follows: • Employee contribution rates are set in accordance with LGPS regulations, using common percentage rates for all schemes which rise according to pensionable pay. Any amounts due but not received are shown in the Net Asset Statement as a current asset; • Employer contributions are set at the percentage rate recommended by the Fund Actuary for the period to which they relate. Employers’ pensions strain contributions are accounted for in the period in which liability arises. Employers’ contributions are based on a percentage of employees’ pensionable pay as recommended by the Actuary of the Fund in his valuation of 31 March 2016 effective from 1 April 2017. Further information regarding the Actuary’s Report and Actuarial Valuation, as at 31 March 2016, effective from 1 April 2017, can be found on pages 50 to 53 of these accounts. Employer deficit funding contributions are accounted for on the due dates on which they are payable under the schedule of scheme contributions set by the scheme Actuary or on receipt if earlier than the due date. Deficit funding payments are payable over a maximum of 20 years. b) Transfer values receivable Transfer values receivable relate to amounts received for members joining the Fund during the financial year and are accounted for in the year of receipt. Transfer values are disclosed as individual transfers and group transfers.
fund account, net assets statement and notes 64 111 East Riding Pension Fund Annual Report and Accounts 2018/2019
c) Investment income i. Dividend income Dividend income is accounted for on an accruals basis and any outstanding amount is included in the Net Asset Statement as an investment asset. Dividend income is recognised on the date the asset is quoted ex-dividend. ii. Interest income Interest income is accounted for on an accruals basis using the effective interest rate of the financial instrument as at the date of origination. Accrued interest income is shown in the Net Assets Statement as an investment asset. iii Stock Lending Income Stock lending income is accounted for on an accrual basis and any outstanding amount is included in the Net Asset Statement as an investment asset. iv. Distributions from pooled investment assets Distributions from pooled investment vehicles are recognised at the date of issue. Distribution income is accounted for on an accruals basis and any outstanding amount is included in the Net Asset Statement as an investment asset. v. Movement in the net market value of investments Changes in the net market value of investments, including all realised and unrealised profits/losses are shown as returns on investments. vi. Currency conversion Investment income received in overseas currency is converted at the appropriate exchange rate quoted in the Financial Times on the date of receipt. 4. Expenditure a. Benefits payable Pensions and lump sum benefits payable include all amounts known to be due as at the end of the financial year. Any amounts due but unpaid are shown in the Net Assets Statement as current liabilities. b. Transfer values payable Transfer values payable relate to amounts paid relating to members leaving the Fund during the financial year and are accounted for in the year of payment. 5. Expenses Expenses are accrued appropriately to ensure charges are incurred within the relevant accounting period. 6. Valuation of Assets Investments are included in the Net Assets Statement at their fair value. Investments made through the UK Stock Exchanges are valued at bid market price at the close of business on 31 March 2019. Investments made on overseas stock exchanges are valued at bid price or last trade price. Cash comprises cash in hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to minimal risk of changes in value. Unquoted investments are inherently difficult to value and rely, to a certain extent, on estimation techniques and non-market observable inputs; where market values are available at the date of the Statement these are used as above.
fund account, net assets statement and notes 65 112 East Riding Pension Fund Annual Report and Accounts 2018/2019
Fair value is calculated as the net asset value as at the date of the Statement in accordance with recognised valuation standards e.g. Royal Institution of Chartered Surveyors (RICS). Where the net asset value at the date of the Statement is not available, fair value is calculated based on the last available set of audited financial statements, adjusted for subsequent cash flows. Where there has been a material reduction in the valuation of the investment since the date of the last available set of audited statements, the Fund will consider writing down the value of the investment. 7. Future Liabilities The Accounts summarise the transactions and net assets of the Fund and do not take into account liabilities to pay pensions and other benefits in the future. The adequacy of the Fund’s investments and contributions in relation to its overall obligations is dealt with in the report by the Actuary on pages 50 to 52 of these accounts and should be read in conjunction with the report. The Actuarial information disclosed on pages 50 to 53 complies with the accounting requirements of International Accounting Standard 19 Employee Benefits. 8. Taxation The scheme is a Registered Pension Scheme in accordance with Paragraph 1 (1) of Schedule 36 to the Finance Act 2004 and for UK taxation purposes is wholly exempt from income tax and capital gains tax. Income from overseas investments suffers withholding tax in the country of origin, unless exemption is permitted. Irrecoverable tax is accounted for as a fund expense as it arises. 9. Value Added Tax The Fund is reimbursed VAT by HM Revenue and Customs and the accounts are shown exclusive of VAT. 10. Management Expenses All pension administration expenses are accounted for on an accruals basis. All employee costs of the pension administration section are charged direct to the Fund. Associated management, accommodation and other overheads are apportioned to this activity and charged as expenses to the Fund. All investment management expenses, including external management and custody, are accounted for on an accruals basis. All employee costs of the investment section are charged directly to the Fund. Associated management, accommodation and other overheads are apportioned to this activity and charged as expenses to the Fund. The external manager’s (Schroder Investment Management) fee is based on the market value of funds under management at the end of each quarter and is calculated on a sliding scale, where percentage fee diminishes on marginal value. External manager Border to Coast fee is based on an agreed budget. Custody fees are agreed in the mandate for the provision of custodian services. All oversight and governance costs are accounted for on an accruals basis. All staff costs associated with governance and oversight are charged directly to the Fund. Associated management, accommodation and other overheads are apportioned to this activity and charged as expenses to the Fund. Investment management costs for the Fund’s unquoted pooled investments are obtained using financial information from the relevant investment manager. However, it should be noted that the accounting period to which this relates may differ from the Fund’s accounting period and, therefore, the costs incurred may not be directly comparable. 11. Currency Conversion Rates Overseas investments have been converted at the exchange rate quoted in the Financial Times at close of business on 31 March 2019 to arrive at sterling values in the Net Asset Statement.
fund account, net assets statement and notes 66 113 East Riding Pension Fund Annual Report and Accounts 2018/2019
12. Additional Voluntary Contributions An additional voluntary contribution (AVC) scheme is provided for members of the Fund by Prudential. Contributions are paid to Prudential by scheme members and are specifically for providing additional benefits for individual contributors. AVC’s do not form part of the Fund accounts in accordance with the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 see note U. 13. Actuarial Present Value of Promised Retirement Benefits The actuarial present value of promised retirement benefits is based on the triennial valuation of the Fund by the Actuary, with liabilities at 31 March 2019 being projected using a roll forward approximation from the latest formal funding valuation as at 31 March 2016. The Fund has opted to disclose the actuarial present value of promised retirement benefits as a note to the accounts, see note W. 14. Policy for Funding the Promised Retirement Benefits The funding policy is set out in the Funding Strategy Statement. Fund liabilities were assessed by the Actuary using an accrual benefits method which takes into account pensionable membership up to the valuation date and makes an allowance for expected future salary growth to retirement or expected earlier date of leaving pensionable membership. A market-related approach was taken to valuing the liabilities for consistency with the valuation of the Fund assets at their market value. The key financial assumptions adopted for were as follows:
Financial assumptions 31 March 2016 % p.a. Discount rate 4.0 Salary Increase Assumption 2.3 Benefit Increase Assumption (CPI) 2.1
The key demographic assumption was the allowance made for longevity. The life expectancy assumptions are based on the Fund’s VitaCurves with improvements in line with the CMI 2010 model, assuming the current rate of improvements has reached a peak and will converge to long term rate of 1.25% p.a. Based on these assumptions, the average future life expectancies at age 65 are as follows:
Females Males Current Pensioners 24.2 Years 21.7 years Future Pensioners* 26.4 years 23.7 years
*Currently aged 45 15. Derivatives The Pension Fund has entered into a series of derivative transactions which are designed to protect the value of the Fund’s UK and US equity portfolios from a fall in market prices. This is managed by River and Mercantile and the basis of valuing the over the counter derivatives is the Black-Scholes model. 16. Critical Judgements in Applying Accounting Policies Pension Fund Liability T he Fund liability is calculated every three years by the Fund’s Actuary with the purpose of the valuation being to establish that the Fund is able to meet its liabilities to past and present contributors. The valuation is carried out in accordance with Regulation 62 of the Local Government Pension Scheme Regulations 2013 and complies with IAS 19. The principal actuarial assumptions and method used to value the liabilities are shown in the Report of the Actuary which can be found on pages 50 to 52.
fund account, net assets statement and notes 67 114 East Riding Pension Fund Annual Report and Accounts 2018/2019
17. Assumptions Made About the Future and Other Major Source of Estimation Uncertainty The Statement of Accounts includes estimated figures that are based on assumptions and estimates, which take into account historical experience, current trends and other relevant factors. Therefore these estimated figures cannot be determined with certainty and actual results could be materially different from the assumptions and estimates. The items in the Statement of Accounts for which there is a significant risk of material adjustment in the forthcoming financial year are as follows: Actuarial present value of promised retirement benefits The calculation of the actuarial present value of promised retirement benefits is undertaken by the Actuary and is projected using a roll forward approximation from the latest formal funding valuation as at 31 March 2016. Estimates and assumptions are made in a number of judgements including discount rate, salary increases, inflation, pensions increase rate, longevity of current and future pensioners, type of member in scheme and commutation sums. Any variance in the estimates and assumptions in any of the elements used to calculate the actuarial present value of promised retirement benefits would impact on the quoted figure. For example a 0.5% decrease in the discount rate used would result in an increase in the pension liability of 11%, equivalent to £767m, a 0.5% increase in the salary increase rate used would increase the value of liabilities by 2% or £116m, and a 0.5% increase in the pensions increase rate used would increase the pension liability by 9% or £604m. A one year increase in life expectancy would approximately increase the liabilities by around 3% to 5%. Unquoted Investments By definition these investments are not publicly quoted and the valuation depends on estimation techniques and non-marketable observable inputs. Unquoted investments are stated at market value where available, otherwise fair value is used. Unquoted investments are valued at £1.1bn in the financial statements and a 10% variance in the valuation risks these investments being under or overstated in the accounts by up to £11m. 18. Contingent Assets and Contingent Liabilities A contingent asset arises where an event has taken place giving rise to a possible asset whose existence will only be confirmed by the occurrence of future events. A contingent liability arises where an event has taken place prior to the year-end giving rise to a possible financial obligation whose existence will only be confirmed or otherwise by the occurrence of future events. Contingent liabilities can also arise in circumstances where a provision would be made, except that it is not possible at the balance sheet date to measure the value of the financial obligation reliably. Contingent assets and liabilities are not recognised in the net asset statement but are disclosed in the notes.
D Concentration of Investments The Code require disclosure where there is a concentration of investment which exceeds 5% of the total value of the net assets of the scheme.
2017/18 2018/19 Number of Value % of Value % of Number of Units Units £000 Net Assets £000 Net Assets 28,868,024.470 343,667 7.2 Schroder North American Equity Fund 22,954,247.123 285,728 5.6
0.000 0 0.0 Border to Coast PE UK Listed Equity A 1,565,628,704.780 1,553,416 30.7
fund account, net assets statement and notes 68 115 East Riding Pension Fund Annual Report and Accounts 2018/2019
E Stock Lending State Street, the Fund’s Custodian has authorisation to release stock to third parties as determined by the contract between State Street and the Fund. During the year to 31 March 2019 stock lending income of £0.247m (2018 £0.550m) was raised against expenditure for the activity of £0.068m (2018 £0.162m). At 31 March 2019 the total value of securities on loan was £61.5m (2018 £200.7m) and are analysed by asset class as follows:
31 March 2018 31 March 2019
£000 £000
87,225 Equities - UK 0
83,857 UK Bonds - Public Sector 57,436
22,001 Equities - Overseas 58
7,650 Overseas Bonds - Public Sector 4,004
200,733 61,498
Against the stock on loan the Fund held collateral at 31 March 2019 of £63.4m (2018 £211.6m) analysed by asset class as follows:
31 March 2018 31 March 2019
£000 £000
93,815 Equities - UK 0
86,250 UK Bonds - Public Sector 59,239
23,459 Equities - Overseas 63
8,072 Overseas Bonds - Public Sector 4,087
211,596 63,389
F Derivatives In June 2017 the Pension Fund entered into a contract with River and Mercantile to manage a derivatives portfolio. A derivative, which is a permitted investment under the LGPS Investment Regulations, is a contract between two or more parties whose value is derived from the performance of an underlying financial asset, for example an equity index such as FTSE 100 index. Derivatives can be used for a number of purposes, including the issuing against price movements i.e. hedging, increasing exposure to expected price movements, or getting access to otherwise hard to trade assets or markets. In a simple form the contract that the Fund has entered into will generate a return based on the current value of the index plus any increase in that index up to a certain point, irrespective of the actual value at the end of the contract term. The duration of the contract is between 2.75 and 3.25 years. Equities continue to be the largest asset class in the Pension Fund and as such the Fund needs to generate a suitable rate of return from the equity portfolio, over the long term, in order to meet the investment rate of return required to fund its liabilities. The long term total return from UK equities has been c9% however, the return profile has been very volatile with the potential for significant drawdowns in any one year. Therefore it was agreed in 2016 to implement an equity protection product to protect a proportion of the UK and US equity portfolios from an equity market correction whilst continuing to participate in some of the upside. However, there is obviously a cost to protecting the downside but this can be offset by sacrificing the upside potential beyond a certain point.
fund account, net assets statement and notes 69 116 East Riding Pension Fund Annual Report and Accounts 2018/2019
The movement in the value of the derivative can be seen in note m, Reconciliation of Movements in Investments. At 31 March 2019 the value of the derivative holding was as follows:
Equity Option
Value at 31 March 2018 Counterparty Maturity Date Notional Value at 31 March 2019
£000 £000
2,615 Barclays 16 June 2020 £125m 1,935
2,833 Goldman Sachs 20 July 2020 £125m 2,089
1,150 Investec 20 July 2020 £50m 800
-4,174 Investec 10 August 2020 $130m -5,495
2.424 -671
Collateral
58,975 UK Bonds 59,572
6,000 Cash 6,000
64,975 65,572
67,399 64,901
G Contributions Receivable
2017/18 2018/19
£000 £000 £000
65,613 Employers - Normal 71,575
154,496 Employers - Deficit Recovery 11,588 83,163
36,830 Employees 36,719
256,939 119,882
From
74,379 Administering Authority 16,248
173,257 Schedule 2 Employers 94,261
9,303 Admitted Bodies 9,373
256,939 119,882
Contributions relating to deficit funding payments amounted to £11.592m (2018 £155.443m) during the year. H Benefits Payable
2017/18 2018/19
£000 £000
119,510 Pensions 126,515
27,373 Commutations, compounded and lump sum retirement benefits 29,023
3,576 Lump sum death benefits 3,694
150,459 159,232
Paid to
26,536 Administering Authority 27,496
112,471 Scheme Employers 120,218
11,452 Transferee Admission Bodies 11,518
150,459 159,232 fund account, net assets statement and notes 70 117 East Riding Pension Fund Annual Report and Accounts 2018/2019
I Payments to and on account of leavers
2017/18 2018/19
£000 £000
398 Refunds to members leaving service 452
15,416 Individual transfer values payable 11,565
0 Group transfer values payable 25,918
15,814 37,935
J Pension, Investment Management and Oversight and Governance Expenses
2017/18 2018/19
£000 £000
1,796 Pension Administration Expenses 1,629
3,919 Investment Management Expenses 4,991
635 Oversight and Governance 638
6,350 7,258
Of the Investment Management expenses in 2018/19, a total of £0.087m was in respect of performance related fees paid to the Fund’s internal investment manager (2017/18 £0.061m). Of the Oversight and Governance expenses in 2018/19, the external audit fee payable to Mazars LLP is £0.033m (2017/18 £0.032m). Externally managed funds are managed by Schroder Investment Management Ltd and Border to Coast. It should be noted that the Net Asset Statement and any performance data disclosed in the Annual Report are disclosed net of all costs incurred.
fund account, net assets statement and notes 71 118 East Riding Pension Fund Annual Report and Accounts 2018/2019
K Investment Income
2017/18 2018/19
£000 £000 Bonds 2,239 United Kingdom 2,232 1,828 Overseas 1,720 748 Corporate 901 1,362 Multi Asset Credit - quoted 1,446 9,791 Multi Asset Credit - unquoted 15,235 15,968 21,534 Index Linked 12 United Kingdom 13 21 Overseas 32 53 Corporate Bonds 58 86 103 Equities 48,574 United Kingdom 16,872 11,948 Overseas 11,279 60,522 28,151 Managed Funds 31,056 Equities 38,974 5,161 Property - quoted 7,757 17,238 Property - unquoted 10,695 8,464 Private equity - quoted 1,642 233 Private equity - unquoted 2,805 2,114 Infrastructure - quoted 2,639 4,115 Infrastructure - unquoted 5,130 3,909 Other investments - quoted 4,574 4,689 Other investments - unquoted 4,700 76,979 78,916 709 Derivatives 934 10,038 Accrued Interest on Ex-dividend Investments 3,962 164,302 133,600 10 Underwriting 12 -192 Currency Loss (-)/Gain -393 550 Stock Lending 248 985 Cash Deposits 1,257 1,353 1,124 165,655 Grand Total 134,724
L Taxes on Income
2017/18 2018/19 £000 £000 Withholding Tax 693 Overseas Equities 829 693 829
fund account, net assets statement and notes 72 119 East Riding Pension Fund Annual Report and Accounts 2018/2019
M Reconciliation of Movements in Investments Restated Value at Reclassified Purchases at Sales Change Value at 2018/19 Value in Market 01/04/18 01/04/18 Cost Proceeds 31/03/2019 01/04/18 Value Investment Assets £000 £000 £000 £000 £000 £000 £000 Bonds UK - Public Sector 125,491 0 125,491 1,834 0 2,375 129,700 UK - Other Quoted 59,254 0 59,254 0 0 -77 59,177 Overseas - Public Sector 67,240 0 67,240 0 0 3,612 70,852 Overseas - Corporate 43,102 0 43,102 0 0 3,181 46,283 Multi Asset Credit - quoted 70,217 0 70,217 0 0 3,873 74,090 Multi Asset Credit - unquoted 197,246 0 197,246 69,812 -34,348 1,007 233,717 562,550 0 562,550 71,646 -34,348 13,971 613,819 Equities UK 1,411,721 0 1,411,721 3,874 -1,487,798 108,311 36,108 BCPP Share Capital 0 0 0 833 0 0 833 Overseas 507,856 0 507,856 382,397 -465,038 -13,665 411,550 1,919,577 0 1,919,577 387,104 -1,952,836 94,646 448,491 Derivatives UK Treasury 58,975 0 58,975 1,138 0 -541 59,572 Cash 6,000 0 6,000 0 0 0 6,000 Derivatives Option 2,424 0 2,424 0 0 -3,095 -671 67,399 0 67,399 1,138 0 -3,636 64,901 Index-Linked Bonds UK - Public Sector 15,294 0 15,294 0 0 967 16,261 UK Corporate 6,702 0 6,702 0 0 354 7,056 Overseas - Public Sector 11,888 0 11,888 0 0 1,294 13,182 33,884 0 33,884 0 0 2,615 36,499 Pooled Investment Vehicles Managed Funds 885,484 0 885,484 1,805,415 -260,081 26,097 2,456,915 Property - Quoted 159,656 0 159,656 13,001 0 3,033 175,690 Property - Unquoted 384,242 0 384,242 63,372 -60,623 17,922 404,913 Private Equity - Quoted 97,700 0 97,700 0 -1,938 11,196 106,958 Private Equity - Unquoted 122,154 0 122,154 37,689 -33,928 13,207 139,122 Infrastructure - Quoted 41,542 0 41,542 15,315 -8,421 6,217 54,653 Infrastructure - Unquoted 152,610 0 152,610 28,978 -23,901 18,620 176,307 Other Investments - Quoted 71,497 0 71,497 10,641 -2,876 -3,338 75,924 Other Investments - Unquoted 132,503 0 132,503 32,038 -47,877 13,049 129,713 2,047,388 0 2,047,388 2,006,449 -439,645 106,003 3,720,195
4,630,798 0 4,630,798 2,466,337 -2,426,829 213,599 4,883,905 Current Assets Sterling 116,334 0 116,334 685,219 -667,300 0 134,253 Euros 382 0 382 10,628 -9,049 1 1,962 US Dollar 1,092 0 1,092 17,148 -18,187 90 143 117,808 0 117,808 712,995 -694,536 91 136,358
4,748,606 0 4,748,606 3,179,332 -3,121,365 213,690 5,020,263
Net Gains and Losses on Financial Instruments All net gains and losses on financial instruments are fair value through profit and loss. fund account, net assets statement and notes 73 120 East Riding Pension Fund Annual Report and Accounts 2018/2019
Reconciliation to Net Asset Statement
2018/19
£000 Net Asset Statement Long term Investments 833 Investment Assets 5,056,306
5,057,139 Net Asset Statement Cash -155,171 Other Investment balances -12,568 Investment Liability -5,495
Value 31/03/19 Reconciliation of Movements 4,883,905 in Investments
Further Analysis of Multi Asset Credit, Derivatives Option and Managed Funds
Value at 01/04/2018 Value at 31/03/2019
UK Overseas Total UK Overseas Total
£000 £000 £000 £000 £000 £000 Multi Asset Credit - 27,436 42,781 70,217 26,428 47,662 74,090 quoted
Multi Asset Credit - 54,788 142,458 197,246 72,147 161,570 233,717 unquoted
Derivatives Option 6,598 -4,174 2,424 4,824 -5,495 -671 Managed Funds 277,436 608,048 885,484 1,940,470 516,445 2,456,915
Derivatives - Two UK Treasury bonds 1.5% 22 July 2047 totalling £1.834m were purchased during the financial year.
fund account, net assets statement and notes 74 121 East Riding Pension Fund Annual Report and Accounts 2018/2019
Value at Reclassified Restated Purchases at Sales Change Value at 2017/18 Value in Market 01/04/2017 01/04/17 01/04/17 Cost Proceeds Value 31/03/2018 Investment Assets £000 £000 £000 £000 £000 £000 £000 Bonds UK - Public Sector 122,066 0 122,066 14,188 -8,520 -2,243 125,491 UK - Other Quoted 54,113 0 54,113 14,054 -8,567 -346 59,254 Overseas - Public Sector 74,990 0 74,990 2,293 -5,311 -4,732 67,240 Overseas - Corporate 45,198 0 45,198 17,448 -15,267 -4,277 43,102 Multi Asset Credit - quoted 0 74,275 74,275 0 0 -4,058 70,217 Multi Asset Credit - unquoted 0 142,710 142,710 72,322 -17,038 -748 197,246 Global High Yield - quoted 45,235 -45,235 0 0 0 0 0 Global High Yield - unquoted 88,676 -88,676 0 0 0 0 0 Emerging Market Government 14,259 -14,259 0 0 0 0 0 444,537 68,815 513,352 120,305 -54,703 -16,404 562,550 Equities UK 1,421,788 0 1,421,788 24,186 -7,182 -27,071 1,411,721 Overseas 473,485 0 473,485 156,182 -151,479 29,668 507,856 1,895,273 0 1,895,273 180,368 -158,661 2,597 1,919,577 Derivatives UK Treasury 0 0 0 60,709 0 -1,734 58,975 Cash 0 0 0 6,000 0 0 6,000 Derivatives Option 0 0 0 0 0 2,424 2,424 0 0 0 66,709 0 690 67,399 Index-Linked Bonds UK - Public Sector 18,580 0 18,580 0 -3,371 85 15,294 UK Corporate 4,865 0 4,865 1,955 0 -118 6,702 Overseas - Public Sector 11,032 0 11,032 7,453 -5,182 -1,415 11,888 34,477 0 34,477 9,408 -8,553 -1,448 33,884 Pooled Investment Vehicles Managed Funds 848,194 0 848,194 19,788 0 17,502 885,484 Property - Quoted 109,546 0 109,546 68,655 -7,672 -10,873 159,656 Property - Unquoted 389,921 0 389,921 53,994 -64,161 4,488 384,242 Private Equity - Quoted 97,921 0 97,921 501 -3,626 2,904 97,700 Private Equity - Unquoted 106,207 0 106,207 33,692 -22,819 5,074 122,154 Infrastructure - Quoted 42,178 0 42,178 3,171 0 -3,807 41,542 Infrastructure - Unquoted 122,987 0 122,987 33,134 -8,846 5,335 152,610 Other Investments - Quoted 81,536 -14,781 66,755 14,900 -7,696 -2,462 71,497 Other Investments - Unquoted 202,831 -54,034 148,797 42,213 -46,360 -12,147 132,503 2,001,321 -68,815 1,932,506 270,048 -161,180 6,014 2,047,388
4,375,608 0 4,375,608 646,838 -383,097 -8,551 4,630,798 Current Assets Sterling 122,623 0 122,623 808,732 -815,021 0 116,334 Euros 6 0 6 10,594 -10,181 -37 382 US Dollar 0 0 0 28,792 -27,742 42 1,092 122,629 0 122,629 848,118 -852,944 5 117,808
4,498,237 0 4,498,237 1,494,956 -1,236,041 -8,546 4,748,606
fund account, net assets statement and notes 75 122 East Riding Pension Fund Annual Report and Accounts 2018/2019
N Current Assets
31 March 2018 31 March 2019
£000 £000
5,402 Contributions due - Employers 5,242
2,018 Contributions due - Employees 2,165
719 Recharge of Pensions increase and supplementary allowance 864
6,786 East Riding of Yorkshire Council 4,642
1,806 Other Debtors 2,562
16,731 15,475
O Current Liabilities
31 March 2018 31 March 2019
£000 £000
1,116 East Riding of Yorkshire Council 118
860 Overclaim of Recharges 671
532 Other creditors 766
2,508 1,555
P Managerial Arrangements of Assets
31 March 2018 31 March 2019 £000 % £000 %
3,687,409 77 Internally managed 2,197,382 43
1,098,396 23 Externally managed (Schroder Investment Management Limited) 1,092,977 22
0 0 Externally managed (Border to Coast Pensions Partnership) 1,767,360 35
4,785,805 100 5,057,719 100
Q Contingent Liabilities and Contractual Commitments At 31 March 2019 the Fund had commitments to the purchase of investments of £570.653m (2018 £506.080m) analysed as follows:
2017/18 2018/19 Foreign Currency £000 Foreign Currency £000
£000 200,771 Sterling Denominated (£) £000 211,374
294,553 209,975 US Dollar Denominated ($) 296,180 226,316
108,738 95,334 Euro Denominated (€) 154,304 132,963
506,080 570,653
In two separate Employment Tribunal cases involving members of the Judiciary and Firefighter pensions’ schemes, there are appeals in respect of possible age discrimination in the transitional arrangements to new pension schemes. HM Government is appealing in both cases and it is unclear what the impact of any decision will be on similar transitional arrangements across public sector pension schemes. The Local Government Pension Scheme (LGPS) have commissioned the Government Actuarial Department (GAD) to prepare an assessment of the potential impact on a LGPS scheme wide basis. Initial estimates place the potential impact in the region of ½% to 1% of total liabilities.
fund account, net assets statement and notes 76 123 East Riding Pension Fund Annual Report and Accounts 2018/2019
R Members Allowances Following modernisation of the Committee structures, allowances are not paid to Members directly in respect of Pensions Committee attendance. The Chairman of the Pensions Committee is paid a special responsibility allowance. However, allowances are not cumulative, and only the highest allowance for any committee responsibility is paid to the Member. Payments to Members are disclosed on the Council’s website.
S Related Party Transactions In accordance with International Accounting Standard (IAS) 24 and International Public Sector Accounting Standard (IPSAS) 20 ‘Related Party Disclosures’, material transactions with related parties not disclosed elsewhere are detailed below. • The officer responsible for the proper administration of the financial affairs of the East Riding Pension Fund (the Section 151 officer) is also the Section 151 officer of East Riding of Yorkshire Council. • The East Riding Pension Fund is administered by East Riding of Yorkshire Council. During the financial year the Council incurred costs of £7.2580m (2018 £6.350m) comprising pensions administration costs of £1.629m (2018 £1.796m), investment management costs of £4.991m (2018 £3.919m) and oversight and governance costs of £0.638m (2018 £0.635m). The Council was subsequently reimbursed by the Fund for these expenses. The Council is also the largest employer of members of the Pension Fund and, during the financial year, made contributions of £16.160m to the Fund (2018 £74.036m). £9.269m of this total sum is in respect of contributions paid by members of the Pension Fund. As at 31 March 2019 the Council was a net debtor to the Fund of £4.524m (2018 £5.782m). • Under legislation introduced in 2003/04, Councillors were entitled to join the Pension Scheme. The LGPS (Transitional Provisions, Savings and Amendment) Regulations 2014 removed this entitlement for Councillors from the later of 1 April 2014 or the end of their current term in office (or to age 75 if earlier). Therefore, no members of the Pension Committee made contributions to the Fund during the financial year in their member capacity. • No senior officers responsible for the administration of the Fund have entered into any contract, other than their contract of employment with the Council, for the supply of goods or services to the Fund. • The key management personnel of the Pension Fund are the Director of Corporate Resources and the Head of Finance. The charge to the Pension Fund for these two posts in 2018/19 was £41,463.
T Currency Conversion Rates Overseas investments have been converted at the exchange rates quoted in the Financial Times at close of business on 31 March 2019 to arrive at the sterling values in the Net Assets Statement. The exchange rates used per £1 sterling were:
Australian Dollar 1.8344
Canadian Dollar 1.7408
Danish Krone 8.6635
Euro 1.1605
Japanese Yen 144.2281
New Zealand Dollar 1.9106
Norwegian Krona 11.2213
Swedish Krona 12.0862
Swiss Franc 1.2977
US Dollar 1.3031
fund account, net assets statement and notes 77 124 East Riding Pension Fund Annual Report and Accounts 2018/2019
U Additional Voluntary Contributions The Fund’s approved Additional Voluntary Contribution (AVC) provider is Prudential and during the year to 31 March 2019 scheme members made contributions to this facility of £1.866m (2018 £1.584m). The total value of the funds invested by Prudential on behalf of members of the East Riding Pension Fund at 31 March 2019 is £18.609m (2018 £19.095m). AVC’s do not form part of the Pension Fund Accounts in accordance with the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016.
V Investment Strategy Statement The East Riding Pension Fund is required to maintain an Investment Strategy Statement (ISS) in accordance with the LGPS Regulations. Full details of the ISS for the Fund are set out within the East Riding Pension Fund Annual Report and Accounts. The Pensions Committee approved the ISS at its meeting on 16 March 2018, and it complies with the LGPS Regulations. The Fund is also required to maintain a Funding Strategy Statement (FSS) in accordance with the LGPS Regulations. The FSS for the Fund has been revised to take into account the results of the actuarial valuation, effective 31 March 2017. The FSS, which was approved by the Pensions Committee at its meeting on 16 March 2018, complies with these Regulations. In preparing the ISS and the FSS, the Pensions Committee has taken professional advice from its advisers and investment managers, whom it considers are suitably qualified and experienced in investment matters. The principal employers and trade unions are represented at the Pensions Committee, enabling their views to be taken into account. The investment managers and the investment advisers are required to adhere to the principles set out in the ISS. The Pensions Committee requires an annual, written statement from its investment managers confirming that they have adhered to the principles set out in the statement. The ISS of the Fund is reviewed by the Pensions Committee on an annual basis.
W The Actuarial Present Value of Promised Retirement Benefits The actuarial present value of promised retirement benefits at 31 March 2019 was £7.096bn (31 March 2018 £6.264bn). The value includes an allowance for the ‘McCloud ruling’, i.e. an estimate of the potential increase in past service benefits from this case affecting public sector pension schemes. Liabilities have been projected using a roll forward approximation from the latest formal funding valuation as at 31 March 2016. The fund accounts do not take account of liabilities to pay pensions and other benefits in the future. The actuarial valuation carried out as at 31 March 2016 revealed that the Fund’s assets valued at £3.714bn were sufficient to meet 88% of the liabilities (i.e. the present value of promised retirement benefits) accrued up to that date. The resulting deficit at the 2016 valuation was £512m. The assumptions made by the Actuary can be found on page 68 note 17. Significant actuarial assumptions are shown below:
Year ended 31 March 2019 31 March 2018 % p.a. % p.a. Pension Increase Rate 2.5 2.4 Salary Increase Rate 2.7 2.6 Discount Rate 2.4 2.7
fund account, net assets statement and notes 78 125 East Riding Pension Fund Annual Report and Accounts 2018/2019
X Disclosures Relating to Financial Instruments The accounting standards for financial instruments have changed between financial years. In 2017/18 the accounting standard was International Accounting Standard 39 (IAS39) and in 2018/19 the accounting standard is International Financial Reporting Standard 9. The change in accounting standards has not changed the treatment of the Fund’s financial instruments, but financial assets classified as loans and receivables under IAS39 are classified as financial instruments at amortised cost under IFRS9. The items in the Net Asset Statement are made up of the following categories of financial instrument.
31 March 2018 31 March 2019 £000 £000 Financial Assets at fair value through profit or loss 562,550 Bonds 613,819 1,919,577 Equities 447,658 33,884 Index-Linked Securities 36,499 2,047,388 Pooled Investment Vehicles 3,720,195 71,573 Derivatives 70,396 1,474 Foreign Currency 3,739 13,808 Other Investment Balances 12,568 4,650,254 Total Financial Assets at Fair Value Through Profit or Loss 4,904,874
0 Long term investments 833 4,650,254 Total Financial Assets 4,905,707
Financial Assets at Amortised Cost 128,256 Cash Deposits - Sterling 151,432 16,731 Current Assets 15,475 144,987 Total Financial Assets at Amortised Cost 166,907
Financial Liabilities at fair value through profit or loss -6,928 Other Investment Balances -13,340
Financial Liabilities at Amortised Cost -2,508 Current liabilities -1,555 4,785,805 Net Financial Assets 5,057,719
NB Financial Assets at Amortised Cost entitled Loans and Receivables in 2017/18 financial statements. The methodology used for the valuation of investment assets is described in Note to the Accounts 6 Valuation of Assets. The Fund’s primary long term risk is that the Fund’s assets do not meet its liabilities i.e. the benefits payable to members. Therefore, the aim of the Fund’s investment management is to achieve the long term expected rate of return with an acceptable level of risk. The Fund achieves this by setting a strategic asset allocation on a triennial basis which is expected to achieve the target rate of return over the long term. The tactical asset allocation is determined by the Pensions Committee on a quarterly basis. The Fund has a dedicated strategic risk register which identifies the key risks within the Pension Fund and the risk controls that are in place to mitigate these risks. The risk register is reviewed by the Pensions Committee on a semi-annual basis. In addition, an investment risk management schedule is reviewed by the Pensions Committee on a quarterly basis which considers issues such as performance; regulation and compliance; and personnel and structure. The key risks inherent in the Pension Fund in relation to its financial assets are:
fund account, net assets statement and notes 79 126 East Riding Pension Fund Annual Report and Accounts 2018/2019
Market risk Market risk is the risk that the value of an investment decreases as a result of changing market conditions. The risk is mitigated by: • An appropriate strategic asset allocation is determined on a triennial basis in conjunction with the actuarial valuation exercise. This aims to meet the target long term rate of return with an acceptable level of risk and includes an appropriate diversification of asset classes. The allocation is agreed by the Pensions Committee and the Fund’s advisers and investment managers. • The strategic asset allocation is disclosed in the Fund’s Investment Strategy Statement including the permitted asset classes, their allocations, and the permitted ranges. • Tactical asset allocation is determined on a quarterly basis by the Pensions Committee in light of financial market conditions and following advice from the Fund’s advisers and investment managers. • The Pensions Committee regularly reviews the long term investment strategy to ensure that it remains appropriate. The investment policy of the East Riding Pension Fund does not permit any employer related investment, either in the assets, stock, land or property of the Principal Employers or the assets, stock, land or property of any associated employers. The Pensions Committee considers that employer related investments pose too great a risk to the security of the Fund. The Fund has adopted the CIPFA Code of Practice for Treasury Management in Public Services and maintains and operates a Treasury Management Policy comprising an overview of the principles and practices to which the activity will comply. The Treasury Management Policy is approved by the Pensions Committee on an annual basis and they also receive a half-yearly and annual report on treasury activity. The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 state the following regarding the use and investment of Pension Fund monies: • an administering authority must invest any fund money that is not needed immediately to make payments from the fund; • they may vary their investments; • their investment policy must be formulated with a view to the advisability of investing fund money in a wide variety of investments and to the suitability of particular investments and types of investments; • an administering authority must obtain proper advice at reasonable intervals about their investments; and • the authority must consider such advice in taking any steps about their investments. The Fund has determined that the following movements in market price risk are possible for the 2018/19 reporting period:
Potential market Asset Type movements (+/-) %
Bonds 3.1
Index Linked Bonds 8.0
UK Equities 9.5
Overseas Equities 10.1
Pooled property investments 1.5
Other Pooled Investments 2.8
Private Equity 2.8
Cash 0.6
fund account, net assets statement and notes 80 127 East Riding Pension Fund Annual Report and Accounts 2018/2019
Had the market price of the fund investments increased or decreased in line with the above, the change in the net assets available to fund benefits would have been as follows:
Value as at Value on Value on Asset Type 31 March 2019 Increase Decrease £000 £000 £000
Bonds 673,391 694,266 652,516
Index Linked Bonds 36,499 39,419 33,579
UK Equities 36,270 39,716 32,824
Overseas Equities 411,550 453,117 369,983
Pooled property investments 580,603 589,312 571,894
Other Pooled Investments 2,893,512 2,974,530 2,812,494
Private Equity 246,080 252,970 239,190
Cash 161,171 162,138 160,204
TOTAL 5,039,076 5,205,468 4,872,684
Value as at Value on Value on Asset Type 31 March 2018 Increase Decrease £000 £000 £000
Bonds 621,525 645,143 597,907
Index Linked Bonds 33,884 36,527 31,241
UK Equities 1,418,319 1,554,478 1,282,160
Overseas Equities 507,856 559,657 456,055
Pooled property investments 543,898 554,232 533,564
Other Pooled Investments 1,283,636 1,320,861 1,246,411
Private Equity 219,854 226,230 213,478
Cash 135,730 136,680 134,780
TOTAL 4,764,702 5,033,808 4,495,596
Performance risk Performance risk is the risk that the Fund’s investment managers fail to deliver returns in line with the underlying asset classes. This risk is mitigated by: • Investment management responsibilities are split between the internal and external investment managers. • Each investment manager has a robust investment process including detailed research and analysis. • Analysis of market performance and investment managers’ performance relative to their index benchmark on a quarterly basis by an independent third party. • Detailed analysis of investment managers’ performance on an annual basis. Valuation risk This is the risk that the valuations disclosed in the financial statements are not reflective of the value that could be achieved on disposal. The valuation of financial instruments has been classified into three levels, according to the quality and reliability of information used to determine fair values. fund account, net assets statement and notes 81 128 East Riding Pension Fund Annual Report and Accounts 2018/2019
• Level 1 – Level 1 valuations are those derived from unadjusted quoted prices in active markets for identical assets or liabilities. Products classified as level 1 include quoted equities. • Level 2 – Level 2 valuations are those where quoted market prices are not available. Products classified as level 2 include property funds, fixed interest securities, index linked securities and unit trusts. • Level 3 – Level 3 valuations are those where at least one input which could have a significant effect on an instruments valuation is not based on observable market data. Products classified as level 3 include unquoted investments.
31 March 2018 31 March 2019
Level 1 Level 2 Level 3 TOTAL Level 1 Level 2 Level 3 TOTAL £000 £000 £000 £000 £000 £000 £000 £000
2,356,422 1,386,301 907,531 4,650,254 Financial Assets 2,903,226 958,151 1,022,023 4,883,400
144,987 0 0 144,987 Financial Assets at amortised cost 189,214 0 0 189,214
2,501,409 1,386,301 907,531 4,795,241 TOTAL 3,092,440 958,151 1,022,023 5,072,614
9,436 0 0 9,436 14,895 0 0 14,895 Financial Liabilities 9,436 0 0 9,436 14,895 0 0 14,895
2,491,973 1,386,301 907,531 4,785,805 TOTAL 3,077,545 958,151 1,022,023 5,057,719
Level 3 Analysis
Value at 01/04/18 Purchases at Cost Sales Proceeds Change in Market Value Value at 31/03/19 £000 £000 £000 £000 £000
907,531 231,889 -200,677 83,280 1,022,023
Level 3 Analysis
Value at 01/04/17 Purchases at Cost Sales Proceeds Change in Market Value Value at 31/03/18 £000 £000 £000 £000 £000
830,258 236,255 -159,224 242 907,531
The main characteristic of Level 3 assets is the absence of any observable market data. The inputs used to determine the fair value of Level 3 assets includes audited and unaudited financial information from the underlying investment managers. No investment assets transferred between the levels of fair value hierarchy during the year. The table below shows the effect of potential market movements on those assets classified at Level 3.
Potential market Potential value Potential value Value at 31/03/19 movements (+/-) on increase on decrease £000 % £000 £000 Multi Asset Credit 233,717 3.1 240,962 226,472 Property 351,537 1.5 356,810 346,264 Private Equity 139,122 2.8 143,017 135,227 Infrastructure 176,307 2.8 181,244 171,370 Other 121,340 2.8 124,738 117,942 1,022,023 1,046,770 997,275
fund account, net assets statement and notes 82 129 East Riding Pension Fund Annual Report and Accounts 2018/2019
Potential market Potential value Potential value Value at 31/03/18 movements (+/-) on increase on decrease £000 % £000 £000 Multi Asset Credit 197,246 3.8 204,741 189,751 Property 303,018 1.9 308,775 297,261 Private Equity 122,154 2.9 125,696 118,612 Infrastructure 152,610 2.9 157,036 148,184 Other 132,503 2.9 136,346 128,660 907,531 932,594 882,468
Credit risk This is the risk that the Fund’s counterparties fail to pay amounts due. Appropriate credit limits have been established by the Fund for individual counterparties for Treasury Management purposes. The Pension Fund Treasury Management Policy specifies the following framework for credit limits for individual counterparties:
31 March 2018 31 March 2019
Actual Maximum Actual £000 Limit £000 £000
0 UK Government No Limit 0 22,000 Institutions or Funds with a minimum rating of AAA/A2 25,000 25,000 15,000 Institutions with a minimum rating of AA/A2 20,000 15,000 5,000 Institutions with a minimum rating of A/A2 15,000 15,000 10,000 Local Authorities 10,000 10,000 5,000 Building Societies - top 15 ranked by asset value 10,000 0
The investment balances at the end of the financial year were:
31 March 2018 31 March 2019
£000 £000
0 UK Government 0 41,287 Institutions or Funds with a minimum rating of AAA/A2 52,153 35,000 Institutions with a minimum rating of AA/A2 15,000 3,521 Institutions with a minimum rating of A/A2 54,205 33,000 Local Authorities 15,000 5,000 Building Societies - top 15 ranked by asset value 0 117,808 136,358
Treasury credit risk has been managed dynamically during the year, responding to national and international events in financial markets. Security of principal sums invested continues to be the prime objective. The duration of investments is limited to a maximum of twelve months to enable a reasonable exit strategy to be implemented if necessary. The Pension Fund makes use of Money Market Funds which are instant access funds whose objectives match those of the Pension Fund, being security of principal and diversification of investments. The present restrictions within the approved Treasury Management Policy will continue until economic and market conditions normalise.
Liquidity risk Liquidity risk is the risk that the Pension Fund is not able to meet its financial obligations as they fall due or can do so only at an excessive cost. The Pension Fund’s policy is to maintain sufficient funds in a liquid form at all times to ensure that it can cover all fluctuations in cash flow and meet its financial obligations. The accounts do not take into account liabilities to pay pensions and other benefits.
fund account, net assets statement and notes 83 130 East Riding Pension Fund Annual Report and Accounts 2018/2019
The table below profiles investment assets by maturity date, however it should be noted that those investments in the 1 - 5 years and more than 5 years categories, i.e. bonds, can be liquidated at any given time.
Not more than 3 - 12 1 - 5 More than No specific Total As at 31 March 2019 3 months months years 5 years maturity £000 £000 £000 £000 £000 £000
Assets
Cash 45,000 25,000 0 0 91,171 161,171
Investments 0 0 134,986 267,097 4,481,317 4,883,400
Other investment balances 12,568 0 0 0 0 12,568
Current assets 15,475 0 0 0 0 15,475
Total assets 73,043 25,000 134,986 267,097 4,572,488 5,072,614
Liabilities
Other investment balances 13,340 0 0 0 0 13,340
Current liabilities 1,555 0 0 0 0 1,555
Total liabilities 14,895 0 0 0 0 14,895
Liquidity Surplus 58,148 25,000 134,986 267,097 4,572,488 5,057,719
Not more than 3 - 12 1 - 5 More than No specific Total As at 31 March 2018 3 months months years 5 years maturity £000 £000 £000 £000 £000 £000
Assets
Cash 46,000 30,000 0 0 53,730 129,730
Investments 0 0 99,674 285,850 4,249,448 4,634,972
Other investment balances 13,808 0 0 0 0 13,808
Current assets 16,731 0 0 0 0 16,731
Total assets 76,539 30,000 99,674 285,850 4,303,178 4,795,241
Liabilities
Other investment balances 6,928 0 0 0 0 6,928
Current liabilities 2,508 0 0 0 0 2,508
Total liabilities 9,436 0 0 0 0 9,436
Liquidity gap 67,103 30,000 99,674 285,850 4,303,178 4,785,805
Interest rate risk Interest rate risk is the risk that a change in interest rates will result in a change in the valuation of an investment. The Fund’s direct exposure to changes in interest rates is as follows:
31 March 2018 31 March 2019
£000 £000
Asset Type
41,808 Cash and cash equivalents 75,327
596,434 Fixed interest securities 650,318
638,242 725,645 fund account, net assets statement and notes 84 131 East Riding Pension Fund Annual Report and Accounts 2018/2019
The table below shows the impact on income exposed to interest rate changes of + / - 100 basis points in interest rates: Potential movement Value as at Value on Value on on 1% change in Assets exposed to 31 March 2019 Increase Decrease interest rate risk interest rates £000 £000 £000 £000
Cash and cash equivalents 75,327 753 76,080 74,574
Bonds 650,318 6,503 656,821 643,815
TOTAL 725,645 7,256 732,901 718,389
Potential movement Value as at Value on Value on on 1% change in Assets exposed to 31 March 2018 Increase Decrease interest rate risk interest rates £000 £000 £000 £000
Cash and cash equivalents 41,808 418 42,226 41,390
Bonds 596,434 5,964 602,398 590,470
TOTAL 638,242 6,382 644,624 631,860
The table below shows the impact on income exposed to interest rate changes of + / - 100 basis points change in interest rates: Potential movement Value as at Value on Value on on 1% change in Income exposed to 31 March 2019 Increase Decrease interest rate risk interest rates £000 £000 £000 £000
Cash and cash equivalents 1,257 13 1,270 1,244
Bonds 21,637 216 21,853 21,421
TOTAL 22,894 229 23,123 22,665
Potential movement Value as at Value on Value on on 1% change in Income exposed to 31 March 2018 Increase Decrease interest rate risk interest rates £000 £000 £000 £000
Cash and cash equivalents 985 10 995 975
Bonds 16,054 161 16,215 15,893
TOTAL 17,039 171 17,210 16,868
Foreign Exchange Risk Foreign exchange risk is the risk that an adverse movement in foreign exchange rates will impact on the value of the Fund’s investments denominated in foreign currencies. The following table summarises the Fund’s currency exposure:
fund account, net assets statement and notes 85 132 East Riding Pension Fund Annual Report and Accounts 2018/2019
USD EUR JPY CHF SEK DKK NOK AUD CAD Total As at 31 March 2019 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Bonds Overseas Public Sector 24,890 18,696 18,876 0 1,642 0 0 3,605 3,143 70,852 Multi Asset Credit - quoted 47,662 0 0 0 0 0 0 0 0 47,662 Multi Asset Credit - unquoted 68,518 93,052 0 0 0 0 0 0 0 161,570 Overseas Corporate 32,420 4,545 0 0 0 0 0 0 0 36,965 Equities Overseas -5,495 162,591 172,524 53,121 11,854 2,258 10,844 0 0 407,697 Index-Linked Bonds Overseas Public Sector 13,182 0 0 0 0 0 0 0 0 13,182 Pooled Investment Vehicles Managed Funds 516,444 0 0 0 0 0 0 0 0 516,444 Property - unquoted 20,513 54,214 0 0 0 0 0 0 0 74,727 Private Equity - quoted 11,392 0 0 0 0 0 0 0 0 11,392 Private Equity - unquoted 47,278 57,444 0 0 0 0 0 0 0 104,722 Infrastructure - unquoted 20,121 47,731 0 0 0 0 0 0 0 67,852 Other investments - unquoted 101,591 19,750 0 0 0 0 0 0 0 121,341 Total 898,516 458,023 191,400 53,121 13,496 2,258 10,844 3,605 3,143 1,634,406
USD EUR JPY CHF SEK DKK NOK AUD CAD Total As at 31 March 2018 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Bonds Overseas Public Sector 22,588 18,537 18,158 0 1,684 0 2,911 3,363 2,162 69,403 Multi Asset Credit - quoted 42,781 0 0 0 0 0 0 0 0 42,781 Multi Asset Credit - unquoted 43,281 99,177 0 0 0 0 0 0 0 142,458 Global High Yield 0 0 0 0 0 0 0 0 0 0 Emerging Market Government 0 0 0 0 0 0 0 0 0 0 Overseas Corporate 33,771 0 0 0 0 0 0 0 0 33,771 Equities Overseas 0 245,422 193,368 40,926 11,379 14,600 0 0 0 505,695 Index-Linked Bonds Overseas Public Sector 11,888 0 0 0 0 0 0 0 0 11,888 Pooled Investment Vehicles Managed Funds 583,328 24,720 0 0 0 0 0 0 0 608,048 Property - unquoted 16,796 34,294 0 0 0 0 0 0 0 51,090 Private Equity - quoted 20,848 0 0 0 0 0 0 0 0 20,848 Private Equity - unquoted 34,133 57,185 0 0 0 0 0 0 0 91,318 Infrastructure - unquoted 18,262 44,524 0 0 0 0 0 0 0 62,786 Other investments - unquoted 101,814 22,694 0 0 0 0 0 0 0 124,508 Total 929,490 546,553 211,526 40,926 13,063 14,600 2,911 3,363 2,162 1,764,594
A percentage strengthening or weakening of sterling against the various currencies in which the Fund holds investments would, it has been calculated using the likely volatility associated with foreign exchange movements, increase or decrease the net assets available to fund benefits as follows:
fund account, net assets statement and notes 86 133 East Riding Pension Fund Annual Report and Accounts 2018/2019
Asset value Potential market Value on Value on Assets exposed to at 31 March 2019 movement Increase Decrease currency risk £000 £000 £000 £000 Overseas Public Sector Bonds 70,852 6,235 77,087 64,617
Multi Asset Credit - quoted 47,662 4,194 51,856 43,468
Multi Asset Credit - unquoted 161,570 14,218 175,788 147,352
Overseas Corporate 36,965 3,229 40,194 33,736 Overseas Public Sector I/L 13,182 1,160 14,342 12,022 Bonds Oversea Equities 407,697 35,877 443,574 371,820
Managed Funds 516,444 45,447 561,891 470,997
Property - unquoted 74,727 6,576 81,303 68,151
Private Equity - quoted 11,392 1,003 12,395 10,389
Private Equity - unquoted 104,722 9,216 113,938 95,506
Infrastructure - unquoted 67,852 5,971 73,823 61,881
Other investments - unquoted 121,341 10,678 132,019 110,663
TOTAL 1,634,406 143,804 1,778,210 1,490,602
Asset value Potential market Value on Value on Assets exposed to at 31 March 2018 movement Increase Decrease currency risk £000 £000 £000 £000 Overseas Public Sector Bonds 69,403 7,688 76,765 61,389
Multi Asset Credit - quoted 42,781 4,150 46,931 38,631
Multi Asset Credit - unquoted 142,458 13,124 135,582 129,334
Overseas Corporate 33,771 3,276 37,047 30,495 Overseas Public Sector I/L 11,888 1,153 13,041 10,735 Bonds Oversea Equities 505,695 57,726 519,245 447,969
Managed Funds 608,048 58,808 666,856 553,690
Property - unquoted 51,090 4,716 55,806 46,374
Private Equity - quoted 20,848 2,022 22,870 18,826
Private Equity - unquoted 91,318 8,458 99,776 82,860
Infrastructure - unquoted 62,786 5,778 68,564 57,008
Other investments - unquoted 124,508 11,919 136,427 112,589
TOTAL 1,764,594 178,818 1,878,910 1,589,900
Y Contingent Assets As at 31 March 2019 the Fund had submitted claims totalling £8.23m relating to the reclaiming of UK and overseas withholding tax on investment income received, of which £1.10m has been received to date. Professional costs to date have totalled £0.68m.
fund account, net assets statement and notes 87 134 East Riding Pension Fund Annual Report and Accounts 2018/2019
Z Accounting standards that have been issued but not yet adopted Accounting standards that have been issued before 1 January 2019 but not yet adopted by the Code relate to: • IAS 40 Investment Property: Transfers of Investment Property provides further explanation of the instances in which a property can be reclassified as investment property. • IFRIC 22 Foreign Currency Transactions and Advance Consideration clarifies the treatment of payments in a foreign currency made in advance of obtaining or delivering services or goods. • IFRIC 23 Uncertainty over Income Tax Treatments provides additional guidance on income tax treatment where there is uncertainty. • IFRS 9 Financial instruments: prepayment features with negative compensation amends IFRS9 to make clear that amortised cost should be used where prepayments are substantially lower than the unpaid principal and interest The introduction of/amendments to the above accounting standards are not expected to have a material impact on the 2019/20 Pension Fund Accounts.
AA Events after Balance Sheet Date This note considers events that arise after the balance sheet date, which concerns conditions that did not exist at that time and are of such materiality that their disclosure is required for the fair presentation of the final statements. Events after the balance sheet date are reflected up to the date when the Statement of Accounts was authorised by the Head of Finance as Section 151 Officer on 31 May 2019. At the date of signing there has been no adjusting or non-adjusting events after the reporting period.
AB Scheme Registration Number The Fund’s scheme registration number with the Pensions Regulator is 10079121.
fund account, net assets statement and notes 88 135 East Riding Pension Fund Annual Report and Accounts 2018/2019
funding strategy statement
1 Introduction
1.1 What is this document? This is the Funding Strategy Statement (FSS) of the East Riding Pension Fund (“the Fund”), which is administered by East Riding of Yorkshire Council, (“the Administering Authority”). It has been prepared by the Administering Authority in collaboration with the Fund’s actuary, Hymans Robertson LLP, and after consultation with the Fund’s employers and investment adviser. It is effective from 1 April 2017.
1.2 What is the East Riding Pension Fund? The Fund is part of the national Local Government Pension Scheme (LGPS). The LGPS was set up by the UK Government to provide retirement and death benefits for local government employees, and those employed in similar or related bodies, across the whole of the UK. The Administering Authority runs the East Riding Pension Fund, in effect the LGPS for public sector bodies in the East Riding of Yorkshire, North Lincolnshire, North East Lincolnshire and Kingston-upon-Hull areas, to make sure it: • receives the proper amount of contributions from employees and employers, and any transfer payments; • invests the contributions appropriately, with the aim that the Fund’s assets grow over time with investment income and capital growth; and • uses the assets to pay Fund benefits to the members (as and when they retire, for the rest of their lives), and to their dependants (as and when members die), as defined in the LGPS Regulations. Assets are also used to pay transfer values and administration costs. The roles and responsibilities of the key parties involved in the management of the Fund are summarised in Appendix B.
1.3 Why does the Fund need a Funding Strategy Statement? Employees’ benefits are guaranteed by the LGPS Regulations, and do not change with market values or employer contributions. Investment returns will help pay for some of the benefits, but probably not all, and certainly with no guarantee. Employees’ contributions are fixed in those Regulations also, at a level which covers only part of the cost of the benefits.
funding strategy statement 89 136 East Riding Pension Fund Annual Report and Accounts 2018/2019
Therefore, employers need to pay the balance of the cost of delivering the benefits to members and their dependants. The FSS focuses on how employer liabilities are measured, the pace at which these liabilities are funded, and how employers or pools of employers pay for their own liabilities. This statement sets out how the Administering Authority has balanced the conflicting aims of: • affordability of employer contributions; • transparency of processes; • stability of employers’ contributions; and • prudence in the funding basis. There are also regulatory requirements for an FSS, as given in Appendix A. The FSS is a summary of the Fund’s approach to funding its liabilities, and this includes reference to the Fund’s other policies; it is not an exhaustive statement of policy on all issues. The FSS forms part of a framework which includes: • the LGPS Regulations; • the Rates and Adjustments Certificate (confirming employer contribution rates for the next three years) which can be found in an appendix to the formal valuation report; • actuarial factors for valuing individual transfers, early retirement costs and the capitalisation of added years contracts; and • the Fund’s Statement of Investment Principles and Investment Strategy Statement (see Section 4).
1.4 How does the Fund and this FSS affect me? This depends who you are: • a member of the Fund, i.e. a current or former employee, or a dependant: you will want to be sure the Fund is collecting and holding enough money for your benefits to be paid in full; • an employer in the Fund (or which is considering joining the Fund): you will want to know how your contributions are calculated from time to time, that these are fair by comparison to other employers in the Fund, and in what circumstances you might need to pay more. Note that the FSS applies to all employers participating in the Fund; • an Elected Member whose council participates in the Fund: you will want to be sure that the council balances the need to hold prudent reserves for members’ retirement and death benefits, with the other competing demands for council money; • a Council Tax payer: you will want to understand how your council seeks to strike the balance above, and also seeks to minimise cross-subsidies between different generations of taxpayers.
1.5 What does the FSS aim to do? The FSS sets out the objectives of the Fund’s funding strategy, which are: • to ensure the long-term solvency of the Fund, using a prudent long term view. This will ensure that sufficient funds are available to meet all members’/dependants’ benefits as they fall due for payment; • to ensure that employer contribution rates are reasonably stable where appropriate; • to minimise the long-term cash contributions which employers need to pay to the Fund, by recognising the link between assets and liabilities and adopting an investment strategy which balances risk and return (NB this will also minimise the costs to be borne by Council Tax payers); • to reflect the different characteristics of different employers in determining contribution rates. This involves the Fund having a clear and transparent funding strategy to demonstrate how each employer can best meet its own liabilities over future years; and • to use reasonable measures to reduce the risk to other employers and ultimately to the Council Tax payer from an employer defaulting on its pension obligations. funding strategy statement 90 137 East Riding Pension Fund Annual Report and Accounts 2018/2019
1.6 How do I find my way around this document? In Section 2 there is a brief introduction to some of the main principles behind funding, i.e. deciding how much an employer should contribute to the Fund from time to time. In Section 3 we outline how the Fund calculates the contributions payable by different employers in different situations. In Section 4 we show how the funding strategy is linked with the Fund’s investment strategy. In the Appendices we cover various issues in more detail if you are interested: A. the regulatory background, including how and when the FSS is reviewed, B. who is responsible for what; C. what issues the Fund needs to monitor, and how it manages its risks; D. some more details about the actuarial calculations required; E. the assumptions which the Fund actuary currently makes about the future; and F. a glossary explaining the technical terms occasionally used here. If you have any other queries please contact Graham Ferry, Pensions Manager in the first instance at email address [email protected] or on telephone number (01482) 394171.
2 Basic Funding issues (More detailed and extensive descriptions are given in Appendix D).
2.1 How does the actuary calculate a contribution rate? In essence this is a three-step process in which the actuary: 1. Calculates the ultimate funding target for that employer, i.e. the ideal amount of assets it should hold in order to be able to pay all its members’ benefits. See Appendix E for more details of what assumptions we make to determine that funding target; 2. Determines the time horizon over which the employer should aim to achieve that funding target. See the table in 3.3 and Note (c) for more details; and 3. Calculates the employer contribution rate such that it has at least a given probability of achieving that funding target over that time horizon, allowing for different likelihoods of various possible economic outcomes over that time horizon. See 2.2 below, and the table in 3.3 Note (e) for more details.
2.2 What is each employer’s contribution rate? This is described in more detail in Appendix D. Employer contributions are normally made up of two elements: a) the estimated cost of benefits being built up each year, after deducting the members’ own contributions and including administration expenses. This is referred to as the “Primary rate”, and is expressed as a percentage of members’ pensionable pay; plus b) an adjustment for the difference between the Primary rate above, and the actual contribution the employer needs to pay, referred to as the “Secondary rate”. In broad terms, payment of the Secondary rate will aim to return the employer to full funding over an appropriate period (the “time horizon”). The Secondary rate may be expressed as a percentage of pay and/or a monetary amount in each year. The rates for all employers are shown in the Fund’s Rates and Adjustments Certificate, which forms part of the formal Actuarial Valuation Report. Employers’ contributions are expressed as minima, with employers able to pay contributions at a higher rate. Account of any higher rate will be taken by the Fund actuary at subsequent valuations, i.e. will be reflected as a credit when next calculating the employer’s contributions. funding strategy statement 91 138 East Riding Pension Fund Annual Report and Accounts 2018/2019
2.3 What different types of employer participate in the Fund? Historically the LGPS was intended for local authority employees only. However over the years, with the diversification and changes to delivery of local services, many more types and numbers of employers now participate. There are currently more employers in the Fund than ever before, a significant proportion of whom are new academies. In essence, participation in the LGPS is open to public sector employers providing some form of service to the local community. Whilst the majority of members will be local authority employees (and ex-employees), the majority of participating employers are those providing services in place of (or alongside) local authority services: academy schools, contractors, housing associations, charities, etc. The LGPS Regulations define various types of employer as follows: Scheduled bodies - councils, and other specified employers such as academies and further education establishments. These must provide access to the LGPS in respect of their employees who are not eligible to join another public sector scheme (such as the Teachers Scheme). These employers are so-called because they are specified in a schedule to the LGPS Regulations. It is now possible for Local Education Authority schools to convert to academy status, and for other forms of school (such as Free Schools) to be established under the academies legislation. All such academies (or Multi Academy Trusts), as employers of non-teaching staff, become separate new employers in the Fund. As academies are defined in the LGPS Regulations as “Scheduled Bodies”, the Administering Authority has no discretion over whether to admit them to the Fund, and the academy has no discretion whether to continue to allow its non- teaching staff to join the Fund. There has also been guidance issued by the DCLG regarding the terms of academies’ membership in LGPS Funds. Designating employers - employers such as town and parish councils are able to participate in the LGPS via resolution (and the Fund cannot refuse them entry where the resolution is passed). These employers can designate which of their employees are eligible to join the scheme. Other employers are able to participate in the Fund via an admission agreement, and are referred to as ‘admission bodies’. These employers are generally those with a “community of interest” with another scheme employer – community admission bodies (“CAB”) or those providing a service on behalf of a scheme employer – transferee admission bodies (“TAB”). CABs will include housing associations and charities, TABs will generally be contractors. The Fund is able to set its criteria for participation by these employers and can refuse entry if the requirements as set out in the Fund’s admissions policy are not met. (NB The terminology CAB and TAB has been dropped from recent LGPS Regulations, which instead combine both under the single term ‘admission bodies’; however, we have retained the old terminology here as we consider it to be helpful in setting funding strategies for these different employers).
2.4 How does the measured contribution rate vary for different employers? All three steps above are considered when setting contributions (more details are given in Section 3 and Appendix D). 1. The funding target is based on a set of assumptions about the future, (e.g. investment returns, inflation, pensioners’ life expectancies). However, if an employer is approaching the end of its participation in the Fund then its funding target may be set on a more prudent basis, so that its liabilities are less likely to be spread among other employers after its cessation; 2. The time horizon required is, in broad terms, the period over which any deficit is to be recovered. A shorter period will lead to higher contributions, and a longer period to lower contributions (all other things being equal). Employers may be given a shorter time horizon if they have a less permanent anticipated membership, or do not have tax-raising powers to increase contributions if investment returns under-perform; and 3. The probability of achieving the funding target over that time horizon will be dependent on the Fund’s view of the strength of employer covenant and its funding profile. Where an employer is considered to be weaker, or potentially ceasing from the Fund, then the required probability will be set higher, which in turn will increase the required contributions (and vice versa). funding strategy statement 92 139 East Riding Pension Fund Annual Report and Accounts 2018/2019
For some employers it may be agreed to pool contributions, see 3.4. Any costs of non ill-health early retirements must be paid by the employer, see 3.6. Costs of ill-health early retirements are covered in 3.7 and 3.8.
2.5 How does the Fund recognise that contribution levels can affect council and employer service provision, and council tax? The Administering Authority and the Fund actuary are acutely aware that, all other things being equal, a higher contribution required to be paid to the Fund will mean less cash available for the employer to spend on the provision of services. For instance: • Higher Pension Fund contributions may result in reduced council spending, which in turn could affect the resources available for council services, and/or greater pressure on council tax levels; • Contributions which Academies pay to the Fund will therefore not be available to pay for providing education; • Other employers will provide various services to the local community, perhaps through housing associations, charitable work, or contracting council services. If they are required to pay more in pension contributions to the LGPS then this may affect their ability to provide the local services. Whilst all this is true, it should also be borne in mind that: • The Fund provides invaluable financial security to local families, whether to those who formerly worked in the service of the local community who have now retired, or to their families after their death; • The Fund must have the assets available to meet these retirement and death benefits, which in turn means that the various employers must each pay their own way. Lower contributions today will mean higher contributions tomorrow: deferring payments does not alter an employer’s ultimate obligation to the Fund in respect of its current and former employees; • Each employer will generally only pay for its own employees and ex-employees (and their dependants), not for those of other employers in the Fund; • The Fund strives to maintain reasonably stable employer contribution rates where appropriate and possible. However, a recent shift in regulatory focus means that solvency within each generation is considered by the Government to be a higher priority than stability of contribution rates; • The Fund wishes to avoid the situation where an employer falls so far behind in managing its funding shortfall that its deficit becomes unmanageable in practice: such a situation may lead to employer insolvency and the resulting deficit falling on the other Fund employers. In that situation, those employers’ services would in turn suffer as a result; • Council contributions to the Fund should be at a suitable level, to protect the interests of different generations of council tax payers. For instance, underpayment of contributions for some years will need to be balanced by overpayment in other years; the council will wish to minimise the extent to which council tax payers in one period are in effect benefitting at the expense of those paying in a different period. Overall, therefore, there is clearly a balance to be struck between the Fund’s need for maintaining prudent funding levels, and the employers’ need to allocate their resources appropriately. The Fund achieves this through various techniques which affect contribution increases to various degrees (see 3.1). In deciding which of these techniques to apply to any given employer, the Administering Authority takes a view on the financial standing of the employer, i.e. its ability to meet its funding commitments and the relevant time horizon. The Administering Authority will consider a risk assessment of that employer using a knowledge base which is regularly monitored and kept up-to-date. This database will include such information as the type of employer, its membership profile and funding position, any guarantors or security provision, material changes anticipated, etc. For instance, where the Administering Authority has reasonable confidence that an employer will be able to meet its funding commitments, then the Fund will permit options such as stabilisation (see 3.3 Note (b)), a longer time horizon relative to other employers, and/or a lower probability of achieving their funding target. Such options funding strategy statement 93 140 East Riding Pension Fund Annual Report and Accounts 2018/2019
will temporarily produce lower contribution levels than would otherwise have applied. This is permitted in the expectation that the employer will still be able to meet its obligations for many years to come. On the other hand, where there is doubt that an employer will be able to meet its funding commitments or withstand a significant change in its commitments, then a higher funding target, and/or a shorter deficit recovery period relative to other employers, and/or a higher probability of achieving the target may be required. The Fund actively seeks employer input, including to its funding arrangements, through various means: see Appendix A.
3 Calculating contributions for individual Employers
3.1 General comments A key challenge for the Administering Authority is to balance the need for stable, affordable employer contributions with the requirement to take a prudent, longer-term view of funding and ensure the solvency of the Fund. With this in mind, the Fund’s three-step process identifies the key issues: 1. What is a suitably (but not overly) prudent funding target? 2. How long should the employer be permitted to reach that target? This should be realistic but not so long that the funding target is in danger of never actually being achieved. 3. What probability is required to reach that funding target? This will always be less than 100% as we cannot be certain of future market movements. Higher probability “bars” can be used for employers where the Fund wishes to reduce the risk that the employer ceases leaving a deficit to be picked up by other employers. These and associated issues are covered in this Section. The Administering Authority recognises that there may occasionally be particular circumstances affecting individual employers that are not easily managed within the rules and policies set out in the Funding Strategy Statement. Therefore the Administering Authority may, at its sole discretion, direct the actuary to adopt alternative funding approaches on a case by case basis for specific employers.
3.2 The effect of paying lower contributions On request from an employer, the Administering Authority may permit an employer to pay contributions at a lower level than is assessed for the employer using the three step process above. At their absolute discretion the Administering Authority may: • extend the time horizon for targeting full funding; • adjust the required probability of meeting the funding target; • permit an employer to participate in the Fund’s stabilisation mechanisms; • permit extended phasing in of contribution rises or reductions; • pool contributions amongst employers with similar characteristics; and/or • accept some form of security or guarantee in lieu of a higher contribution rate than would otherwise be the case. Employers which are permitted to use one or more of the above methods will often be paying, for a time, contributions less than required to meet their funding target, over the appropriate time horizon with the required likelihood of success. Such employers should appreciate that: • their true long term liability (i.e. the actual eventual cost of benefits payable to their employees and ex- employees) is not affected by the pace of paying contributions; • lower contributions in the short term will be assumed to incur a greater loss of investment returns on the deficit. Thus, deferring a certain amount of contribution may lead to higher contributions in the long-term; and • it may take longer to reach their funding target, all other things being equal.
funding strategy statement 94 141 East Riding Pension Fund Annual Report and Accounts 2018/2019
Overleaf (3.3) is a summary of how the main funding policies differ for different types of employer, followed by more detailed notes where necessary. Section 3.4 onwards deals with various other funding issues which apply to all employers.
funding strategy statement 95 142 East Riding Pension Fund Annual Report and Accounts 2018/2019
3.3 The different approaches used for different employers
Community Admission Type of Transferee Scheduled Bodies Bodies and closed employer Admission Bodies Designating Employers
Open Closed Local Town Police, Fire, Sub-type Academies to new to new (all) Authorities Councils Colleges members members
Ongoing, assumes fixed Funding Target Ongoing, assumes long-term Fund participation Ongoing, but may move to contract term in the (see Appendix E) “gilts basis” - see Note (a) Basis used Fund (see Appendix E)
Primary rate (see Appendix D – D.2) approach
Stabilised Yes - see Yes - see Yes No No No No contributions? Note (b) Note (b) Note (b)
Maximum Colleges - 20 years (or 20 years (or Outstanding contract time horizon – 20 years 20 years 20 years 15 Other less if no less if no term Note (c) – 20 yrs guarantee) guarantee)
Secondary Monetary Monetary % of payroll Monetary amount Monetary amount rate – Note (d) amount amount
Reduce contributions by spreading the surplus over the remaining contract term. Surplus is not Preferred approach: contributions kept at Treatment of usually used to reduce Covered by stabilisation arrangement Primary rate. However, reductions may be the contributions surplus permitted by the Admin. Authority where the contract length exceeds 4 years, however the Admin. Authority may consider this on request
Probability of achieving c.66% 70% 66% 75% 75% 80% 50% target – Note (e)
Phasing of contribution Covered by stabilisation arrangement None Not usually None changes
Review of Administering Authority reserves the right to review contribution rates and amounts, and Particularly reviewed in rates – Note the level of security provided, at regular intervals between valuations last 3 years of contract (f)
New employer n/a Note (g) Note (h) Notes (h) & (i)
Participation is Cessation is assumed not to be generally Can be ceased subject assumed to expire at Cessation of possible, as Scheduled Bodies are legally to terms of admission the end of the contract. participation: obliged to participate in the LGPS. In agreement. Cessation Cessation debt (if any) the rare event of cessation occurring debt will be calculated on calculated on ongoing cessation debt (machinery of Government changes for a basis appropriate to the basis. Awarding payable example), the cessation debt principles circumstances of cessation Authority will be liable applied would be as per Note (j). – see Note (j). for future deficits and contributions arising.
Note (a) (Basis for CABs and designating employers closed to new entrants) In the circumstances where: • the employer is a designating employer, or an admission body but not a transferee admission body; and • the employer has no guarantor; and
funding strategy statement 96 143 East Riding Pension Fund Annual Report and Accounts 2018/2019
• the admission agreement is likely to terminate, or the employer is likely to lose its last active member, within a timeframe considered appropriate by the Administering Authority to prompt a change in funding. the Administering Authority may set a higher funding target (e.g. using a discount rate set equal to gilt yields) by the time the agreement terminates or the last active member leaves, in order to protect other employers in the Fund. This policy will increase regular contributions and reduce, but not entirely eliminate, the possibility of a final deficit payment being required from the employer when a cessation valuation is carried out. The Administering Authority also reserves the right to adopt the above approach in respect of those designating employers and admission bodies with no guarantor, where the strength of covenant is considered to be weak but there is no immediate expectation that the admission agreement will cease or the designating employer alters its designation. Note (b) Stabilisation Stabilisation is a mechanism where employer contribution rate variations from year to year are kept within a pre- determined range, thus allowing those employers’ rates to be relatively stable. In the interests of stability and affordability of employer contributions, the Administering Authority, on the advice of the Fund actuary, believes that stabilising contributions can still be viewed as a prudent longer-term approach. However, employers whose contribution rates have been “stabilised” (and may therefore be paying less than their theoretical contribution rate) should be aware of the risks of this approach and should consider making additional payments to the Fund if possible. The stabilisation mechanism is only available to employers who have tax raising powers (unitary authorities, town and parish councils) or a government guarantee (academies). This stabilisation mechanism allows short term investment market volatility to be managed so as not to cause volatility in employer contribution rates, on the basis that a long term view can be taken on net cash inflow, investment returns and strength of employer covenant. The current stabilisation mechanism applies if: • the employer satisfies the eligibility criteria set by the Administering Authority (see below); and • there are no material events which cause the employer to become ineligible, e.g. significant reductions in active membership (due to outsourcing or redundancies), or changes in the nature of the employer (perhaps due to Government restructuring), or changes in the security of the employer. On the basis of extensive modelling carried out for the 2016 valuation exercise (see Section 4), the stabilised details are as follows:
Type of employer Unitary Authorities * Town and Parish Councils * Academy ***
Actual contribution in 2016-17, Actual contribution in 2016-17, Actual contribution in 2016-17, Starting rate** expressed as % of pay expressed as % of pay expressed as % of pay
Max cont increase from 1% 2% 2% 2017-18 onwards**
Max cont decrease** 1% 2% 2%
* The actuary analyses the position for all four Unitary Authorities, and will identify if any Council is in a materially more mature position (i.e. high liabilities relative to payroll). Any such “mature” Council will be required to increase contributions at a higher rate than standard, or else pay an additional contribution at the outset which broadly matches that excess increase. ** In practice, the required Council contributions will be split between percentage of pay and monetary lump sum. This table shows just % of pay for ease of summary and comparison. *** The academy contribution rates are subject to a minimum of at least the Primary rate. The stabilisation
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criteria and limits will be reviewed at the 31 March 2019 valuation, to take effect from 1 April 2020. However the Administering Authority reserves the right to review the stabilisation criteria and limits at any time before then, on the basis of membership and/or employer changes as described above. Note (c) (Maximum time horizon) The maximum time horizon starts at the commencement of the revised contribution rate (1 April 2017 for the 2016 valuation). The Administering Authority would normally expect the same period to be used at successive triennial valuations, but would reserve the right to propose alternative time horizons, for example where there were no new entrants. The requirement for a shorter recovery period for colleges is on the basis that colleges have neither tax raising powers nor a government guarantee. Where stabilisation applies, the resulting employer contribution rate changes from year to year in line with the stabilisation mechanism, as opposed to being directly affected by the deficit recovery period. Admission Bodies without a funding guarantee will have a maximum deficit recovery period of the expected future working lifetime of the remaining active scheme members, allowing for expected leavers. Note (d) (Secondary rate) For employers where stabilisation is not being applied, the Secondary rate for each employer covering the three year period until the next valuation will typically be set in lump sum monetary terms. The payment of Secondary rate contributions set in lump sum monetary terms must be paid in monthly instalments by employers. Transitional arrangements will be allowed in 2017/18 only at the Fund’s discretion. Requests will only be considered from employers who paid by annual lump sum payment in 2016/17 and are not in arrears as at 31 March 2017. For some employers, the Secondary rates are expressed as a percentage of payroll, as opposed to monetary lump sums, as follows: • Academies (due to their anticipated continued payroll growth); and • Employers within pools (see 3.4) where it would not be practical to split out each employer’s deficit payment amount. For other employers, the Administering Authority may in its discretion agree that Secondary rates can be a percentage of salaries instead of monetary lump sums. In those cases, the Administering Authority reserves the right between valuations to amend such rates and/or to require these payments in monetary terms instead, for instance where: • the employer is relatively mature, i.e. has a large Secondary rate (e.g. above 15% of payroll); or • there has been a significant reduction in payroll due to outsourcing or redundancy exercises; or • the employer has closed the Fund to new entrants. Note (e) (Probability of achieving funding target) Each employer has its funding target calculated, and a relevant time horizon over which to reach that target. Contributions are set such that, combined with the employer’s current asset share and anticipated market movements over the time horizon, the funding target is achieved with a given minimum probability. A higher required probability bar will give rise to higher required contributions, and vice versa. The way in which contributions are set using these three steps, and relevant economic projections, is described in further detail in Appendix D. Different probabilities are set for different employers depending on their nature and circumstances: in broad terms, a higher probability will apply due to one or more of the following: • the Fund believes the employer poses a greater funding risk than other employers;
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• the employer does not have tax-raising powers; • the employer does not have a guarantor or other sufficient security backing its funding position; and/or • the employer is likely to cease participation in the Fund in the short or medium term. Note (f) (Regular Reviews) Such reviews may be triggered by significant events including but not limited to: significant reductions in payroll, altered employer circumstances, Government restructuring affecting the employer’s business, or failure to pay contributions or arrange appropriate security as required by the Administering Authority. The result of a review may be to require increased contributions (by strengthening the actuarial assumptions adopted and/or moving to monetary levels of deficit recovery contributions), and/or an increased level of security or guarantee. Note (g) (New Academy conversions) At the time of writing, the Fund’s policies on academies’ funding issues are as follows: i. The new academy will be regarded as a separate employer in its own right and will not be pooled with other employers in the Fund. The only exception is where the academy is part of a Multi Academy Trust (MAT) in which case the academy’s figures will be calculated as below but can be combined with those of the other academies in the MAT; ii. The new academy’s past service liabilities on conversion will be calculated based on its active Fund members on the day before conversion. For the avoidance of doubt, these liabilities will include all past service of those members, but will exclude the liabilities relating to any ex-employees of the school who have deferred or pensioner status; iii. The new academy will be allocated an initial asset share from the ceding council’s assets in the Fund. This asset share will be calculated using the estimated funding position of the ceding council at the date of academy conversion. The share will be based on the active members’ funding level, having first allocated assets in the council’s share to fully fund deferred and pensioner members. The asset allocation will be based on market conditions and the academy’s active Fund membership on the day prior to conversion; iv. The new academy’s initial contribution rate will be calculated using market conditions, the council funding position and, membership data, all as at the day prior to conversion. The Fund’s policies on academies are subject to change in the light of any amendments to DCLG guidance. Any changes will be notified to academies, and will be reflected in a subsequent version of this FSS. In particular, policies (iv) above will be reconsidered at each valuation. Note (h) (New Admission Bodies) With effect from 1 October 2012, the LGPS 2012 Miscellaneous Regulations introduced mandatory new requirements for all admission bodies brought into the Fund from that date. Under these Regulations, all new Admission Bodies will be required to provide some form of security, such as a guarantee from the letting employer, an indemnity or a bond. The security is required to cover some or all of the following: • the strain cost of any redundancy early retirements resulting from the premature termination of the contract; • allowance for the risk of asset underperformance; • allowance for the risk of a fall in gilt yields; • allowance for the possible non-payment of employer and member contributions to the Fund; and/or • the current deficit. Transferee admission bodies: For all TABs, the security must be to the satisfaction of the Administering Authority as well as the letting employer, and will be reassessed on an annual basis. See also Note (i) on the next page.
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Community admission bodies: The Administering Authority will only consider requests from CABs (or other similar bodies, such as section 75 NHS partnerships) to join the Fund if they are sponsored by a Scheduled Body with tax raising powers, guaranteeing their liabilities and also providing a form of security as above. The above approaches reduce the risk, to other employers in the Fund, of potentially having to pick up any shortfall in respect of admission bodies ceasing with an unpaid deficit. Note (i) (New Transferee Admission Bodies) A new TAB usually joins the Fund as a result of the letting/outsourcing of some services from an existing employer (normally a Scheduled Body such as a council or academy) to another organisation (a “contractor”). This involves the TUPE transfer of some staff from the letting employer to the contractor. Consequently, for the duration of the contract, the contractor is a new participating employer in the Fund so that the transferring employees maintain their eligibility for LGPS membership. At the end of the contract the employees revert to the letting employer or to a replacement contractor. Ordinarily, the TAB would be set up in the Fund as a new employer with responsibility for all the accrued benefits of the transferring employees; in this case, the contractor would usually be assigned an initial asset allocation equal to the past service liability value of the employees’ Fund benefits. The quid pro quo is that the contractor is then expected to ensure that its share of the Fund is also fully funded at the end of the contract: see Note (j). Employers which “outsource” have flexibility in the way that they can deal with the pension risk potentially taken on by the contractor. In particular there are three different routes that such employers may wish to adopt. Clearly as the risk ultimately resides with the employer letting the contract, it is for them to agree the appropriate route with the contractor: i) Pooling Under this option the contractor is pooled with the letting employer. In this case, the contractor pays the same rate as the letting employer, which may be under a stabilisation approach. ii) Letting employer retains pre-contract risks Under this option the letting employer would retain responsibility for assets and liabilities in respect of service accrued prior to the contract commencement date. The contractor would be responsible for the future liabilities that accrue in respect of transferred staff. The contractor’s contribution rate could vary from one valuation to the next. It would be liable for any deficit at the end of the contract term in respect of assets and liabilities attributable to service accrued during the contract term. iii) Fixed contribution rate agreed Under this option the contractor pays a fixed contribution rate and does not pay any cessation deficit. The Administering Authority is willing to administer any of the above options as long as the approach is documented in the Admission Agreement as well as the transfer agreement. The Admission Agreement should ensure that some element of risk transfers to the contractor where it relates to their decisions and it is unfair to burden the letting employer with that risk. For example the contractor should typically be responsible for pension costs that arise from • above average pay increases, including the effect in respect of service prior to contract commencement even if the letting employer takes on responsibility for the latter under (ii) above; and • redundancy and early retirement decisions. Note (j) (Admission Bodies Ceasing) Notwithstanding the provisions of an admission agreement, the Administering Authority may consider any of the following as triggers for the cessation of an admission agreement with any type of body: • the Administering Authority has the discretion to defer taking action for up to three years, so that if the employer acquires one or more active Fund members during that period then cessation is not triggered. The
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current Fund policy is that this is left as a discretion and may or may not be applied in any given case; • The insolvency, winding up or liquidation of an admission body; • Any breach by an admission body of any of its obligations under the agreement that they have failed to remedy to the satisfaction of the Fund; • A failure by an admission body to pay any sums due to the Fund within the period required by the Fund; or • The failure by an admission body to renew or adjust the level of the bond or indemnity, or to confirm an appropriate alternative guarantor, as required by the Fund. On cessation, the Administering Authority will instruct the Fund actuary to carry out a cessation valuation to determine whether there is any deficit or surplus. Where there is a deficit, payment of this amount in full would normally be sought from the admission body; where there is a surplus it should be noted that current legislation does not permit a refund payment to the admission body. For non-transferee admission bodies whose participation is voluntarily ended either by themselves or the Fund, or where a cessation event has been triggered, the Administering Authority must look to protect the interests of other ongoing employers. The actuary will therefore adopt an approach which, to the extent reasonably practicable, protects the other employers from the likelihood of any material loss emerging in future: (a) Where a guarantor does not exist then, in order to protect other employers in the Fund, the cessation liabilities and final deficit will normally be calculated using a “gilts cessation basis”, which is more prudent than the ongoing basis. This has no allowance for potential future investment outperformance above gilt yields, and has added allowance for future improvements in life expectancy. This could give rise to significant cessation debts being required. (b) Where there is a guarantor for future deficits and contributions, the details of the guarantee will be considered prior to the cessation valuation being carried out. In some cases the guarantor is simply guarantor of last resort and therefore the cessation valuation will be carried out consistently with the approach taken had there been no guarantor in place. Alternatively, where the guarantor is not simply guarantor of last resort, the cessation may be calculated using the ongoing basis as described in Appendix E. (c) Again, depending on the nature of the guarantee, it may be possible to simply transfer the former Admission Body’s liabilities and assets to the guarantor, without needing to crystallise any deficit. This approach may be adopted where the employer cannot pay the contributions due, and this is within the terms of the guarantee. Under (a) and (b), any shortfall would usually be levied on the departing Admission Body as a single lump sum payment. If this is not possible then the Fund would spread the payment subject to there being some security in place for the employer such as a bond indemnity or guarantee. In the event that the Fund is not able to recover the required payment in full, then the unpaid amounts fall to be shared amongst all of the other employers in the Fund. This may require an immediate revision to the Rates and Adjustments Certificate affecting other employers in the Fund, or instead be reflected in the contribution rates set at the next formal valuation following the cessation date. As an alternative, where the ceasing Admission Body is continuing in business, the Fund at its absolute discretion reserves the right to enter into an agreement with the ceasing Admission Body. Under this agreement the Fund would accept an appropriate alternative security to be held against any deficit, and would carry out the cessation valuation on an ongoing basis: deficit recovery payments would be derived from this cessation debt. This approach would be monitored as part of each triennial valuation: the Fund reserves the right to revert to a “gilts cessation basis” and seek immediate payment of any funding shortfall identified. The Administering Authority may need to seek legal advice in such cases, as the Body would have no contributing members.
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3.4 Pooled contributions From time to time, with the advice of the Fund’s actuary, the Administering Authority may set up pools for employers with similar or complementary characteristics. This will always be in line with its broader funding strategy. The current pools in place within the Fund are as follows: • smaller CABs (as a way of sharing experience and smoothing out the effects of costly but relatively rare events such as ill-health retirements or deaths in service). • Local authority maintained schools generally are also pooled with their relevant Unitary Authority. However there may be exceptions for specialist or independent schools. • Academies within a Multi Academy Trust may be pooled for contribution setting purposes, at the MAT’s request. However the position of each academy would continue to be tracked individually. • Smaller transferee admission bodies may be pooled with the letting employer, provided all parties (particularly the letting employer) agree. See 3.3 Note (i). Those employers which have been pooled are identified in the Rates and Adjustments Certificate. Employers who are permitted to enter (or remain in) a pool at the 2016 valuation will not normally be advised of their individual contribution rate unless agreed by the Administering Authority. Community admission bodies that are deemed by the Administering Authority to have closed to new entrants are not usually permitted to participate in a pool.
3.5 Additional flexibility in return for added security The Administering Authority may permit greater flexibility to the employer’s contributions if the employer provides added security to the satisfaction of the Administering Authority. Such flexibility includes a reduced rate of contribution, an extended time horizon, or permission to join a pool with another body (e.g. the Local Authority). Such security may include, but is not limited to, a suitable bond, a legally-binding guarantee from an appropriate third party, or security over an employer asset of sufficient value. The degree of flexibility given may take into account factors such as: • the extent of the employer’s deficit; • the amount and quality of the security offered; • the employer’s financial security and business plan; and • whether the admission agreement is likely to be open or closed to new entrants.
3.6 Non ill health early retirement costs It is assumed that members’ benefits are payable from the earliest age that the employee could retire without incurring a reduction to their benefit (and without requiring their employer’s consent to retire). (NB the relevant age may be different for different periods of service, following the benefit changes from April 2008 and April 2014). Employers are required to pay an immediate lump sum payment (‘strain’) wherever an employee retires before attaining this age. The actuary’s funding basis makes no allowance for premature retirement except on grounds of ill-health.
3.7 Ill health early retirement costs In the event of a member’s early retirement on the grounds of ill-health, a funding strain will usually arise, which can be very large. Such strains are currently met by each employer, although individual employers may elect to take external insurance (see 3.8 below).
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3.8 External Ill health insurance If an employer provides satisfactory evidence to the Administering Authority of a current external insurance policy covering ill health early retirement strains, then the employer’s contribution to the Fund each year is reduced by the amount of that year’s insurance premium, so that the total contribution is unchanged. The employer must keep the Administering Authority notified of any changes in the insurance policy’s coverage or premium terms, or if the policy is ceased.
3.9 Employers with no remaining active members In general an employer ceasing in the Fund, due to the departure of the last active member, will pay a cessation debt on an appropriate basis (see 3.3, Note (j)) and consequently have no further obligation to the Fund. Thereafter it is expected that one of two situations will eventually arise: a) The employer’s asset share runs out before all its ex-employees’ benefits have been paid. In this situation the other Fund employers will be required to contribute to pay all remaining benefits: this will be done by the Fund actuary apportioning the remaining liabilities on a pro-rata basis at successive formal valuations; or b) The last ex-employee or dependant dies before the employer’s asset share has been fully utilised. In this situation the remaining assets would be apportioned pro-rata by the Fund’s actuary to the other Fund employers. c) In exceptional circumstances the Fund may permit an employer with no remaining active members to continue contributing to the Fund. This would require the provision of a suitable security or guarantee, as well as a written ongoing commitment to fund the remainder of the employer’s obligations over an appropriate period. The Fund would reserve the right to invoke the cessation requirements in the future, however. The Administering Authority may need to seek legal advice in such cases, as the employer would have no contributing members. There are a number of ceased employers whose assets and liabilities are covered by the four Unitary Authorities (as opposed to all Fund employers) in set proportions. The relevant liabilities are calculated at each valuation and the pro-rata asset share allocated to the Unitary Authorities.
3 .1 0 Policies on bulk transfers Each case will be treated on its own merits, but in general: • The Fund will not pay bulk transfers greater than the lesser of (a) the asset share of the transferring employer in the Fund, and (b) the value of the past service liabilities of the transferring members; • The Fund will not grant added benefits to members bringing in entitlements from another Fund unless the asset transfer is sufficient to meet the added liabilities; and • The Fund may permit shortfalls to arise on bulk transfers if the Fund employer has suitable strength of covenant and commits to meeting that shortfall in an appropriate period. This may require the employer’s Fund contributions to increase between valuations.
4 Funding strategy and links to investment strategy
4.1 What is the Fund’s investment strategy? The Fund has built up assets over the years, and continues to receive contribution and other income. All of this must be invested in a suitable manner, which is the investment strategy.
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Investment strategy is set by the Administering Authority, after consultation with the employers and after taking investment advice. The precise mix, manager make up and target returns are set out in the Statement of Investment Principles (being replaced by an Investment Strategy Statement under new LGPS Regulations), which is available to members and employers. The investment strategy is set for the long-term, but is reviewed from time to time. Normally a full review is carried out as part of each actuarial valuation, and is kept under review annually between actuarial valuations to ensure that it remains appropriate to the Fund’s liability profile. The same investment strategy is currently followed for all employers.
4.2 What is the link between funding strategy and investment strategy? The Fund must be able to meet all benefit payments as and when they fall due. These payments will be met by contributions (resulting from the funding strategy) or asset returns and income (resulting from the investment strategy). To the extent that investment returns or income fall short, then higher cash contributions are required from employers, and vice versa. Therefore, the funding and investment strategies are inextricably linked.
4.3 How does the funding strategy reflect the Fund’s investment strategy? In the opinion of the Fund actuary, the current funding policy is consistent with the current investment strategy of the Fund. The asset outperformance assumption contained in the discount rate (see Appendix E3) is within a range that would be considered acceptable for funding purposes; it is also considered to be consistent with the requirement to take a “prudent longer-term view” of the funding of liabilities as required by the UK Government (see Appendix A1). However, in the short term – such as the three yearly assessments at formal valuations – there is the scope for considerable volatility and there is a material chance that in the short-term and even medium term, asset returns will fall short of this target. The stability measures described in Section 3 will damp down, but not remove, the effect on employers’ contributions. The Fund does not hold a contingency reserve to protect it against the volatility of equity investments.
4.4 How does this differ for a large stable employer? The Fund’s actuary has developed four key measures which capture the essence of the Fund’s strategies, both funding and investment: • Prudence – the Fund should have a reasonable expectation of being fully funded in the long term; • Affordability – how much can employers afford; • Stewardship – the assumptions used should be sustainable in the long term, without having to resort to overly optimistic assumptions about the future to maintain an apparently healthy funding position; and • Stability – employers should not see significant moves in their contribution rates from one year to the next, to help provide a more stable budgeting environment. The key problem is that the key objectives often conflict. For example, minimising the long term cost of the scheme (i.e. keeping employer rates affordable) is best achieved by investing in higher returning assets e.g. equities. However, equities are also very volatile (i.e. go up and down fairly frequently in fairly large moves), which conflicts with the objective to have stable contribution rates. Therefore, a balance needs to be maintained between risk and reward, which has been considered by the use of Asset Liability Modelling: this is a set of calculation techniques applied by the Fund’s actuary to model the range of potential future solvency levels and contribution rates.
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The Fund’s actuary was able to model the impact of these four key areas, for the purpose of setting a stabilisation approach (see 3.3 Note (b)). The modelling demonstrated that retaining the present investment strategy, coupled with constraining employer contribution rate changes as described in 3.3 Note (b), struck an appropriate balance between the above objectives. In particular the stabilisation approach currently adopted meets the need for stability of contributions without jeopardising the Administering Authority’s aims of prudent stewardship of the Fund. Whilst the current stabilisation mechanism is to remain in place until 2020, it should be noted that this will need to be reviewed following the 2019 valuation.
4.5 Does the Fund monitor its overall funding position? The Administering Authority monitors the solvency position annually and reports these to the regular Pensions Committee meetings. The changes are also reported in the annual report and accounts of the Fund and are presented at the Annual General Meeting.
5 Statutory reporting and comparison to other LGPS Funds
5.1 Purpose Under Section 13(4)(c) of the Public Service Pensions Act 2013 (“Section 13”), the Government Actuary’s Department must, following each triennial actuarial valuation, report to the Department of Communities & Local Government (DCLG) on each of the LGPS Funds in England & Wales. This report will cover whether, for each Fund, the rate of employer contributions are set at an appropriate level to ensure both the solvency and the long term cost efficiency of the Fund. This additional DCLG requirement may have an impact on the strategy for setting contribution rates at future valuations.
5.2 Solvency For the purposes of Section 13, the rate of employer contributions shall be deemed to have been set at an appropriate level to ensure solvency if: (a) the rate of employer contributions is set to target a funding level for the Fund of 100%, over an appropriate time period and using appropriate actuarial assumptions (where appropriateness is considered in both absolute and relative terms in comparison with other funds); and either (b) employers collectively have the financial capacity to increase employer contributions, and/or the Fund is able to realise contingent assets should future circumstances require, in order to continue to target a funding level of 100%; or (c) there is an appropriate plan in place should there be, or if there is expected in future to be, a material reduction in the capacity of fund employers to increase contributions as might be needed.
5.3 Long Term Cost Efficiency The rate of employer contributions shall be deemed to have been set at an appropriate level to ensure long term cost efficiency if: i. the rate of employer contributions is sufficient to make provision for the cost of current benefit accrual, ii. with an appropriate adjustment to that rate for any surplus or deficit in the Fund. In assessing whether the above condition is met, DCLG may have regard to various absolute and relative considerations. A relative consideration is primarily concerned with comparing LGPS pension funds with other LGPS pension funds. An absolute consideration is primarily concerned with comparing Funds with a given objective benchmark.
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Relative considerations include: 1. the implied deficit recovery period; and 2. the investment return required to achieve full funding after 20 years. Absolute considerations include: 1. the extent to which the contributions payable are sufficient to cover the cost of current benefit accrual and the interest cost on any deficit; 2. how the required investment return under “relative considerations” above compares to the estimated future return being targeted by the Fund’s current investment strategy; 3. the extent to which contributions actually paid have been in line with the expected contributions based on the extant rates and adjustment certificate; and 4. the extent to which any new deficit recovery plan can be directly reconciled with, and can be demonstrated to be a continuation of, any previous deficit recovery plan, after allowing for actual Fund experience. DCLG may assess and compare these metrics on a suitable standardised market-related basis, for example where the local funds’ actuarial bases do not make comparisons straightforward.
Appendix A – Regulatory framework
A1 Why does the Fund need an FSS?? The Department for Communities and Local Government (DCLG) has stated that the purpose of the FSS is: “to establish a clear and transparent fund-specific strategy which will identify how employers’ pension liabilities are best met going forward; to support the regulatory framework to maintain as nearly constant employer contribution rates as possible; and to take a prudent longer-term view of funding those liabilities.” These objectives are desirable individually, but may be mutually conflicting. The requirement to maintain and publish a FSS is contained in LGPS Regulations which are updated from time to time. In publishing the FSS the Administering Authority has to have regard to any guidance published by Chartered Institute of Public Finance and Accountancy (CIPFA) (most recently in 2016) and to its Statement of Investment Principles / Investment Strategy Statement. This is the framework within which the Fund’s actuary carries out triennial valuations to set employers’ contributions and provides recommendations to the Administering Authority when other funding decisions are required, such as when employers join or leave the Fund. The FSS applies to all employers participating in the Fund.
A2 Does the Administering Authority consult anyone on the FSS? Yes. This is required by LGPS Regulations. It is covered in more detail by the most recent CIPFA guidance, which states that the FSS must first be subject to “consultation with such persons as the authority considers appropriate”, and should include “a meaningful dialogue at officer and elected member level with council tax raising authorities and with corresponding representatives of other participating employers”. In practice, for the Fund, the consultation process for this FSS was as follows: a) A draft version of the FSS was issued to all participating employers in December 2016 for comment; b) Comments were requested within 30 days; c) There was an Employers Forum on 15 December 2016 at which questions regarding the FSS could be raised and answered; funding strategy statement 106 153 East Riding Pension Fund Annual Report and Accounts 2018/2019
d) Following the end of the consultation period the FSS was updated where required and then published, in March 2017.
A3 How is the FSS published? The FSS is made available through the following routes: • Published on the website, at erpf.eastriding.gov.uk; • A copy sent by email to each participating employer in the Fund; • A copy sent to union representatives; • A full copy included in the annual report and accounts of the Fund; • Copies sent to investment managers and independent advisers; and • Copies made available on request.
A4 How often is the FSS reviewed? The FSS is reviewed in detail at least every three years as part of the triennial valuation. This version is expected to remain unaltered until it is consulted upon as part of the formal process for the next valuation in 2019. It is possible that (usually slight) amendments may be needed within the three year period. These would be needed to reflect any regulatory changes, or alterations to the way the Fund operates (e.g. to accommodate a new class of employer). Any such amendments would be consulted upon as appropriate: • trivial amendments would be simply notified at the next round of employer communications; • amendments affecting only one class of employer would be consulted with those employers; and • other more significant amendments would be subject to full consultation. In any event, changes to the FSS would need agreement by the Pensions Committee and would be included in the relevant Committee Meeting minutes.
A5 How does the FSS fit into other Fund documents? The FSS is a summary of the Fund’s approach to funding liabilities. It is not an exhaustive statement of policy on all issues, for example there are a number of separate statements published by the Fund including the Statement of Investment Principles/Investment Strategy Statement, Governance Strategy and Communications Strategy. In addition, the Fund publishes an Annual Report and Accounts with up to date information on the Fund. These documents can be found on the web at www.erpf.org.uk.
Appendix B – Responsibilities of key parties The efficient and effective operation of the Fund needs various parties to each play their part.
B1 The Administering Authority should: 1. operate the Fund as per the LGPS Regulations and guidance from the Pensions Regulator; 2. effectively manage any potential conflicts of interest arising from its dual role as Administering Authority and a Fund employer; 3. collect employer and employee contributions, and investment income and other amounts due to the Fund; 4. ensure that cash is available to meet benefit payments as and when they fall due; 5. pay from the Fund the relevant benefits and entitlements that are due;
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6. invest surplus monies (i.e. contributions and other income which are not immediately needed to pay benefits) in accordance with the Fund’s Statement of Investment Principles/Investment Strategy Statement (SIP/ISS) and LGPS Regulations; 7. communicate appropriately with employers so that they fully understand their obligations to the Fund; 8. take appropriate measures to safeguard the Fund against the consequences of employer default; 9. manage the valuation process in consultation with the Fund’s actuary; 10. provide data and information as required by the Government Actuary’s Department to carry out their statutory obligations (see Section 5); 11. prepare and maintain a FSS and a SIP/ISS, after consultation; 12. notify the Fund’s actuary of material changes which could affect funding (this is covered in a separate agreement with the actuary); 13. monitor all aspects of the fund’s performance and funding and amend the FSS and SIP/ISS as necessary and appropriate; and 14. enable the Local Pension Board to review the valuation process as part of the Board’s role to support the Administering Authority as set out in their terms of reference.
B2 The Individual Employer should: 1. deduct contributions from employees’ pay correctly; 2. pay all contributions, including their own as determined by the actuary, promptly by the due date; 3. comply with statutory obligations by providing the Fund with accurate and timely member data 4. have a policy on discretions and exercise these within the regulatory framework; 5. make additional contributions in accordance with agreed arrangements in respect of, for example, augmentation of scheme benefits, early retirement strain; 6. notify the Administering Authority promptly of all changes to its circumstances, prospects or membership, which could affect future funding; and 7. pay any exit payments on ceasing participation of the Fund.
B3 The Fund Actuary should: 1. prepare valuations, including the setting of employers’ contribution rates. This will involve agreeing assumptions with the Administering Authority, having regard to the FSS and LGPS Regulations, and targeting each employer’s solvency appropriately; 2. provide data and information as required by the Government Actuary’s Department to carry out their statutory obligations (see Section 5); 3. provide advice relating to new employers in the Fund, including the level and type of bonds or other forms of security (and the monitoring of these); 4. prepare advice and calculations in connection with bulk transfers and individual benefit-related matters; 5. assist the Administering Authority in considering possible changes to employer contributions between formal valuations, where circumstances suggest this may be necessary; 6. advise on the termination of employers’ participation in the Fund; and 7. fully reflect actuarial professional guidance and requirements in the advice given to the Administering Authority.
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B4 Other parties: 1. investment advisers (either internal or external) should ensure the Fund’s SIP/ISS remains appropriate, and consistent with this FSS; 2. investment managers, custodians and bankers should all play their part in the effective investment (and dis-investment) of Fund assets, in line with the SIP/ISS; 3. auditors should comply with their auditing standards, ensure Fund compliance with all requirements, monitor and advise on fraud detection, and sign off annual reports and financial statements as required; 4. legal advisers (either internal or external) should ensure the Fund’s operation and management remains fully compliant with all regulations and broader local government requirements, including the Administering Authority’s own procedures; 5. the Department for Communities and Local Government (assisted by the Government Actuary’s Department) and the Scheme Advisory Board, should work with LGPS Funds to meet Section 13 requirements; and 6. the Pensions Regulator should work with the Fund to promote and improve understanding of, the good administration of work-based pension schemes such as the LGPS.
Appendix C – Key risks and controls
C1 Types of risk The Administering Authority has an active risk management programme in place. The measures that it has in place to control key risks are summarised below. The Fund’s Risk Register can be found on pages 10 to 20.
Risk Summary of Control Mechanisms
Fund assets do not meet Key mechanisms include strategic and tactical asset allocation. expected liabilities when they fall due. Securities lending activities Indemnities provide full protection in the event of a borrower default. have an adverse impact on the Fund’s assets Impact of Government policy The Fund has assumed a leading role in the creation of its selected pooling on pooling investments across arrangement and has participated fully in consultation. LGPS funds Changing patterns of pension Assumptions are set at valuation and employers are charged strain costs. payments Failure to carry out Quality checks, training and testing measures are all in place. Employers are administrative duties informed of statutory responsibilities. Failure to provide Local Induction and training programmes in place. Pension Board and Committee members and officers with LGPS knowledge and understanding Failure to establish and IT systems are operated to ensure secure storage and safe transmission of operate internal controls data. Disaster recovery and business continuity plans in place. Failure to report a breach Procedure for reporting breaches in place and training for members and of the law to the Pensions officers carried out. Regulator (TPR)
funding strategy statement 109 156 East Riding Pension Fund Annual Report and Accounts 2018/2019
Financial stability of an Procedures in place including risk assessments, the requirement for a bond to admitted body be in place and cessation valuations reports. Failure to recruit and retain Responsible staff have undertaken training and follow procedures in line with staff East Riding of Yorkshire Council requirements. Review of vacant posts and restructuring is considered as appropriate. Significant reduction in Membership totals are monitored and material changes of membership are individual scheme employer referred to the Fund actuary. membership
Appendix D – The calculation of Employer contributions In Section 2 there was a broad description of the way in which contribution rates are calculated. This Appendix considers these calculations in much more detail. All three steps below are considered when setting contributions: 1. The funding target is based on a set of assumptions about the future, e.g. investment returns, inflation, pensioners’ life expectancies. However, if an employer is approaching the end of its participation in the Fund then its funding target may be set on a more prudent basis, so that its liabilities are less likely to be spread among other employers after its cessation of participation; 2. The time horizon required is, in broad terms, the period over which any deficit is to be recovered. A shorter period will lead to higher contributions, and vice versa (all other things being equal). Employers may be given a lower time horizon if they have a less permanent anticipated membership, or do not have tax-raising powers to increase contributions if investment returns under-perform; and 3. The required probability of achieving the funding target over that time horizon will be dependent on the Fund’s view of the strength of employer covenant and its funding profile. Where an employer is considered to be weaker, or potentially ceasing from the Fund, then the required probability will be set higher, which in turn will increase the required contributions (and vice versa). The calculations involve actuarial assumptions about future experience, and these are described in detail in Appendix E.
D1 What is the difference between calculations across the whole Fund and calculations for an individual employer? Employer contributions are normally made up of two elements: a) the estimated cost of ongoing benefits being accrued, referred to as the “Primary rate” (see D2 below); plus b) an adjustment for the difference between the Primary rate above, and the actual contribution the employer needs to pay, referred to as the “Secondary rate” (see D3 below). The contribution rate for each employer is measured as above, appropriate for each employer’s funding position and membership. The whole Fund position, including that used in reporting to DCLG (see section 5), is calculated in effect as the sum of all the individual employer rates. DCLG currently only regulates at whole Fund level, without monitoring individual employer positions.
D2 How is the Primary rate calculated? The Primary element of the employer contribution rate is calculated with the aim that these contributions will meet benefit payments in respect of members’ future service in the Fund. This is based upon the cost (in excess of members’ contributions) of the benefits which employee members earn from their service each year.
funding strategy statement 110 157 East Riding Pension Fund Annual Report and Accounts 2018/2019
The Primary rate is calculated separately for all the employers, although employers within a pool will pay the contribution rate applicable to the pool as a whole. The Primary rate is calculated such that it is projected to: 1. meet the required funding target for all future years’ accrual of benefits*, excluding any accrued assets, 2. within the determined time horizon (see note 3.3 Note (c) for further details), 3. with a sufficiently high probability, as set by the Fund’s strategy for the category of employer (see 3.3 Note (e) for further details). * The projection is for the current active membership where the employer no longer admits new entrants, or additionally allows for new entrants where this is appropriate. The projections are carried out using an economic modeller developed by the Fund’s actuary: this allows for a wide range of outcomes as regards key factors such as asset returns (based on the Fund’s investment strategy), inflation, and bond yields. The measured contributions are calculated such that the proportion of outcomes meeting the employer’s funding target (by the end of the time horizon) is equal to the required probability. The approach includes expenses of administration to the extent that they are borne by the Fund, and includes allowances for benefits payable on death in service and on ill health retirement.
D3 How is the Secondary rate calculated? The combined Primary and Secondary rates aim to achieve the employer’s funding target, within the appropriate time horizon, with the relevant degree of probability. For the funding target, the Fund actuary agrees the assumptions to be used with the Administering Authority – see Appendix E. These assumptions are used to calculate the present value of all benefit payments expected in the future, relating to that employer’s current and former employees, based on pensionable service to the valuation date only (i.e. ignoring further benefits to be built up in the future). The Fund operates the same target funding level for all employers of 100% of its accrued liabilities valued on the ongoing basis, unless otherwise determined (see Section 3). The Secondary rate is calculated as the balance over and above the Primary rate, such that the total is projected to: 1. meet the required funding target relating to combined past and future service benefit accrual, including accrued asset share (see D5 below) 2. within the determined time horizon (see 3.3 Note (c) for further details) 3. with a sufficiently high probability, as set by the Fund’s strategy for the category of employer (see 3.3 Note (e) for further details). The projections are carried out using an economic modeller developed by the Fund’s actuary: this allows for a wide range of outcomes as regards key factors such as asset returns (based on the Fund’s investment strategy), inflation, and bond yields. The measured contributions are calculated such that the proportion of outcomes with at least 100% solvency (by the end of the time horizon) is equal to the required probability.
D4 What affects a given employer’s valuation results? The results of these calculations for a given individual employer will be affected by: 1. past contributions relative to the cost of accruals of benefits; 2. different liability profiles of employers (e.g. mix of members by age, gender, service vs. salary); 3. the effect of any differences in the funding target, i.e. the valuation basis used to value the employer’s liabilities; 4. any different time horizons;
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5. the difference between actual and assumed rises in pensionable pay; 6. the difference between actual and assumed increases to pensions in payment and deferred pensions; 7. the difference between actual and assumed retirements on grounds of ill-health from active status; 8. the difference between actual and assumed amounts of pension ceasing on death; 9. the additional costs of any non ill-health retirements relative to any extra payments made; and/or 10. differences in the required probability of achieving the funding target.
D5 How is each employer’s asset share calculated? The Administering Authority does not account for each employer’s assets separately. Instead, the Fund’s actuary is required to apportion the assets of the whole Fund between the employers, at each triennial valuation. This apportionment uses the income and expenditure figures provided for certain cash flows for each employer. This process adjusts for transfers of liabilities between employers participating in the Fund, but does make a number of simplifying assumptions. The split is calculated using an actuarial technique known as “analysis of surplus”. Actual investment returns achieved on the Fund between each valuation are applied proportionately across all employers, to the extent that employers in effect share the same investment strategy. Transfers of liabilities between employers within the Fund occur automatically within this process, with a sum broadly equivalent to the reserve required on the ongoing basis being exchanged between the two employers. The Fund actuary does not allow for certain relatively minor events, including but not limited to: 1. the actual timing of employer contributions within any financial year; and 2. the effect of the premature payment of any deferred pensions on grounds of incapacity. These effects are swept up within a miscellaneous item in the analysis of surplus, which is split between employers in proportion to their liabilities. The methodology adopted means that there will inevitably be some difference between the asset shares calculated for individual employers and those that would have resulted had they participated in their own ring-fenced section of the Fund. The asset apportionment is capable of verification but not to audit standard. The Administering Authority recognises the limitations in the process, but it considers that the Fund actuary’s approach addresses the risks of employer cross-subsidisation to an acceptable degree.
Appendix E – Actuarial assumptions
E1 What are the actuarial assumptions? These are expectations of future experience used to place a value on future benefit payments (“the liabilities”). Assumptions are made about the amount of benefit payable to members (the financial assumptions) and the likelihood or timing of payments (the demographic assumptions). For example, financial assumptions include investment returns, salary growth and pension increases; demographic assumptions include life expectancy, probabilities of ill- health early retirement, and proportions of member deaths giving rise to dependants’ benefits. Changes in assumptions will affect the measured funding target. However, different assumptions will not of course affect the actual benefits payable by the Fund in future. The combination of all assumptions is described as the “basis”. A more optimistic basis might involve higher assumed investment returns (discount rate), or lower assumed salary growth, pension increases or life expectancy; a more optimistic basis will give lower funding targets and lower employer costs. A more prudent basis will give higher funding targets and higher employer costs. funding strategy statement 112 159 East Riding Pension Fund Annual Report and Accounts 2018/2019
E2 What basis is used by the Fund? The Fund’s standard funding basis is described as the “ongoing basis”, which applies to most employers in most circumstances. This is described in more detail below. It anticipates employers remaining in the Fund in the long term. However, in certain circumstances, typically where the employer is not expected to remain in the Fund long term, a more prudent basis applies: see Note (a) to 3.3.
E3 What assumptions are made in the ongoing basis? a) Investment return / discount rate The key financial assumption is the anticipated return on the Fund’s investments. This “discount rate” assumption makes an Asset Out-performance Assumption (“AOA”) of Fund returns relative to long term yields on UK Government bonds (“gilts”). There is, however, no guarantee that Fund returns will out-perform gilts. The risk is greater when measured over short periods such as the three years between formal actuarial valuations, when the actual returns and assumed returns can deviate sharply. Given the very long-term nature of the liabilities, a long term view of prospective asset returns is taken. The long term in this context would be 20 to 30 years or more. For the purpose of the triennial funding valuation at 31 March 2016 and setting contribution rates effective from 1 April 2017, the Fund actuary has used a long term AOA of 1.8% per annum relative to long term gilt yields. In the opinion of the Fund actuary, based on the current investment strategy of the Fund, this AOA is within a range that would be considered acceptable for the purposes of the funding valuation. This is a higher AOA than that used at the 2013 valuation (1.6%), which reduces the funding target all other things being equal. b) Salary growth Pay for public sector employees is currently subject to restriction by the UK Government until 2020. Although this “pay freeze” does not officially apply to local government and associated employers, it has been suggested that they are likely to show similar restraint in respect of pay awards. Based on long term historical analysis of the membership in LGPS funds, and continued austerity measures, the salary increase assumption at the 2016 valuation has been set to be a blended rate combined of: 1. 1% p.a. until 31 March 2020, followed by 2. the retail prices index (RPI) per annum thereafter. This is a change from the previous valuation, which assumed a flat assumption of RPI plus 0.5% per annum. The change has led to a reduction in the funding target (all other things being equal). c) Pension increases Since 2011 the consumer prices index (CPI), rather than RPI, has been the basis for increases to public sector pensions in deferment and in payment. Note that the basis of such increases is set by the Government, and is not under the control of the Fund or any employers. As at the previous valuation, we derive our assumption for RPI from market data as the difference between the yield on long-dated fixed interest and index-linked government bonds. This is then reduced to arrive at the CPI assumption, to allow for the “formula effect” of the difference between RPI and CPI. At this valuation, we propose a reduction of 1.0% per annum. This is a larger reduction than at 2013, which will serve to reduce the funding target (all other things being equal). (Note that the reduction is applied in a geometric, not arithmetic, basis). d) Life expectancy The demographic assumptions are intended to be best estimates of future experience in the Fund based on past experience of LGPS funds which participate in Club Vita, the longevity analytics service used by the Fund, and endorsed by the actuary. funding strategy statement 113 160 East Riding Pension Fund Annual Report and Accounts 2018/2019
The longevity assumptions that have been adopted at this valuation are a bespoke set of “VitaCurves”, produced by the Club Vita’s detailed analysis, which are specifically tailored to fit the membership profile of the Fund. These curves are based on the data provided by the Fund for the purposes of this valuation. It is acknowledged that future life expectancy and, in particular, the allowance for future improvements in life expectancy, is uncertain. There is a consensus amongst actuaries, demographers and medical experts that life expectancy is likely to improve in the future. Allowance has been made in the ongoing valuation basis for future improvements in line with the 2013 version of the Continuous Mortality Investigation model published by the Actuarial Profession and a 1.25% per annum minimum underpin to future reductions in mortality rates. This is a similar allowance for future improvements than was made in 2013. The approach taken is considered reasonable in light of the long term nature of the Fund and the assumed level of security underpinning members’ benefits. e) General The same financial assumptions are adopted for most employers, in deriving the funding target underpinning the Primary and Secondary rates: as described in (3.3), these calculated figures are translated in different ways into employer contributions, depending on the employer’s circumstances. The demographic assumptions, in particular the life expectancy assumption, in effect vary by type of member and so reflect the different membership profiles of employers.
Appendix F – Glossary
Actuarial The combined set of assumptions made by the actuary, regarding the future, to calculate the assumptions/ value of the funding target. The main assumptions will relate to the discount rate, salary growth, basis pension increases and longevity. More prudent assumptions will give a higher target value, whereas more optimistic assumptions will give a lower value. Administering The council with statutory responsibility for running the Fund, in effect the Fund’s “trustees”. Authority Admission Bodies Employers where there is an Admission Agreement setting out the employer’s obligations. These can be Community Admission Bodies or Transferee Admission Bodies. For more details (see 2.3). Covenant The assessed financial strength of the employer. A strong covenant indicates a greater ability (and willingness) to pay for pension obligations in the long run. A weaker covenant means that it appears that the employer may have difficulties meeting its pension obligations in full over the longer term. Designating Employers such as town and parish councils that are able to participate in the LGPS via resolution. Employer These employers can designate which of their employees are eligible to join the Fund. Discount rate The annual rate at which future assumed cashflows (in and out of the Fund) are discounted to the present day. This is necessary to provide a funding target which is consistent with the present day value of the assets. A lower discount rate gives a higher target value, and vice versa. It is used in the calculation of the Primary and Secondary rates. Employer An individual participating body in the Fund, which employs (or used to employ) members of the Fund. Normally the assets and funding target values for each employer are individually tracked, together with its Primary rate at each valuation. Funding target The actuarially calculated present value of all pension entitlements of all members of the Fund, built up to date. This is compared with the present market value of Fund assets to derive the deficit. It is calculated on a chosen set of actuarial assumptions.
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Gilt A UK Government bond, i.e. a promise by the Government to pay interest and capital as per the terms of that particular gilt, in return for an initial payment of capital by the purchaser. Gilts can be “fixed interest”, where the interest payments are level throughout the gilt’s term, or “index-linked” where the interest payments vary each year in line with a specified index (usually RPI). Gilts can be bought as assets by the Fund, but their main use in funding is as an objective measure of solvency. Guarantee / A formal promise by a third party (the guarantor) that it will meet any pension obligations not guarantor met by a specified employer. The presence of a guarantor will mean, for instance, that the Fund can consider the employer’s covenant to be as strong as its guarantor’s. Letting employer An employer which outsources or transfers a part of its services and workforce to another employer (usually a contractor). The contractor will pay towards the LGPS benefits accrued by the transferring members, but ultimately the obligation to pay for these benefits will revert to the letting employer. A letting employer will usually be a local authority, but can sometimes be another type of employer such as an Academy. LGPS The Local Government Pension Scheme, a public sector pension arrangement put in place via Government Regulations, for workers in local government. These Regulations also dictate eligibility (particularly for Scheduled Bodies), members’ contribution rates, benefit calculations and certain governance requirements. The LGPS is divided into 101 Funds which map the UK. Each LGPS Fund is autonomous to the extent not dictated by Regulations, e.g. regarding investment strategy, employer contributions and choice of advisers. Maturity A general term to describe a Fund (or an employer’s position within a Fund) where the members are closer to retirement (or more of them already retired) and the investment time horizon is shorter. This has implications for investment strategy and, consequently, funding strategy. Members The individuals who have built up (and may still be building up) entitlement in the Fund. They are divided into actives (current employee members), deferreds (ex-employees who have not yet retired) and pensioners (ex-employees who have now retired, and dependants of deceased ex-employees). Primary rate The employer contribution rate required to pay for ongoing accrual of active members’ benefits (including an allowance for administrative expenses). See Appendix D for further details.
Profile The profile of an employer’s membership or liability reflects various measurements of that employer’s members, i.e. current and former employees. This includes: the proportions which are active, deferred or pensioner; the average ages of each category; the varying salary or pension levels; the lengths of service of active members vs their salary levels, etc. A membership (or liability) profile might be measured for its maturity also.
A formal document required by the LGPS Regulations, which must be updated at least every Rates and three years at the conclusion of the formal valuation. This is completed by the actuary and Adjustments confirms the contributions to be paid by each employer (or pool of employers) in the Fund for Certificate the three year period until the next valuation is completed.
Types of employer explicitly defined in the LGPS Regulations, whose employers must be offered membership of their local LGPS Fund. These include Councils, colleges, universities, academies, Scheduled Bodies police and fire authorities etc, other than employees who have entitlement to a different public sector pension scheme (e.g. teachers, police and fire officers, university lecturers).
The difference between the employer’s actual and Primary rates. In broad terms, this relates to Secondary rate the shortfall of its asset share to its funding target. See Appendix D for further details.
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Any method used to smooth out changes in employer contributions from one year to the next. This is very broadly required by the LGPS Regulations, but in practice is particularly employed for Stabilisation large stable employers in the Fund. Different methods may involve: probability-based modelling of future market movements; longer deficit recovery periods; higher discount rates; or some combination of these.
An actuarial investigation to calculate the liabilities, future service contribution rate and common contribution rate for a Fund, and usually individual employers too. This is normally carried out in full every three years (last done as at 31 March 2016), but can be approximately Valuation updated at other times. The assets value is based on market values at the valuation date, and the liabilities value and contribution rates are based on long term bond market yields at that date also.
Funding Strategy Statement and new employers During 2017/18, there were 47 new employers joining the Fund including 24 academies, four parish councils and one town council. As part of the management of admitted bodies, risk assessments are carried out to ensure that there is a strong covenant in place and that a new employer has the ability to meet its long term Fund commitments. There were 18 new admitted bodies in the Fund and four of the bodies provided evidence of a strong covenant by having a guarantor agreement in place. For the remaining 14 new admitted bodies, risk assessments were carried out to see if a bond was required and the following action was taken: • bonds were put in place for 10 admitted bodies; • pooling arrangements with the letting authority were agreed with one admitted body; and • following audit and legal advice, the Fund agreed that no bond was required initially for three admitted bodies.
funding strategy statement 116 163 East Riding Pension Fund Annual Report and Accounts 2018/2019 investment strategy statement
Introduction The East Riding Pension Fund (“the Fund”), which is administered by the East Riding of Yorkshire Council (“the Administering Authority”), is required to maintain an Investment Strategy Statement (“ISS”) in accordance with Regulation 7 of the Local Government Pension Fund (Management and Investment of Funds) Regulations 2016. The Administering Authority has delegated all its functions as administering authority to the Pensions Committee (“the Committee”). The ISS has been prepared by the Committee having taken advice from the Director of Corporate Resources. The ISS, which was approved by the Committee on 17th March 2017, is subject to periodic review at least every three years and without delay after any significant change in investment policy. The Committee has consulted on the contents of the Fund’s investment strategy with such persons it considers appropriate. The Fund is also required to maintain a Funding Strategy Statement (“FSS”) in accordance with Regulation 58 of the Local Government Pension Scheme Regulations 2013 (as amended). The FSS for the Fund has been revised to take into account the results of the actuarial valuation, effective 1 April 2017. The FSS, which was approved by the Pensions Committee on 17th March 2017, complies with these Regulations. Investment Strategy The primary investment objective is to ensure that the Fund will have sufficient assets to meet all pension liabilities as they fall due. In order to meet this overall objective, the Fund’s investment strategy is to: • Maximise the return from investments whilst maintaining risk within acceptable levels with a current long term nominal return objective of 6% p.a.; • Maintain and improve the future funding level of the Fund with the aim of achieving a funding level of 100%; and • Enable employer contributions to be kept as stable as possible. In order to discharge its responsibilities, the Pensions Committee will take advice, where appropriate, from a wide range of sources including, but not limited to, the Director of Corporate Resources, the independent advisor, the Fund’s investment managers, and the Council’s S151 and Monitoring Officers. The core investment beliefs of the East Riding Pension Fund are as follows: 1. The key objective is to generate a suitable rate of return on its investments, whilst accepting an appropriate level of risk, to ensure that the Fund’s assets are sufficient to pay the scheme’s benefits as they fall due. 2. Good governance, including appropriate knowledge, skills and resources, enhances the decision making process. 3. Strategic asset allocation decisions are the most important drivers of the Fund’s investment return. 4. The Fund has a long term time horizon in line with its maturity profile and the covenants of its participating employers. 5. The long term time horizon enables the Fund to take advantage of the “illiquidity premium” present in private market investments. 6. Diversification through effective portfolio construction can reduce risk both within and across asset classes and factors. 7. Active management can add value net of all costs. 8. Internal investment management, either directly or through the proposed arrangements with Border to Coast, is effective both in terms of lower costs and the potential for enhanced performance but external investment will be used where appropriate. 9. The Fund will hedge its risks where it is considered to be appropriate. 10. The Fund is a responsible investor, recognises the importance of good governance, and will engage with its investee companies both on an individual and a collective basis in order to enhance or protect investment returns. investment strategy statement 117 164 East Riding Pension Fund Annual Report and Accounts 2018/2019
Investment of money in a wide variety of investments It is the Pensions Committee’s policy to invest the assets of the East Riding Pension Fund to spread the risk by ensuring a reasonable balance between different categories of investments. The Pensions Committee takes a long term approach to investment and invests in asset classes and individual investments that are expected to generate an attractive risk- adjusted return for the Pension Fund. The Fund may invest in a wide range of investments including quoted and unquoted assets in Equities, Fixed Income, Property and Alternatives either directly or through pooled investments. The Fund may also make use of derivatives, either directly or in pooled investments, for the purposes of efficient portfolio management or to hedge specific risks, in order to protect the value of the Fund’s assets. The Fund’s strategic asset allocation is set out below. The table also includes the ranges within which the asset allocation may vary without reference to the Pensions Committee, and the maximum percentage of total Fund value that can be invested in these asset classes. The asset allocation is consistent with the Committee’s views on the appropriate balance between generating a satisfactory long-term return on investments whilst taking account of market risk and the nature of the Fund’s liabilities.
Asset class Strategic allocation Range Maximum EQUITIES 55% +/- 10% 70%
UK equities 33% +/- 5% 40%
Overseas equities 22% +/- 5% 30%
North America 6%
Europe ex-UK 6%
Japan 3%
Pacific ex-Japan 2%
Emerging Markets 5%
BONDS AND CASH 19% +/- 5% 30%
UK Government bonds 5%
UK Corporate bonds 2%
Overseas bonds 4%
Multi-Asset Credit 5%
Cash 3%
ALTERNATIVES 26% +/- 5% 35%
Property 11%
Other 15%
Private Equity 6%
Infrastructure 4%
Other Alternatives 5%
The Regulations do not permit more than 5% of the Fund’s value to be invested in entities which are connected with that authority within the meaning of section 212 of the Local Government and Public Involvement in Health Act 2007(e). The investment policy of the Fund does not permit any employer-related investment, other than is necessary to meet the regulatory requirements with regards to pooling. The Pensions Committee believes that the Fund’s portfolio is adequately diversified, and has taken professional advice to this effect from their investment managers and independent advisor. The strategic asset allocation includes ranges for each asset class within which the asset allocation can vary. In the event that any asset class range is breached, the Pensions Committee will be informed and the Fund’s investment managers will endeavour to bring the asset allocation back within the range within an appropriate period of time. The asset allocation will not be permitted to exceed the stated maximum for each asset class. investment strategy statement 118 165 East Riding Pension Fund Annual Report and Accounts 2018/2019
The suitability of particular investments and types of investments The Pensions Committee will review the suitability of the asset allocation of the Fund on a quarterly basis, following advice from the investment managers and independent advisor to ensure the returns risk and volatility are appropriately managed and meet the requirements of the overall investment strategy. It is intended that the Fund’s investment strategy will be reviewed at least every three years following the latest actuarial valuation of the Fund. The investment strategy takes due account of the maturity profile of the Fund and the current funding position. The actuarial valuation, at 31 March 2016, was prepared on the basis of an expected real return on assets of 1.9% over the long term, a nominal return of 4.0% assuming inflation (CPI) to be 2.1%. The Pensions Committee has set the investment objective of producing a nominal long term return of 6% p.a. (3.9% p.a. real) assessed on a rolling three year basis. The Committee used the following long term assumptions about investment returns (as at December 2016) when determining an appropriate investment strategy, following the results of the latest actuarial valuation and advice from its investment managers and independent advisor:
Asset class Expected return (% p.a.) Expected Volatility (%) EQUITIES
UK equities 6.8% 17.0%
Overseas equities
North America 5.8% 18.0%
Europe ex-UK 6.0% 20.8%
Japan 3.9% 21.1%
Pacific ex-Japan 6.6% 24.2%
Emerging Markets 8.2% 29.0%
BONDS AND CASH
UK Government bonds 2.9% 5.0%
UK Corporate bonds 3.8% 6.1%
Overseas bonds 2.7% 9.3%
Multi-Asset Credit 6.0% 9.0%
Cash 2.2% 0.2%
ALTERNATIVES
Property 5.7% 11.9%
Other
Private Equity 8.4% 20.7%
Infrastructure 5.6% 7.8%
Other Alternatives 6.4% 9.5%
investment strategy statement 119 166 East Riding Pension Fund Annual Report and Accounts 2018/2019
At 31 December 2016, the expected return of this portfolio was 6% p.a. with an expected volatility of 11% p.a. The Pensions Committee has set the following benchmarks against which performance of the Fund will be measured:
Asset class Benchmark EQUITIES
UK equities FTSE All Share
Overseas equities
North America FTSE Developed North America
Europe ex-UK FTSE Developed Europe ex-UK
Japan FTSE Japan
Pacific ex-Japan MSCI Pacific ex-Japan
Emerging Markets MSCI Emerging Markets
BONDS AND CASH
UK Government bonds FTSE UK Gilts All Stocks
UK Corporate bonds iBoxx £ Corporate Bonds All Stocks
Overseas bonds JP Morgan GBI ex-UK
Multi-Asset Credit 3 month LIBOR + 4%
Cash LIBID 7 day
ALTERNATIVES
Property AREF/IPD UK Quarterly Property Fund Index
Other
Private Equity FTSE All Share + 3%
Infrastructure UK Index-linked + 3%
Other Alternatives 3 month LIBOR + 5%
In order to monitor the investment objective, the Pensions Committee requires the provision of detailed performance measurements of the Fund’s investments. This is provided by the Fund’s custodian, State Street Global Services on a quarterly basis. In addition, the Pensions Committee conducts a formal annual performance review of each of its investment managers.
The approach to risk The Fund’s primary long term risk is that the Fund’s assets do not meet its liabilities i.e. the benefits payable to its members. Therefore, the aim of the Fund’s investment management is to achieve the long term target rate of return with an acceptable level of risk. The Fund achieves this through setting the strategic asset allocation on a triennial basis, following the latest actuarial valuation, which is expected to achieve the target rate of return over the long term. The Fund’s appetite for risk will vary depending on market conditions and the types of investments available to it but will be commensurate with meeting the long term target investment rate of return. The Fund has a dedicated strategic risk register which identifies the key risks inherent in the Pension Fund, an estimate of the severity of each risk, and the risk controls that are in place to mitigate these risks. The risk register is reviewed by the Pensions Committee and the Local Pension Board on a semi-annual basis. In addition, a risk management schedule is reviewed by the Pensions Committee on a quarterly basis which considers issues such as performance, regulation and compliance, and personnel.
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The key risks inherent in the Pension Fund, and how these risks are mitigated, are:
Risk Description Mitigants Market Value of an investment decreases Strategic asset allocation, with as a result of changing market suitable diversification and conditions. appropriate ranges, determined on a triennial basis. Tactical asset allocation on a quarterly basis taking into account current market conditions. Derivatives may be used for portfolio management purposes or to hedge specific risks, in order to protect the value of the Fund’s assets from risks that may materialise.
Performance The Fund’s investment managers Analysis of market performance and fail to deliver returns in line with the investment managers’ performance underlying asset classes. relative to their index benchmark on a quarterly basis. Detailed analysis of investment managers’ performance on an annual basis. Valuation Valuations disclosed in the The valuation of investments financial statements, particularly is derived using a conservative for unquoted investments, are not valuation methodology and, where reflective of the value that could be applicable, market observable data. achieved on disposal. Credit The Fund’s counterparties or service Appropriate credit limits are providers e.g. custodian fail to pay established, and regularly reviewed, amounts due. by the Fund for individual counterparties. Regular performance monitoring of service providers and indemnities secured where appropriate. Liquidity The Fund is not able to meet its The Fund maintains sufficient liquid financial obligations as they fall due funds at all times to ensure that it or can do so only at an excessive can meet its financial obligations. cost. Interest rate A change in interest rates will result The Fund regularly monitors its in a change in the valuation of the exposure to interest rates, and may Fund’s assets and liabilities. consider hedging, through the use of derivatives, in order to protect the value of the Fund’s assets from risks that may materialise.
investment strategy statement 121 168 East Riding Pension Fund Annual Report and Accounts 2018/2019
Foreign exchange An adverse movement in foreign The Fund regularly monitors its exchange rates will impact on the foreign exchange exposure, and may value of the Fund’s investments. consider hedging, through the use of derivatives, in order to protect the value of the Fund’s assets from risks that may materialise. Demographic Changes, such as increased longevity Demographic assumptions are or ill-health retirement, will increase conservative, regularly monitored, the value of the Fund’s liabilities. and reviewed on a triennial basis. Regulatory Changes to regulations and The Fund ensures that it is aware of guidance may increase the cost of any actual or potential changes to administering the Fund or increase regulations and guidance and will the value of the Fund’s liabilities. participate in consultations where appropriate. Governance The administering authority is The Fund regularly monitors unaware of changes to the Fund’s membership information and membership which increases the communicates with employers. value of its liabilities.
Approach to pooling investments In order to satisfy the requirements of the “Local Government Pension Scheme: Investment Reform and Guidance” issued by the Department for Communities and Local Government (“DCLG”) in November 2015 the Pension Fund has elected to become a shareholder in Border to Coast Pensions Partnership (BCPP) Limited. BCPP Limited will be an FCA-regulated Operator and Alternative Investment Fund Manager (“AIFM”). Border to Coast is a partnership of the following administering authorities: • Bedfordshire Pension Fund • Cumbria Pension Fund • Durham Pension Fund • East Riding Pension Fund • Lincolnshire Pension Fund • North Yorkshire Pension Fund • Northumberland Pension Fund • South Yorkshire Pension Fund • South Yorkshire Passenger Transport Pension Fund • Surrey Pension Fund • Teesside Pension Fund • Tyne and Wear Pension Fund • Warwickshire Pension Fund The partner Funds submitted their proposal to Government on 15th July 2016 and have received written confirmation from the Minister to confirm that the proposal meets the criteria laid down in the guidance issued in November 2015.
investment strategy statement 122 169 East Riding Pension Fund Annual Report and Accounts 2018/2019
The proposed governance structure of BCPP is as follows:
Local Administering Pensions Committees Pension Authorities and Investment Boards Sub-groups Statutory Officers Group
Shareholders Joint Committee Officer (Company matters) (Investor matters) Operations Group
Operator Company
Collective Investment Vehicle
The Fund will hold BCPP to account through the following mechanisms: • A representative on the Shareholder Board, with equal voting rights, who will provide oversight and control of the corporate operations of BCPP Limited. • A representative on the Joint Committee who will monitor and oversee the investment operations of BCPP Limited. • Officer support to the above representatives from the Officer Operations Group and the Statutory Officer Group The Pension Fund will retain the decision making powers regarding asset allocation and will delegate the investment management function to BCPP Limited. It is anticipated that a significant proportion of the Fund’s investments will be made through BCPP Limited once it is fully operational. It is expected that BCPP Limited will be operational from June 2018 but assets will transfer into the pool on a phased basis. Where it is not practical or cost effective for assets to be transferred into the pool, they will continue to be managed at the Fund level. This is expected to predominantly include unquoted investments such as limited partnerships. Whilst these assets are unlikely to be transferred, it is expected that once these investments mature the proceeds will be reinvested into Border to Coast. At the current time, it is estimated that c. 70% of the Fund’s assets will be managed by Border to Coast within 3 years subject to it having suitable management arrangements in place. The Fund will perform an annual review of assets that are determined to be held outside of Border to Coast to ensure that they continue to demonstrate value for money. Following this review, it will submit a report on the progress of asset transfers to the Scheme Advisory Board, in line with the guidance.
Approach to environmental, social and corporate governance (ESG) factors Environmental, social and corporate governance factors relate to non-financial factors that can have a material impact on the value of a Fund’s investments. They include factors such as carbon emissions, labour relations and shareholder rights. The Pension Fund, and its investment managers, considers that ESG considerations can have a material impact on the value of its investments. As a result, the consideration of ESG factors are incorporated into its investment managers’ investment processes. The Fund will take into account the guidance issued by the Local Authority Pension Fund Forum (LAPFF), which highlights corporate governance issues at investee companies and recommends appropriate voting action. It will also take into account any other appropriate guidance and information, including information provided by Border to Coast once it is operational, in determining any relevant social, environmental, or governance considerations when selecting, retaining, and realising any of its investments. However, the overriding objective for the Pensions Committee will be to discharge its fiduciary duty in managing the Fund’s investments in the best interests of the scheme’s beneficiaries. investment strategy statement 123 170 East Riding Pension Fund Annual Report and Accounts 2018/2019
The Fund will take non-financial considerations, including ESG factors, into account in the selection, retention and realisation of investments but not where it is considered to have a detrimental financial impact. The Fund has made, and will continue to make, “social investments” whereby an investment can have a positive social impact as well as generating a suitable financial return. However, the overriding consideration for any such investment is whether it generates an acceptable risk-adjusted return for the Fund. The Fund has not excluded any investments on purely non-financial considerations and will continue to invest in accordance with the Regulations in this regard. It is considered that the Pensions Committee, which receives advice from its investment managers and independent advisor, represents the views of the Fund membership and that the views of the Local Pension Board will be taken into account as part of their review of this document.
The exercise of rights attaching to investments
As a responsible investor, the East Riding Pension Fund wishes to promote corporate social responsibility, high standards of corporate governance, good practice, and improved corporate performance amongst all companies in which it invests. As a result, the Fund has adopted the Principles of the Financial Reporting Council’s (FRC) UK Stewardship Code as shown below:
Principle 1 – Institutional investors should publically disclose their policy on how they will discharge their stewardship responsibilities. The Fund takes its responsibilities as a shareholder seriously and seeks to adhere to the Principles of the Stewardship Code. It views stewardship as part of the responsibilities of share ownership, and, therefore, an integral part of the investment strategy. The Fund believes that active stewardship will help to deliver high standards of corporate governance which will contribute positively to business performance over time by: • encouraging accountability between directors, shareholders, and other stakeholders; • strengthening the integrity of relationships between these bodies; and • improving transparency in the way companies are run. In practice, the Fund’s policy is to apply the Code through engagement with investee companies, the utilisation of its voting rights, an interpretation of best practice guidelines informed through the use of the Pensions Investment Research Consultants (PIRC) voting advisory service, existing arrangements with its external investment manager, and through membership of the Local Authority Pension Fund Forum (LAPFF). Further details of PIRC’s voting guidance is shown in the “UK Shareowner Voting Guidelines 2017” guidance document which is available at www.pirc.co.uk and further information regarding the engagement activities of the LAPFF is available at www.lapfforum.org. The Pension Fund considers that social, environmental, and governance considerations can have a material impact on the value of its investments and should form part of its investment managers’ investment processes. Therefore, the Fund will take into account the guidance issued by LAPFF, which highlights corporate governance issues at investee companies and recommends appropriate voting action. It will also take into account any other appropriate guidance and information including information provided by Border to Coast once it is operational, in determining any relevant social, environmental, or governance considerations when selecting, retaining, and realising any of its investments. However, the overriding objective for the Pensions Committee will be to discharge its fiduciary duty in managing the Fund’s investments in the best interests of the scheme’s beneficiaries. The Fund’s investment managers can exercise their discretion not to vote in accordance with best practice. Where this discretion is exercised, the rationale for this decision is reported to the Pensions Committee on a quarterly basis. The exercise of any other rights attaching to a particular investment will be considered on a case by case basis. In general, the Fund’s engagement activities will be based on the importance of the issue, the materiality of the Fund’s exposure to companies affected by the issue, and an assessment of the likelihood of success in the event of engagement. The Pensions Committee reviews the Fund’s corporate governance and voting activity and discusses the reasons for engagement, or lack of it, with its investment managers on a quarterly basis. investment strategy statement 124 171 East Riding Pension Fund Annual Report and Accounts 2018/2019
In addition, the Fund publishes summary details of corporate governance and voting activity in its Annual Report and Accounts.
Principle 2 – Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publically disclosed. East Riding of Yorkshire Council, the administering authority of the East Riding Pension Fund, maintains and monitors a Register of Interests which is completed both by Members of the Pensions Committee and by the individual employees of the internal investment manager. These are published on the Council’s website and updated on a regular basis. In addition, Pension Committee members are required to make any declarations of interest prior to Committee meetings. These interests are disclosed in the Pension Fund’s Annual Report and Accounts. In accordance with the Fund’s Compliance Manual, individual employees of the internal investment manager require permission from the Head of Investments or, in the Head of Investments case, the Head of Finance prior to investing in any applicable investments on a personal basis. Individual employees are also required to disclose their personal investments on an annual basis. The Fund’s Compliance Manual is an internal control document and it is not considered appropriate to disclose this publicly. The interests and investments of the Fund’s independent advisor are disclosed to the Pensions Committee on a quarterly basis. The external investment manager’s policy on conflict of interests is disclosed in its Statement of Compliance with the UK Stewardship Code.
Principle 3 – Institutional Investors should monitor their investee companies. The Pensions Committee delegates responsibility for managing the Fund’s assets to the Investment Managers, who are expected to monitor companies and intervene where necessary. The Fund subscribes to the Pension Investment Research Consultants (PIRC) voting and advisory service which provides voting recommendations based on industry best practice and receives an “Alerts” service from the LAPFF which highlights corporate governance issues of concern at investee companies. However, the Fund’s investment managers are not bound to exercise their vote in accordance with these recommendations. Issues on which the Fund has chosen to engage on in the recent past include: • Directors’ remuneration. • Separation of the roles of Chairman and Chief Executive. • Board diversity • Independence of non-executive directors. • Supply chain management. • Environmental factors including carbon risk. • Labour relations. • Auditor rotation and independence. • Corporate taxation. • Accounting standards. The Fund is of the opinion that its corporate governance activities are significantly more effective if they are part of a larger group of like-minded investors, such as the LAPFF. The Fund is a supporter of the LAPFF’s work but is unable to commit resources to take a more active role in LAPFF’s engagement over and above its current membership role. The current external investment manager discharges its corporate governance responsibilities in accordance with its Investment and Corporate Governance Policy, which is also based on industry best practice. Once the company is operational, Border to Coast will discharge its corporate governance responsibilities in accordance with investment strategy statement 125 172 East Riding Pension Fund Annual Report and Accounts 2018/2019
its Responsible Investment Policy and Corporate Governance and Voting Guidelines. The Pension Fund, through the Joint Committee and Officer Operations Group has, and will continue to have, input into the development of Border to Coast’s corporate governance policies and activities. The Fund’s investment managers present reports on their voting activity on a quarterly basis to the Pensions Committee which are then subject to challenge and debate. The Pensions Committee also receives regular reports summarising the issues being raised by LAPFF and its current areas of focus, with companies in which the Fund has current ownership specifically highlighted, which further informs this process. The Fund’s investment managers can exercise their discretion not to vote in accordance with industry best practice. Where this discretion is exercised, the rationale for this decision is reported to the Pensions Committee on a quarterly basis. The Fund’s investment managers may choose to be made insiders in a particular company for a short period of time. In these instances, no transactions are permitted to be made from the point of disclosure until the information has been disclosed to the wider market. The specific restrictions are disclosed in the Fund’s investment managers’ compliance documents. As stated above, the Fund’s internal investment manager’s Compliance Manual is considered to be a private document that will not be disclosed publicly.
Principle 4 – Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value. As highlighted above, responsibility for day-to-day interaction with companies is delegated to the Fund’s Investment Managers, including the escalation of engagement when necessary. Where special situations arise which are not covered by the Fund’s corporate governance strategy or where the policy is unclear, the Investment Managers will consult with the Director of Corporate Resources. Although willing to act alone, as the Fund typically holds a very small percentage of equity in individual companies, there are strong reasons to collaborate with other asset owners in order to present a stronger case. The Fund utilises its membership of the LAPFF, which co-ordinates collaborative engagement with companies, regulators and policymakers to protect and enhance shareholder value, in order to maximise its influence. Once the company is operational, Border to Coast will manage assets on behalf of the 12 shareholder funds and will have greater scale and resources to focus on corporate governance issues. If deemed appropriate, the Fund will participate in shareholder litigation either independently or in conjunction with its investment managers. Any such actions and subsequent outcomes are reported to the Pensions Committee in order to monitor activity and assess effectiveness.
Principle 5 – Institutional investors should be willing to act collectively with other investors where appropriate. Collaborative engagement is a key part of a responsible investment strategy and the Fund will seek to work collectively with other institutional shareholders in order to maximise the influence it can have on individual companies. The Fund currently seeks to achieve this through membership of the LAPFF, which engages with companies over environmental, social and governance issues on behalf of its members, and also its relationship with the external investment manager. The Fund will also consider collaborating with other investors if it is considered to be appropriate and interested parties should contact the Fund’s Head of Investments, Mark Lyon if they would like to discuss this further. It is envisaged that once it is operational, Border to Coast will be the main conduit for collaborative engagement. The external investment manager’s policy on collaborative engagement is disclosed in its Statement of Compliance with the UK Stewardship Code. Principle 6 – Institutional investors should have a clear policy on voting and disclosure of voting activity. The Fund views its voting rights as a valuable instrument to: • protect shareholder rights;
investment strategy statement 126 173 East Riding Pension Fund Annual Report and Accounts 2018/2019
• minimise risk to companies from corporate governance failure; • enhance long term value; and • encourage corporate social responsibility. As such, the Fund seeks to exercise all voting rights attaching to its investments, where practical. Whilst it is the Fund’s intention to follow the principles of UK corporate governance best practice, the Fund will interpret the application of these principles according to its own views of best practice. There are also other issues outside of these principles on which the Fund will take a view. As a general rule, the Fund will vote in favour of resolutions which are in line with the UK Corporate Governance Code or comply with best practice. The Fund will vote against resolutions which do not meet these guidelines, or which represent a serious breach of best practice, or which will have a negative impact on shareholders rights. The Fund may abstain on resolutions which may have an adverse impact on shareholder rights, or represent a less significant breach of these guidelines, or where the issue is being raised for the first time with a company. The specific voting outcome will depend on the particular circumstances of the company, the types of resolution on the meeting agenda, and the corporate governance policies, and their interpretation, of the Fund’s investment managers. The external investment manager is responsible for the exercise of voting rights attaching to investments that are managed by them on behalf of the Fund. The external investment manager will vote in accordance with its “Investment and Corporate Governance” policy which is available at www.schroders.com. Once it is operational, Border to Coast will be responsible for the exercise of voting rights attaching to investments that are managed by them on behalf of the Fund. Border to Coast will vote in accordance with its Responsible Investment Policy and Corporate Governance and Voting Guidelines. In due course, the policy and guidelines will be published on www. bordertocoast.org.uk. Reports summarising the Fund’s voting activity are presented to the Pensions Committee on a quarterly basis, and the Fund publishes summary details of voting activity in its Annual Report and Accounts. The Fund has chosen not to disclose its full voting record as it does not consider that this will add any value to an external parties understanding of its corporate governance and voting policy and practices. However, the Fund is required to respond to a formal request for information via the Freedom of Information Act 2000. The Fund engages in stock lending and seeks to recall stock on loan prior to a shareholder vote if it is deemed to be cost effective, suitable and practical. Examples of this will include resolutions that are not considered to in accordance with the UK Corporate Governance Code or where the Fund has a material holding and could potentially influence the outcome of the vote.
Principle 7 – Institutional investors should report periodically on their stewardship and voting activities. The Pensions Committee reviews a detailed corporate governance and voting report, which includes the voting activity of both the internal and external investment managers, on a quarterly basis. In addition: • The Administering Authority publishes the agendas and minutes of Pension Committee Meetings on its website – www.erpf.org.uk. • The Fund publishes details of its stewardship and voting activities in its Annual Report and Accounts. This includes summary details of voting activity, and activity undertaken through the LAPFF as well as other collaborative engagement.
Compliance and monitoring The investment managers are required to adhere to the principles set out in this Investment Strategy Statement. The Pensions Committee will require an annual written statement from the investment managers that they have adhered to the principles set out in this statement. The Investment Strategy Statement of the East Riding Pension Fund will be reviewed by the Pensions Committee at least every 3 years and more regularly if considered appropriate. investment strategy statement 127 174 East Riding Pension Fund Annual Report and Accounts 2018/2019 communications policy
Introduction East Riding Pension Fund (ERPF) communicates with more than 300 scheme employers and 114,882 scheme members in relation to the Local Government Pension Scheme (LGPS). These members are split into the following categories and the figures shown are as at 31 March 2019: • 40,234 Active scheme members; • 43,178 Deferred scheme members; and • 31,470 Pensioner members. The Communications Policy has been prepared in conjunction with ERPFs Pension Administration Strategy which details the requirements of ERPF and scheme employers to fulfil their administration responsibilities and the Memorandum of Understating which sets out an agreement between ERPF and the scheme employer to ensure that the 2018 Data Protection (with GDPR) Regulations are adhered to.
Objectives ERPF aims to deliver a consistently high level of customer service and performance to our stakeholders and recognises that effective communication plays a vital role in driving efficiencies within the Fund. It is also important to acknowledge that different stakeholders require information delivered via different methods and wherever possible, we will look towards digital communication for both members and employers. All our communications aim to: • provide clear, accurate and relevant information in a timely manner; • cut out jargon; • use a multi-channel approach to communication, ensuring a best fit for the stakeholder; • ensure members are able to make informed decisions regarding their pension with the information made available; • be compliant with all legislative requirements when communicating with members; and • work towards having digital communication at the centre of our policy.
Our stakeholders • Scheme members • Representatives of members • Prospective members • Scheme employers • Prospective scheme employers
How we communicate ERPF are increasingly using digital methods to communicate. Our website (www.erpf.org) is a principal source of information for both scheme employers and members. We also communicate by email with our stakeholders. In addition to electronic methods, and where appropriate, we use paper based communication methods such as letters, Annual Benefit Statements (ABSs) and other scheme literature such as the New Member Welcome Pack. Telephone numbers are quoted on all our letters which means our stakeholders can communicate verbally with the pension fund staff. In addition, scheme employers are provided with contact details for all key pension fund staff on a regular basis.
communications policy 128 175 East Riding Pension Fund Annual Report and Accounts 2018/2019
Scheme members who require alternative formats (such as Braille or audio) can request this to ensure access to relevant information at all times. For scheme members with extenuating circumstances due to ill health we will, at the scheme employer’s request, provide a visit to discuss options and implications.
Developments ERPF are increasingly using ERPF online services to collect scheme member data and communicate with scheme employers. Since October 2018, no paper or e-mail notifications have been accepted. This has increased the security of the data transmission and ensured that system automation can be maximised. The development and pilot of Monthly Data Collection (MDC) is now under way with 15 pilot scheme employers. Work has commenced on the development of procedures and systems to ensure that the data collected can be validated and where possible processed automatically to realise efficiencies. MDC will be live with the pilot scheme employers by October 2019. Monthly workshops for scheme employers continue to develop and over the next 12 months the workshops will be supported by both online training such as webinars and e-learning and with the introduction of an improved scheme employer area on www.erpf.gov.uk. Work is also continuing on the introduction of ERPF online services for scheme members. Initial design and development work has taken place with the aim of rolling this out to members in early 2020. This will allow us to deliver more of our communications, including ABS, payslips and P60s via digital methods. ERPF’s new website, which was due to be launched in late 2018, is now in the final stages of construction. This offers scheme members and scheme employers more in depth and relevant information and will also ensure that the website is compatible with mobile devices.
Communication events for scheme members When communicating with scheme members, the ERPF’s objectives are to: • encourage and retain membership of the scheme; • highlight the benefits of LGPS 2014; • provide more opportunities for two-way communication; • reduce the number of enquiries and complaints; and • reassure stakeholders.
communications policy 129 176 East Riding Pension Fund Annual Report and Accounts 2018/2019
Resource Audience Delivered via Frequency
Dedicated area of Prospective scheme members/ www.erpf.org.uk with Member website Constant active/deferred /pensioner information designed specifically for members
Monday to Thursday; 9.00 to Pension enquiries Prospective scheme members/ The direct telephone number or 17.00 Friday; 9.00 to 16.30 (via telephone or email) active/deferred /pensioner dedicated e-mail address
Scheme members are welcome Prospective scheme members/ to visit the pension fund offices Monday to Thursday; 9.00 to Visits in person active/deferred /pensioner and have a 1-1 discussion with a 17.00. Friday; 9.00 to 16.30 member of staff
Prospective scheme members/ Electronic - Available online at Scheme member guides Constant active/deferred /pensioner www.erpf.org.uk
Newsletters for active, Active/deferred Post/Electronic As and when required deferred and pensioner Members/pensioner
Prospective scheme members/ Available online at Annual report & accounts Electronic active/deferred/pensioner www.erpf.org.uk
Active/deferred As and when required – usually Bespoke communications Post/Electronic /pensioner following regulatory change
Annual Benefit Statement for active and deferred Active/ deferred Post Annual members
Pre-retirement presentations (in A minimum of 10 sessions Active Face to face presentation partnership with Affinity per year connect)
Payslips for pensioner April & May each year or where Pensioner Post the monthly pension changes by members more than £1
P60 for pensioner members Pensioner Post Annual
Communication events for scheme employers and prospective employers When communicating with scheme employers, the ERPF objectives are to: • improve relationships; • help them understand costs/funding issues; • work together to maintain accurate data; • ensure the smooth transfer of staff; • ensure they understand the benefits of being an LGPS employer; and • assist them in making the most of the discretionary areas within the LGPS.
communications policy 130 177 East Riding Pension Fund Annual Report and Accounts 2018/2019
Resource Delivered via Frequency
Dedicated section of www.erpf.org.uk includes Employer website information designed specifically for scheme Constant employers
Email bulletins to scheme employers with Employer bulletins As and when required but at least six per year important regulatory and procedural information
Designed for new scheme employers entering the New employer meetings fund or those taking back payroll/HR services As and when required in-house
A set of employer guides that go through forms and Available on www.erpf.org.uk Employers guides processes needed to administer the LGPS Emailed on request
An opportunity for employers to cover new and/or Employer workshops As and when required complex topics in a workshop environment
An annual round up of scheme events and a Employers annual meeting presentation from the actuary explaining the Annual valuation results if a valuation year
Employers can submit enquiries via ERPF Online Employer enquiries Services or where appropriate to EPRF’s training Constant officers
ERPF’s training officers provide support and Guidance and Training guidance to scheme employers to ensure they As and when required understand their responsibilities.
Annual report & accounts Electronic Available online at www.erpf.org.uk
The policy This policy is made under Regulation 61 of the LGPS Regulations 2013. ERPF will revise this policy on an annual basis and following any material change in policy.
Feedback ERPF welcomes feedback on this policy and any communications. Please e-mail us at [email protected] or contact us at: ERPF Training Officer, East Riding Pension Fund, Council Offices, Church Street , Goole, DN14 5BG Tel: (01482) 394039
communications policy 131 178 East Riding Pension Fund Annual Report and Accounts 2018/2019 report of the east riding pension fund local pension board
The Public Service Pensions Act 2013 required Local Pension Boards to be established to assist administering authorities with all aspects of governance and administration of the Local Government Pension Scheme (LGPS). The Terms of Reference for the East Riding Pension Fund Local Pension Board (the Board) were approved by the Pensions Committee on 6 February 2015 for recommendation to Full Council and were adopted on 25 February 2015.
Recruitment to the Board Under the Terms of Reference, the Board consists of six voting members constituted as follows: • three Employer Representatives – Administering Authority (1), other scheme employers (ie organisations other than the Administering Authority who, under the Regulations, can participate in the LGPS) (2); and • three Scheme Member Representatives – active members (1), pensioner members (1), active/pensioner or deferred member (1).
During 2018/19, Caroline Bell and Martin Eaden retired from the Board as Scheme Member representatives following the completion of three years service. Caroline Bell was replaced by Jayne Karlsen as an active member representative. The pensioner member representative vacancy was advertised and Lynda Bowen was selected in April 2019 as the replacement for Martin Eaden.
Information on the key features of being an Employer or Scheme Member representative and the role of the Board can be found on the East Riding Pension Fund (the Fund) website at www.erpf.org.uk/local-pension-board/job-description- and-person-specification
Employer representatives during 2018/19 Councillor A Burton, East Riding of Yorkshire Council;
Natasha McLean - Pensions Manager, University of Lincoln; and
Guy Lonsdale – Deputy S151 Officer, North East Lincolnshire Council.
Scheme Member representatives during 2018/19 Caroline Bell – active member (up to 31 July 2018);
Jayne Karlsen – active member (from 11 October 2018);
Julie Davey – active member; and
Martin Eaden – pensioner member (up to 31 July 2018).
Board Meetings During 2018/19, the Board has met three times to consider reports from the Director of Corporate Resources on Investment and Pension Administration issues and to receive training as part of the Board’s training programme. At the meeting on 22 June 2018, nominations were sought for the position of Chair and, in the absence of a nomination, Councillor Burton agreed to act as Chair on a meeting by meeting basis. Nominations were subsequently sought for the position of Chair at the meeting on 2 November 2018 and Guy Lonsdale was elected as Chair.
report of the east riding pension fund local pension board 132 179 East Riding Pension Fund Annual Report and Accounts 2018/2019
The Board have: • reviewed the internal controls and procedures in place at: • Schroder Investment Management Limited (the Fund’s external investment manager); • State Street Global Services (The Fund’s global custodian); • the Investments section (the Fund’s internal investment manager); and • the Pensions Administration section. • reviewed the Fund’s Investment Strategy Statement and the Fund’s Governance Policy Statement effective from 1 April 2019; • agreed the process for the re-election of Employer representatives and Scheme Member representatives and the number of times a Board member may seek re-election; • reviewed the Local Government Pension Scheme (Amendments) Regulation 2018 and the Local Government Pension Scheme (Miscellaneous Amendment) Regulations 2018; • received an update on ERPF online services for scheme employers; • reviewed the Scheme Employer Year End Return exercise 2017/18; • received updates on the Pension Administration Strategy including scheme employer performance; • agreed the annual report of the Board for 2017/18 for the Pension Fund Report and Accounts; • reviewed the Board’s Terms of Reference; • agreed a programme of work and training for 2019; • reviewed reports on Local Authority Pension Fund Forum meetings; • reviewed the draft Pension Fund Annual Report and Accounts 2017/18; • reviewed the Fund’s corporate governance and voting activity; • reviewed minutes from the Pensions Committee; • reviewed the Annual Performance Report and Review 2017/18; • reviewed the Fund’s Communications policy; • ensured the Fund’s compliance with the General Data Protection Regulation (GDPR); • reviewed the timetable for the 2019 actuarial valuation; • received an update on the Guaranteed Minimum Pension (GMP) reconciliation exercise; • reviewed the Fund’s performance in the 2018 Chartered Institute of Public Finance and Accountancy Pensions Administration benchmarking club; • received an update on the Pensions Managers Conference 2018; • reviewed the Fund’s Risk Register including record of breaches; and • received updates on the Border to Coast Pension Partnership (BCPP). The Board members are keen to ensure their work assists the Pensions Committee and attended the Pension Committee meeting on 2 November 2018 to gain a greater understanding of how the Committee carries out its delegated function of making arrangements for the investment and management of the Fund.
The attendance rates at the meetings were as follows: • 67% on 22 June 2018; • 67% on 2 November 2018; and • 67% on 22 February 2019.
report of the east riding pension fund local pension board 133 180 East Riding Pension Fund Annual Report and Accounts 2018/2019
Training All Board members are required to complete self assessment training questionnaires to identify their level of knowledge and understanding. Based on an analysis of their training needs, a training programme is in place for members.
Training sessions take place before each meeting and the following training has been delivered: • Border to Coast presentation – 22 June 2018 delivered by Julian Neilson, Head of Finance, and Kevin Dervey, Head of Investments • Investment performance – 22 June 2018 delivered by Schroders; and • 2019 Actuarial Valuation – 22 February 2019 delivered by Douglas Green and Paula McCall from Hymans Robertson;
The attendance rates at the training sessions were as follows: • 67% on 22 June 2018; and • 67% on 22 February 2019. The training sessions were also attended by members of the Pensions Committee.
Individually, members have been requested to complete all the modules in The Pensions Regulator’s Public Service toolkit and five members have provided copies of their Development record as evidence of completing the following modules:
1. Conflicts of interest;
2. Managing risk and internal controls;
3. Maintaining accurate member data;
4. Maintaining member contributions;
5. Providing information to members and others;
6. Resolving internal disputes; and
7. Reporting breaches of the law. Costs The cost of the implementation and running of the Board has been minimal, having been included in existing officer workloads.
Work plan for 2019
Topics will include: • review of internal controls assurance reports; • update on Pension Administration Strategy; • update on ERPF online services; • update on Monthly Data Collection pilot; • Scheme Employer Year end return exercise 2018/19; • update on Member Web; • review of the Pension Fund Risk Register; • ISA 260 plus Annual Report and Accounts 2018/19;
report of the east riding pension fund local pension board 134 181 East Riding Pension Fund Annual Report and Accounts 2018/2019
• review of the Board’s Terms of Reference; • Fund Annual Performance Review 2018/19; and • update on 2019 actuarial valuation. • ISA 260 plus Annual Report and Accounts 2017/18; • Fund Performance 2017/18; and • review of the Board’s Terms of Reference.
The main challenge facing the Fund in 2019/20 is to engage the Fund’s members with the ERPF member self service (ERPFMSS) project. ERPFMSS will enable members to access their pension data and update their personal information online. The Board will oversee the project and advise the Fund on an effective Member Engagement Strategy to ensure that members are aware of the benefits of using ERPFMSS.
Details of the Board activities including papers, agendas and minutes of Board meetings can be found at www.erpf.org. uk/local-pension-board
East Riding Pension Fund Local Pension Board June 2019
communications policy 135 182 East Riding Pension Fund Annual Report and Accounts 2018/2019 auditor report
Independent Auditor’s Statement to the Members of East Riding of Yorkshire Council on the Pension Fund Financial Statements included within East Riding Pension Fund Annual Report We have examined the Pension Fund financial statements for the year ended 31 March 2019 included within the East Riding Pension Fund annual report, which comprise the Fund Account, the Net Assets Statement and the related notes.
Opinion In our opinion, the Pension Fund financial statements are consistent with the audited financial statements of East Riding of Yorkshire Council for the year ended 31 March 2019 and comply with applicable law and the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2018/19.
Respective responsibilities of the Director of Finance and the auditor As explained more fully in the Statement of the Director of Finance Responsibilities, the Director of Finance is responsible for the preparation of the Pension Fund’s financial statements in accordance with applicable United Kingdom law. Our responsibility is to report to the Members of East Riding of Yorkshire Council as a body, whether the Pension Fund financial statements within the Pension Fund annual report are consistent with the financial statements of East Riding of Yorkshire Council. We conducted our work in accordance with Auditor Guidance Note 07 – Auditor Reporting, issued by the National Audit Office. Our report on the Pension Fund financial statements contained within the audited financial statements of East Riding of Yorkshire Council describes the basis of our opinions on the financial statements.
Use of this auditor’s statement This report is made solely to the members of East Riding of Yorkshire Council, as a body, in accordance with Part 5 paragraph 20(5) of the Local Audit and Accountability Act 2014 and as set out in paragraph 43 of the Statement of Responsibilities of Auditors and Audited Bodies published by Public Sector Audit Appointments Limited. Our work has been undertaken so that we might state to the members of East Riding of Yorkshire Council those matters we are required to state to them and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than East Riding of Yorkshire Council and East Riding of Yorkshire Council’s members as a body, for our audit work, for this statement, or for the opinions we have formed.
Mark Kirkham For and on behalf of Mazars LLP
5th Floor 3 Wellington Place Leeds LS1 4AP
auditor report 136 183 East Riding Pension Fund Annual Report and Accounts 2018/2019 contact points
Information relating to any pension matters including individual benefit or contribution enquiries should be addressed to the Pensions Section at the address below or by telephoning (01482) 394150
The Pensions Manager East Riding Pension Fund Pensions Section PO Box 118 Church Street Goole East Riding of Yorkshire DN14 5BG
Enquiries relating to investment matters should be addressed to the Investments Section at the address below or by telephoning (01482) 394135
The Head of Investments East Riding Pension Fund Investment Section PO Box 164 Church Street Goole East Riding of Yorkshire DN14 5YZ
General information can be found on the East Riding Pension Fund website ww.erpf.org.uk
contact points 137 184 Annual Audit Letter East Riding of Yorkshire Council and East Riding Pension Fund Year ending 31 March 2019
185 CONTENTS
1. Executive summary
2. Audit of the financial statements
3. Value for money conclusion
4. Other reporting responsibilities
5. Our fees
6. Forward look
Our reports are prepared in the context of the ‘Statement of responsibilities of auditors and audited bodies’ issued by Public Sector Audit Appointments Ltd. Reports and letters prepared by appointed auditors and addressed to members or officers are prepared for the sole use of the Council and we take no responsibility to any member or officer in their individual capacity or to any third party. Mazars LLP is the UK firm of Mazars, an international advisory and accountancy group. Mazars LLP is registered by the Institute of Chartered Accountants in England and Wales. 1
186 1. EXECUTIVE SUMMARY
Purpose of the Annual Audit Letter Our Annual Audit Letter summarises the work we have undertaken as the auditor for East Riding of Yorkshire Council (the Council) and East Riding Pension Fund (the Pension Fund) for the year ended 31 March 2019. Although this letter is addressed to the Council, it is designed to be read by a wider audience including members of the public and other external stakeholders. Our responsibilities are defined by the Local Audit and Accountability Act 2014 (the 2014 Act) and the Code of Audit Practice issued by the National Audit Office (the NAO). The detailed sections of this letter provide details on those responsibilities, the work we have done to discharge them, and the key findings arising from our work. These are summarised below.
Area of responsibility Summary
Our auditor’s report issued on 31 July 2019 included our opinion that the financial statements: • give a true and fair view of the Council and Pension Fund’s financial position as at Audit of the financial statements 31 March 2019 and of its expenditure and income for the year then ended; and • have been prepared properly in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2018/19.
Other information published Our auditor’s report issued on 31 July 2019 included our opinion that: alongside the audited financial • the other information in the Statement of Accounts is consistent with the audited statements financial statements.
Our auditor’s report concluded that we are satisfied that in all significant respects, the Value for money conclusion Council has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2019.
In line with group audit instructions issued by the NAO, we will report to the group Reporting to the group auditor auditor in line with the requirements applicable to the Council’s WGA return by the 13 September deadline.
Our auditor’s report confirmed that we did not use our powers under s24 of the 2014 Act to issue a report in the public interest or to make written recommendations to the Council. Statutory reporting The 2014 Act also gives rights to local electors and other parties, such as the right to ask questions of the auditor and the right to make an objection to an item of account. We have received no questions or objections.
Audit of the financial statements We have not yet issued our opinion that the Pension Fund financial statements within included in the Pension Fund Annual the Pension Fund Annual Report are consistent with the full Annual Statement of Report Accounts of the Council, as the Annual Report is not presented until November 2019.
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187 2. AUDIT OF THE FINANCIAL STATEMENTS: EAST RIDING OF YORKSHIRE COUNCIL
Opinion on the financial statements Unqualified
The scope of our audit and the results of our work The purpose of our audit is to provide reasonable assurance to users that the financial statements are free from material error. We do this by expressing an opinion on whether the statements are prepared, in all material respects, in line with the financial reporting framework applicable to the Council and whether they give a true and fair view of the Council’s financial position as at 31 March 2019 and of its financial performance for the year then ended. Our audit was conducted in accordance with the requirements of the Code of Audit Practice issued by the NAO, and International Standards on Auditing (ISAs). These require us to consider whether: ° the accounting policies are appropriate to the Council's circumstances and have been consistently applied and adequately disclosed; ° the significant accounting estimates made by management in the preparation of the financial statements are reasonable; and ° the overall presentation of the financial statements provides a true and fair view. Our auditor’s report, issued to the Council on 31 July 2019, stated that, in our view, the financial statements give a true and fair view of the Council’s financial position as at 31 March 2019 and of its financial performance for the year then ended. Our approach to materiality We apply the concept of materiality when planning and performing our audit, and when evaluating the effect of misstatements identified as part of our work. We consider materiality throughout the audit process, in particular when determining the nature, timing and extent of our audit procedures, and when evaluating the effect of uncorrected misstatements. An item is considered material if its misstatement or omission could reasonably be expected to influence the economic decisions of users of the financial statements. Judgements about materiality are made in the light of surrounding circumstances and are affected by both qualitative and quantitative factors. As a result we have set materiality for the financial statements as a whole (financial statement materiality) and a lower level of materiality for specific items of account (specific materiality) because of the nature of certain items or because they attract public interest. We also set a threshold for reporting identified misstatements to the Audit Committee. We call this our trivial threshold. The table below provides details of the materiality levels applied in the audit of the financial statements for the year ended 31 March 2019:
Our financial statement materiality is based on 1.5% of Financial statement materiality £12.441 million gross revenue expenditure
Our trivial threshold is based on 3% of financial Trivial threshold £0.373 million statement materiality.
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188 2. AUDIT OF THE FINANCIAL STATEMENTS: EAST RIDING OF YORKSHIRE COUNCIL
Our response to significant risks As part of our continuous planning procedures we considered whether there were risks of material misstatement in the Council's financial statements that required special audit consideration. We reported significant risks identified at the planning stage to the Audit Committee within the audit Strategy Memorandum and provided details of how we responded to those risks in our Audit Completion Report. The table below outlines the identified significant risks, the work we carried out on those risks and our conclusions.
Our findings and Identified significant risk Our response conclusions Management override of controls We addressed this risk by performing audit work in There are no matters In all entities, management at various levels the following areas: arising from our work on within an organisation has a unique position • accounting estimates impacting on amounts management override of to perpetrate fraud because of the ability to included in the financial statements; controls manipulate accounting records and prepare • consideration of identified significant transactions fraudulent financial statements by overriding outside the normal course of business; and controls that otherwise appear to be operating effectively. Because of the • journals recorded in the general ledger and other unpredictable way in which such override adjustments made in preparation of the could occur, we consider there to be a risk financial statements. of material misstatement due to fraud and thus a significant risk on all audits.
Valuation of property, plant and We have: We are satisfied the equipment • critically assessing the Council’s arrangements estimate is reasonable The CIPFA Code requires that where assets for ensuring that PPE revaluations are reasonable; and materially are subject to revaluation, their year end • critically assessing any relevant data available correct. carrying value should reflect the fair value at from third parties, as part of our challenge of the that date. The Council has adopted a rolling reasonableness of the in-year valuations provided revaluation model which sees all land and by the Council’s Valuer and the District Valuer; buildings revalued in a five year cycle. • considering the competence, skills and The valuation of property, plant & equipment experience of the Valuer and District Valuer and (PPE) involves the use of a management the instructions issued to both; and expert (the valuer), and incorporates • where necessary, performing further audit assumptions and estimates which have a procedures on individual assets to ensure the material impact on the reported value. basis of in-year valuations is appropriate. As a result of the rolling programme of revaluations, there is a risk that individual assets which have not been revalued for up to four years are not valued at their materially correct fair value.
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189 2. AUDIT OF THE FINANCIAL STATEMENTS: EAST RIDING OF YORKSHIRE COUNCIL
Our response to significant risks (continued)
Our findings and Identified significant risk Our response conclusions Valuation of defined benefit pension We have: The legal ruling in respect liability • critically evaluated the Council’s arrangements of the McCloud judgment The net pension liability represents a (including relevant controls) for making estimates relating to transitional material element of the Council’s balance in relation to pension entries within the financial provisions created sheet. The Council is an admitted body of statements; and additional defined benefit liabilities. In addition, the the East Riding Pension Fund, which had its • challenged the reasonableness of the Actuary’s value of pension fund last triennial valuation completed as at 31 assumptions that underpin the relevant entries assets had reduced in March 2016. made in the financial statements, through the use comparison to the The valuation of the Local Government of an expert commissioned by the National Audit estimates initially used by Pension Scheme relies on a number of Office. the actuary. The draft assumptions, most notably around the accounts were updated to actuarial assumptions, and actuarial take into account the methodology which results in the Council’s £24m increase in the overall valuation. pension liability. There are financial assumptions and demographic assumptions used in the calculation of the Council’s valuation, such as the discount rate, inflation rates and mortality rates. The assumptions should also reflect the profile of the Council’s employees, and should be based on appropriate data. The basis of the assumptions is derived on a consistent basis year to year, or updated to reflect any changes. There is a risk that the assumptions and methodology used in valuing the Council’s pension obligation are not reasonable or appropriate to the Council’s circumstances. This could have a material impact to the net pension liability in 2018/19.
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190 2. AUDIT OF THE FINANCIAL STATEMENTS: EAST RIDING PENSION FUND
Opinion on the financial statements Unqualified
The scope of our audit and the results of our work The purpose of our audit is to provide reasonable assurance to users that the financial statements are free from material error. We do this by expressing an opinion on whether the statements are prepared, in all material respects, in line with the financial reporting framework applicable to the Pension Fund and whether they give a true and fair view of the Pension Fund’s financial position as at 31 March 2019 and of its financial performance for the year then ended. Our audit was conducted in accordance with the requirements of the Code of Audit Practice issued by the NAO, and International Standards on Auditing (ISAs). These require us to consider whether: ° the accounting policies are appropriate to the Pension Fund’s circumstances and have been consistently applied and adequately disclosed; ° the significant accounting estimates made by management in the preparation of the financial statements are reasonable; and ° the overall presentation of the financial statements provides a true and fair view. Our auditor’s report, issued to the Pension Fund on 31 July 2019, stated that, in our view, the financial statements give a true and fair view of the Pension Fund’s financial position as at 31 March 2019 and of its financial performance for the year then ended. Our approach to materiality We apply the concept of materiality when planning and performing our audit, and when evaluating the effect of misstatements identified as part of our work. We consider materiality throughout the audit process, in particular when determining the nature, timing and extent of our audit procedures, and when evaluating the effect of uncorrected misstatements. An item is considered material if its misstatement or omission could reasonably be expected to influence the economic decisions of users of the financial statements. Judgements about materiality are made in the light of surrounding circumstances and are affected by both qualitative and quantitative factors. As a result we have set materiality for the financial statements as a whole (financial statement materiality) and a lower level of materiality for specific items of account (specific materiality) because of the nature of certain items or because they attract public interest. We also set a threshold for reporting identified misstatements to the We call this our trivial threshold. The table below provides details of the materiality levels applied in the audit of the financial statements for the year ended 31 March 2019:
Our financial statement materiality is based on 1% of net Financial statement materiality £50.6m assets available to pay benefits
Our trivial threshold is based on 3% of financial Trivial threshold £1.5m statement materiality.
Specific materiality Fund account based on 10% of benefits payable £15.9m
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191 2. AUDIT OF THE FINANCIAL STATEMENTS: EAST RIDING PENSION FUND
Our response to significant risks
As part of our continuous planning procedures we considered whether there were risks of material misstatement in the Pension Fund’s financial statements that required special audit consideration. We reported significant risks identified at the planning stage to the Audit Committee within the audit Strategy Memorandum and provided details of how we responded to those risks in our Audit Completion Report. The table below outlines the identified significant risks, the work we carried out on those risks and our conclusions. Our findings and Identified significant risk Our response conclusions Management override of controls We addressed this risk by carrying out audit work Our work has provided In all entities, management at various levels in the following areas: the assurance we sought within an organisation are in a unique • accounting estimates impacting on amounts and did not highlight any position to perpetrate fraud because of their included in the financial statements; material issues. ability to manipulate accounting records and • consideration of any significant transactions prepare fraudulent financial statements by outside the normal course of business; overriding controls that otherwise appear to • journals recorded in the general ledger and be operating effectively. Because of the other adjustments made in preparation of the unpredictable way in which such override financial statements could occur, we consider there to be a risk of material misstatement due to fraud and thus a significant risk on all audits.
Unquoted equity investment valuations In addition to our standard programme of work in Our review identified for which a market price is not readily this area we have: several matters which available • agreed the valuation to supporting resulted in amendments As at 31 March 2019, the fair value of documentation including investment manager to the classification of investments which were not quoted on an valuation statements and cash flows for any some equity investments. active market was £1.0bn, which accounted adjustments made to the investment manager These amendments are for 20.3% of the Fund’s net investment valuation; reflected in note 17, financial instruments. assets. As prices for these investments are • agreed the investment manager valuation to Subject to the not quoted in active markets, the values audited accounts. Where these were not amendments to the used in the accounts are those provided by available, we agreed the investment manager financial statements, we fund managers. This results in an increased valuation to other independent supporting have obtained the risk of material misstatement. documentation; assurance sought. • where audited accounts were available, we checked that they were supported by a clear opinion; and • where available, we reviewed any independent control assurance reports and confirmed that they did not highlight any risks of material misstatement.
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192 2. AUDIT OF THE FINANCIAL STATEMENTS
Internal control recommendations As part of our audit we considered the internal controls in place that are relevant to the preparation of the financial statements. We did this to design audit procedures that allow us to express our opinion on the financial statements, but this did not extend to us expressing an opinion on the effectiveness of internal controls. Our work did not identify any internal control issues to bring to your attention
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193 3. VALUE FOR MONEY CONCLUSION: EAST RIDING OF YORKSHIRE COUNCIL
Value for money conclusion Unqualified
Our audit approach We are required to consider whether the Council has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. The NAO issues guidance to auditors that underpins the work we are required to carry out in order to form our conclusion, and sets out the criterion and sub-criteria that we are required to consider.
The overall criterion is that, ‘in all significant respects, the Council had proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people.’ To assist auditors in reaching a conclusion on this overall criterion, the following sub-criteria are set out by the NAO: ° informed decision making; ° sustainable resource deployment; and ° working with partners and other third parties.
Our auditor’s report, issued to the Council on 31 July 2019, stated that, in all significant respects, the Council put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ended 31st March 2019.
Sub-criteria Commentary Arrangements in place? Informed • The Council has a constitution which is subject to regular review and which Yes decision clearly details the governance structure of the Council. making • Regular reports on financial and operational performance are reported during the year to Cabinet. • The year-end position is not significantly different to that forecast during the year. The Council’s financial plan identifies the risks associated with the plan and overall risk management arrangements are in place to manage the risks facing the Council. • Performance measures are linked to the Council’s business plan. Sustainable • Financial and performance reports demonstrate a history of achieving financial Yes resource targets. The Council has a financial plan covering a four year period updated to deployment reflect funding settlements. The plan is reviewed and updated, as a minimum on an annual basis. The plan is designed to ensure the Council has sufficient resources to achieve the Councils aims and priorities. • The financial plan includes reasonable assumptions and identifies the financial pressures the Council will face in coming years clearly setting out the savings the Council will need to achieve in the future. Whilst the Council has a good record of achieving its budget targets, including savings and increases in income, there is recognition that achieving these savings will continue to be a challenge and risk to the Council.
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194 3. VALUE FOR MONEY CONCLUSION: EAST RIDING OF YORKSHIRE COUNCIL
Sub-criteria Commentary Arrangements in place? Working with • The working with our partners section of the external website sets out the various Yes partners and areas of partnership working including arrangements for social care and other third renaissance partnerships. parties • All service reviews include consideration of partnership working. • The Council is developing social care services jointly with the CCG. • The Council’s Constitution includes a section on joint working (section 8). • The Doing business with the Council section of the website gives information on how to find out about business opportunities and selling products or services to the Council.
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195 3. VALUE FOR MONEY CONCLUSION: EAST RIDING OF YORKSHIRE COUNCIL
Significant audit risks The NAO’s guidance requires us to carry out work to identify whether or not a risk to our value for money conclusion exists. Risk, in the context of our work, is the risk that we come to an incorrect conclusion rather than the risk of the arrangements in place at the Council being inadequate. In our Audit Completion Report, we reported that we had identified one significant audit risk. The work we carried out in relation to the risk is outlined below.
Risk Work undertaken Conclusion The Council continues to face We reviewed the Council’s updated business plan The Council is relatively financial pressure and has recently and financial strategy to ensure it reflects the latest well-placed in relation to updated its business plan and funding position from central government and its financial position with financial strategy. reviewed and updated our knowledge of the overall usable reserves of We need to ensure our knowledge arrangements the Council has in place to monitor of the Council’s financial planning progress against its savings plans and income £248.403m at 31 March arrangements and its monitoring of projections that underpin the financial strategy. 2019, the majority of which the planned delivery of savings is are earmarked. The up to date in order to ensure we updated business plan and give the correct VFM conclusion. financial strategy reflect the latest funding position and arrangements are in place to monitor progress against savings plans.
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196 4. OTHER REPORTING RESPONSIBILITIES
Exercise of statutory reporting powers No matters to report
Completion of group audit reporting requirements Consistent
Other information published alongside the audited financial Consistent statements
Pension Fund financial statements included in the Pension Fund Due to be reviewed in November Annual Report The NAO’s Code of Audit Practice and the 2014 Act place wider reporting responsibilities on us, as the Council‘s external auditor. We set out below, the context of these reporting responsibilities and our findings for each.
Matters on which we report by exception The 2014 Act provides us with specific powers where matters come to our attention that, in our judgement, require reporting action to be taken. We have the power to: ° issue a report in the public interest; ° make statutory recommendations that must be considered and responded to publicly; ° apply to the court for a declaration that an item of account is contrary to law; and ° issue an advisory notice under schedule 8 of the 2014 Act. We have not exercised any of these statutory reporting powers.
Reporting to the NAO in respect of Whole of Government Accounts consolidation data The NAO, as group auditor, requires us to complete the WGA Assurance Statement in respect of its consolidation data, and to carry out certain tests on the data. We have completed our work and will submit this information to the NAO by the deadline of 13 September 2019.
Other information published alongside the financial statements The Code of Audit Practice requires us to consider whether information published alongside the financial statements is consistent with those statements and our knowledge and understanding of the Council. In our opinion, the other information in the Statement of Accounts is consistent with the audited financial statements.
Pension Fund financial statements included in the Pension Fund Annual Report
The East Riding Pension Fund annual report, including the Pension Fund financial statements will be presented to members in November 2019. We will then review the Pension Fund’s annual report for consistency with the Pension Fund financial statements within the statement of accounts of East Riding of Yorkshire Council for the year ended 31 March 2019, and for compliance with applicable law and the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2018/19.
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197 5. OUR FEES
Fees for work as the Council's auditor We reported our proposed fees for the delivery of our work in the Audit Strategy Memorandum, presented to the Audit Committee in March 2019. Having completed our work for the 2018/19 financial year, we can confirm that our final fees are as follows:
Area of work 2018/19 proposed fee 2018/19 final fee
Delivery of audit work under the NAO Code of Audit Practice East £106,643 £106,643 Riding of Yorkshire Council
Delivery of audit work under the NAO Code of Audit Practice East £21,938 £32,738 Riding Pension Fund
Housing Benefit Subsidy Claim £13,400 £13,400
Non Audit related Services £9,000 £9,000
Fees for other work
We confirm that we have been engaged to undertakethe following non-audit services for the Council in the year. • Teachers’ Pensions £2,500 • Pooling of Housing Capital Receipts £2,500 • Homes England £4,000
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198 6. FORWARD LOOK
Financial outlook The Council continues to make good progress in delivering planned savings and achieved an underspend against overall budget for 2018/19. Further savings are required to balance the budget in future periods; the latest financial plan shows that savings of £12.5m will be required in 2019/20 and a further £17.3m across the period from 2020/21 to 2022/23. The financial strategy sets out the four core areas of focus: ° transformation of the Council’s business processes, utilising technology and enabling digital services to reduce costs; ° maximising income by taking a more commercial approach to income generation; ° cost reduction through a rigorous value for money approach to service delivery; and ° using reserves to support the budget as part of a prudent and planned strategy to provide time for services to prepare for budget reductions. Whilst the financial climate remains challenging, the Council is still well placed to deal with this. Operational challenges The Council recognises that continuing to deliver a high standard of services is likely to remain challenging during the continued period of austerity and is actively managing performance to minimise the impact of the difficult decisions needed to deliver services within the available funding levels. Key challenges faced by the Council in the future include: ° continued delivery of savings identified in the 2019/20 budget round and identification of savings covered in the 2020/21 – 2022/23 period; ° the timing of the Comprehensive Spending Review and the Fair Funding Review which are both currently unknown; and ° development and launch of the updated local performance framework. Performance management arrangements are in place, and outcomes are reported to and monitored by Members at Cabinet meetings. In terms of technical challenges that officers face around the production of the statement of accounts, a key focus for 2019/20 will be the adoption of IFRS 16 which is a new standard which established a new model for lessees and removes existing classifications of operating and finance leases. The impact on the statement of accounts of this new standard could be material, and so should be monitored by the Council. How we will work with the Council Our 2019/20 audit will focus on the risks that the challenges above present to the Council’s financial statements and the Council’s ability to maintain proper arrangements for securing value for money. We will continue to support the Council through our audit work and through our attendance at Audit Committee where we will inform the Committee about our progress on the audit, report our key findings and share our insight on any changes we are aware about in the sector. We will continue to offer accounting workshops to finance officers, and the audit team will continue to work with officers to share our knowledge of new accounting developments and we will be on hand to discuss any issues as and when they arise.
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199 MAZARS AT A GLANCE
Mazars LLP ° Fee income €1.6 billion ° Over 86 countries and territories ° Over 300 locations ° Over 20,000 professionals ° International and integrated partnership with global methodologies, strategy and global brand
Mazars Internationally
Mazars in the UK
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200 CONTACT
Mark Kirkham Partner & Engagement Lead
Phone:0113 394 5315 Email: [email protected]
Cath Andrew Senior Manager
Phone: 0191 383 6300 Email: [email protected]
201
10 EAST RIDING OF YORKSHIRE COUNCIL
Report to: East Riding Pension Fund Local Pension Board 1 November 2019
Update on the Pension Administration Strategy
Report of the Director of Corporate Resources
A. Executive Summary
This report provides details of the application of the Pension Administration Strategy (PAS) during the 2018-19 scheme year and uses a number of Key Performance Indicators (KPIs) outlined within the PAS to measure overall and individual employer performance. A detailed breakdown for each employer can be found in the management information report attached as Appendix 1. The results for 2018-19 will be used as a benchmark for future reports on employer performance.
The PAS, which was originally endorsed by the Board at its meeting on 30 June 2017, was updated in accordance with Regulation 59 of the Local Government Pension Scheme (LGPS) Regulations (2013) to incorporate the changes in administration due to the phased introduction of Monthly Data Collection (MDC). The revised version was endorsed by the Board on 21 June 2019 and agreed by the Pensions Committee at its meeting on 26 July 2019.
Following a consultation with scheme employers the revised PAS came into force on 1 October 2019.
B. Recommendation
That the report is noted.
C. Equality Implications
Equality implications have been considered and no negative impacts upon protected characteristic groups were identified.
1 Background
1.1 On 2 November 2018, following the implementation of the PAS, a report was brought to the board detailing the level of performance of scheme employers against the KPIs listed in the PAS between 1 April 2018 and 30 June 2018 (Q1).
1.2 The report contained an overview of scheme employer performance in Q1. As the table below demonstrates, only a small percentage of scheme employers that submitted information to the East Riding Pension Fund (“the Fund”) were meeting the KPIs outlined in the PAS.
202 Appendix 1 – Individual employer data
1. ERPF Web New Joiner – Received within 3 weeks of the member joining the scheme
Total received within Total % Within Employer target received Target Appleton Primary Academy 0 1 0% Beacon Academy 0 1 0% Biggin Hill Primary Academy 0 2 0% Bricknell Primary Academy 0 5 0% Brigg Town Council 0 1 0% Broughton Town Council 0 1 0% Bursar Academy 0 5 0% Cleeve Primary Academy 0 1 0% Collingwood Primary Academy 0 1 0% Compass Contract Services UK LTD (Winterton Community Academy) 0 8 0% Consortium Academy Trust - Holderness Academy and Sixth Form 0 18 0% Delta - Craven Primary Academy 0 5 0% Delta - Estcourt Primary Academy 0 2 0% Delta - Melior Community College 0 2 0% Delta - Strand Academy 0 2 0% Delta - The Parks Primary Academy 0 1 0% Delta - Trinity House Academy 0 4 0% Delta - Vale Academy 0 4 0% Delta - Weelsby Academy 0 8 0% Delta - Worlaby Academy 0 2 0% DRET - Ainthorpe Primary Academy 0 5 0% Easington Academy 0 2 0% Ebor - Marfleet Primary Academy 0 3 0% Ebor - Riston Primary Academy 0 4 0% Ebor - Sproatley Endowed Primary 0 3 0% Enfield Academy of New Waltham 0 5 0% Engineering UTC Northern Lincolnshire 0 4 0% Ganton Academy 0 6 0% Goole Town Council 0 2 0% Hall Road Primary Academy 0 4 0% HCAT - Stockwell Academy 0 4 0% Highlands Primary Academy 0 14 0% Hull College 0 1 0% Humber Education Trust - Adelaide Primary Academy 0 2 0% Humber Education Trust - Broadacre Primary Academy 0 1 0% Humber Education Trust - Christopher Pickering Academy 0 1 0% Humber Education Trust - Frederick Holmes Academy 0 8 0% Humber Education Trust - Woodland Primary Academy 0 1 0% Huntcliff Academy 0 4 0%
203 Isle Education Trust - Coritani Academy 0 3 0% Isle Education Trust - Epworth Academy 0 8 0% Kingswood Academy 0 4 0% Lincoln Anglican Academy Trust - Ulceby St Nicholas Academy 0 3 0% Lisle Marsden Academy 0 11 0% Middlethorpe Academy 0 3 0% Neasden Primary Academy 0 2 0% Oasis - Oasis Academy (Immingham) 0 7 0% Oasis - Oasis Academy (Wintringham) 0 11 0% Oasis - Oasis Academy Henderson Avenue 0 2 0% Oasis - Oasis Academy Nunsthorpe 0 3 0% Oasis - Oasis Academy Parkwood 0 7 0% Pinnacle Housing Ltd 0 2 0% Quay Primary Academy 0 4 0% Signhills Academy 0 3 0% Signhills Infant Academy 0 9 0% Southcoates Primary Academy 0 4 0% Spring Cottage Academy 0 1 0% St Richards RC Primary Academy 0 2 0% Taylor Shaw Ltd (Frederick Gough) 0 10 0% Taylor Shaw Ltd (The St Lawrence Academy) 0 8 0% The Education Alliance - Hunsley Primary School 0 3 0% The Green Way Primary Academy 0 3 0% Thoresby Primary Academy 0 4 0% Tollbar - Pilgrim Academy 0 4 0% Tollbar - Reynolds Primary Academy 0 12 0% VENN - Bridgeview School 0 1 0% VENN - Griffin Primary Academy 0 2 0% VENN - Mountbatten Academy 0 1 0% VENN - Sullivan Centre 0 2 0% Victoria Dock 0 6 0% Waltham Leas Academy 0 6 0% Welholme Primary Academy 0 3 0% Wellsprings - Littlecoates Primary Academy 0 6 0% Yorkshire and Humber - Chiltern Primary School 0 1 0% Yorkshire and Humber - Newland School for Girls 0 1 0% Grimsby Institute 2 52 4% Tollbar - Toll Bar Academy 1 26 4% Humber Education Trust - Tweendykes Academy 1 16 6% Kingstown Works 6 73 8% Phoenix Park Academy 1 12 8% DRET - Havelock Academy 5 57 9% DRET - Humberston Academy 2 23 9% South Hunsley Academy 7 79 9% University of Lincoln 4 45 9%
204 Delta - Willoughby Road Primary Acdemy 1 10 10% Kingswood Park Academy 2 19 11% Constellation - Rise Academy 1 8 13% DRET - Wold Primary Academy 1 7 14% Eastfield Primary Academy (NEL) 1 7 14% Ebor - Alderman Cogan Primary Academy 1 7 14% Ebor - Sigglesthorne Primary Academy 1 7 14% Goole Academy 1 7 14% Springfield Academy 3 21 14% Yorkshire and Humber - Sidmouth Primary Academy 1 7 14% Tollbar - Cleethorpes Academy 2 13 15% Delta - Willows Academy 1 6 17% Humberston Cloverfields Academy 2 12 17% Priory Academy 2 12 17% Withernsea Primary Academy 3 18 17% Bishop Burton College 14 78 18% Delta - Mersey Primary Academy 1 5 20% Elliston Primary Academy 1 5 20% HCAT - Gilberdyke Academy 1 5 20% North Lincolnshire Council 38 193 20% Patrington CE Primary Academy 2 9 22% Consortium Academy Trust - Hessle Community Academy 2 8 25% The Police and Crime Commissioner for Humberside 1 4 25% Eastfield Primary Academy (Hull) 3 11 27% East Riding of Yorkshire Council 24 82 29% The Education Alliance - Driffield School 14 48 29% The Education Alliance - Malet Lambert Academy 6 20 30% Bellfield Academy 1 3 33% Bude Park Primary Academy 1 3 33% DRET - Endike Primary Academy 2 6 33% Lincoln Anglican Academy Trust - Canon Peter Hall Academy 1 3 33% Pearson Primary Academy 2 6 33% Sutton Park Primary Academy 1 3 33% VENN - Thorpepark Academy 1 3 33% John Leggott College 14 41 34% Sevenhills Academy 3 8 38% The Deep 6 16 38% DRET - Edward Heneage Academy 2 5 40% Longhill Primary Academy 2 5 40% Outwood Academy Brumby 2 5 40% HCAT - The Marvell College 5 12 42% Hull Culture & Leisure Ltd 13 31 42% Buckingham Primary Academy 3 7 43% HCAT - Westcott Primary Academy 3 7 43% Isle Education Trust - South Axholme Academy 3 7 43%
205 Sirius Academy (West) 6 13 46% Humberston Park Special School 19 39 49% Horizon - Thanet Primary Academy 1 2 50% Ouse & Humber Drainage Board 1 2 50% Sentamu Academy Trust - Newland St Johns C of E Primary Academy 1 2 50% Sirius (North) Academy 1 2 50% St Marys Catholic Primary Voluntary Academy 2 4 50% Wansbeck Primary Academy 3 6 50% Wheeler Primary Academy 1 2 50% Yorkshire and Humber - Kelvin Hall School 4 8 50% St Cuthberts - St Mary's College 13 25 52% Yorkshire and Humber - Ings Primary School 5 9 56% DRET - Fairfield Academy 3 5 60% Humber Bridge Board 6 10 60% Thrunscoe Academy 3 5 60% Dorchester Primary Academy 5 8 63% The Chief Constable of Humberside 131 202 65% Endsleigh Holy Child RC Primary Academy 2 3 67% Hull City Council 182 271 67% St Mary Queen of RC Martyrs Primary Academy 4 6 67% Wilberforce College 4 6 67% New Waltham Academy 6 8 75% St Cuthberts - St Charles RC Primary Academy 4 5 80% Healing MAT - Great Coates Primary Academy 12 14 86% Healing MAT - Healing Primary Academy 6 7 86% Healing MAT - Woodlands Academy 6 7 86% East Riding College 35 40 88% North East Lincolnshire Council 270 303 89% Old Clee Primary Academy 10 11 91% Cambridge Park Maths Academy 35 36 97% Archbishop Sentamu Academy 7 7 100% Ashwell Pupil Referral Unit 1 1 100% Beverley Grammar Academy 2 2 100% Compass Academy 13 13 100% ENGIE Service Limited 2 2 100% Francis Askew Primary Academy 1 1 100% Healing MAT - William Barcroft Junior Academy 4 4 100% Healing Science Academy Ltd 16 16 100% Maybury Primary Academy 1 1 100% Scartho Academy 5 5 100% Sentamu Academy Trust - Aspire Academy 15 15 100% St Cuthberts - St Anthonys Primary Academy 4 4 100% St Cuthberts - St Thomas More Academy 1 1 100% St Josephs Catholic Academy 7 7 100% St Vincents RC Primary Academy 1 1 100%
206 Withernsea Town Council 1 1 100% Yarborough Academy 2 2 100% Yorkshire and Humber - St Georges Primary School 1 1 100%
2. ERPF Web 50-50 received within 6 weeks of the member changing the scheme
Received Total Employer within target received % Ganton Academy 0 1 0% Grimsby Institute 0 6 0% HCAT - The Marvell College 0 1 0% Humber Education Trust - Tweendykes Academy 0 1 0% Humberside Fire Authority 0 2 0% Lisle Marsden Academy 0 1 0% Oasis - Oasis Academy (Immingham) 0 1 0% St Cuthberts - St Mary's College 0 2 0% The Education Alliance - Driffield School 0 2 0% The Education Alliance - Malet Lambert Academy 0 3 0% The Police and Crime Commissioner for Humberside 0 1 0% Wilberforce College 0 1 0% Yorkshire and Humber - St Georges Primary School 0 1 0% The Chief Constable of Humberside 1 13 8% Bishop Burton College 1 5 20% Ongo Homes CBS 2 5 40% Hull Culture & Leisure Ltd 1 2 50% Humberston Park Special School 1 2 50% Pickering and Ferens Homes 1 2 50% University of Lincoln 8 13 62% Hull City Council 62 96 65% East Riding of Yorkshire Council 16 21 76% North Lincolnshire Council 5 6 83% North East Lincolnshire Council 11 12 92% Biggin Hill Primary Academy 2 2 100% Cambridge Park Maths Academy 1 1 100% Cleeve Primary Academy 1 1 100% East Riding College 1 1 100% Humber Education Trust - Adelaide Primary Academy 1 1 100% John Leggott College 1 1 100% St Cuthberts - St Anthonys Primary Academy 1 1 100% The Deep 1 1 100% Univ of Lincoln Students Union 1 1 100% Wyke College 3 3 100%
207 3. ERPF Web leaver form received within 6 weeks of the member’s last day of scheme membership
Received Percentage within Total within Employer target Received target Collingwood Primary Academy 0 1 0.00% Compass Contract Services UK Ltd (The Vale) 0 1 0.00% Consortium Academy Trust - Howden School 0 2 0.00% Consortium Academy Trust - Wolfreton School and Sixth Form College 0 1 0.00% Constellation - Rise Academy 0 2 0.00% Constellation - Stoneferry Primary Academy 0 1 0.00% Cottingham Academy 0 1 0.00% Delta - Craven Primary Academy 0 2 0.00% Delta - John Whitgift Academy 0 2 0.00% Delta - Strand Academy 0 5 0.00% Delta - The Parks Primary Academy 0 2 0.00% Delta - Willows Academy 0 1 0.00% Eastfield Primary Academy (NEL) 0 4 0.00% HCAT - Westcott Primary Academy 0 2 0.00% Hedon Town Council 0 1 0.00% Hessle Academy 0 2 0.00% ICS Wolfreton 0 1 0.00% Laceby Acres Primary School 0 1 0.00% Lincoln Anglican Academy Trust - St Peters C of E Primary School 0 1 0.00% Newington Primary Academy 0 2 0.00% Old Clee Primary Academy 0 7 0.00% Patrington CE Primary Academy 0 3 0.00% Pearson Primary Academy 0 1 0.00% Sevenhills Academy 0 1 0.00% Shoreline HP 0 1 0.00% St Bede's Academy 0 4 0.00% St Mary Queen of RC Martyrs Primary Academy 0 1 0.00% Sutton Park Primary Academy 0 2 0.00% Univ of Lincoln Students Union 0 2 0.00% VENN - Sullivan Centre 0 1 0.00% Victoria Dock 0 3 0.00% Winifred Holtby Academy 0 2 0.00% Winterton Community Academy 0 1 0.00% Ganton Academy 4 46 8.70% Delta - Willoughby Road Primary Acdemy 1 11 9.09% DRET - Wold Primary Academy 1 10 10.00% Wold Learning - Stamford Bridge Primary School 2 19 10.53% Humberside Fire Authority 2 18 11.11% Priory Academy 1 9 11.11%
208 Goole Academy 1 8 12.50% VENN - Griffin Primary Academy 2 15 13.33% Consortium Academy Trust - Hessle Community Academy 1 7 14.29% Delta - Worlaby Academy 1 7 14.29% Tollbar - Cleethorpes Academy 1 7 14.29% Delta - Melior Community College 1 6 16.67% Humber Education Trust - Christopher Pickering Academy 1 6 16.67% Humber Education Trust - Clifton Primary School 1 6 16.67% Neasden Primary Academy 1 6 16.67% Ongo Homes CBS 3 18 16.67% Kingswood Park Academy 3 17 17.65% Tollbar - Toll Bar Academy 3 16 18.75% Withernsea Primary Academy 4 21 19.05% Lisle Marsden Academy 2 10 20.00% The Police and Crime Commissioner for Humberside 2 10 20.00% Tollbar - Reynolds Primary Academy 2 10 20.00% VENN - Thorpepark Academy 2 10 20.00% Hull Culture & Leisure Ltd 24 111 21.62% Highlands Primary Academy 3 13 23.08% Bishop Burton College 26 111 23.42% Signhills Infant Academy 4 17 23.53% Biggin Hill Primary Academy 1 4 25.00% Delta - Weelsby Academy 2 8 25.00% Emergency Fleet Services Management ( Humberside) Ltd 1 4 25.00% Kingstown Works 5 20 25.00% Oasis - Oasis Academy Nunsthorpe 2 8 25.00% Signhills Academy 1 4 25.00% St Augustine Webster Academy 1 4 25.00% The Snaith School 1 4 25.00% VENN - Bridgeview School 2 8 25.00% VENN - Whitehouse Pupil Referral Unit 2 8 25.00% South Hunsley Academy 19 73 26.03% Yorkshire and Humber - Kelvin Hall School 4 15 26.67% Grimsby Institute 41 152 26.97% Spring Cottage Academy 5 18 27.78% Delta - Wybers Wood Primary Academy 2 7 28.57% Waltham Leas Academy 2 7 28.57% DRET - Humberston Academy 7 23 30.43% University of Lincoln 70 222 31.53% DRET - Havelock Academy 21 63 33.33% Hall Road Primary Academy 2 6 33.33% Humber Education Trust - St Nicholas Primary Academy 2 6 33.33% Humber Education Trust - Tweendykes Academy 3 9 33.33% Sirius (North) Academy 3 9 33.33% Tollbar - Pilgrim Academy 2 6 33.33%
209 Yorkshire and Humber - Chiltern Primary School 1 3 33.33% DRET - Fairfield Academy 5 14 35.71% Cleeve Primary Academy 3 8 37.50% DRET - Edward Heneage Academy 3 8 37.50% ENGIE Service Limited 3 8 37.50% Oasis - Oasis Academy Parkwood 3 8 37.50% Quay Primary Academy 3 8 37.50% Delta - Vale Academy 5 13 38.46% DRET - Endike Primary Academy 2 5 40.00% HCAT - Stockwell Academy 2 5 40.00% Huntcliff Academy 2 5 40.00% Oasis - Oasis Academy (Immingham) 2 5 40.00% East Riding of Yorkshire Council 277 689 40.20% Bursar Academy 4 9 44.44% DRET - Ainthorpe Primary Academy 4 9 44.44% Hull City Council 207 456 45.39% Civica Revenue and Benefits 6 13 46.15% Isle Education Trust - South Axholme Academy 6 13 46.15% Oasis - Oasis Academy (Wintringham) 8 17 47.06% Buckingham Primary Academy 1 2 50.00% Crowle Primary Academy 2 4 50.00% Delta - Macaulay Academy 2 4 50.00% Delta - Trinity House Academy 1 2 50.00% Dunswell Academy 1 2 50.00% Ebor - Sigglesthorne Primary Academy 2 4 50.00% Ebor - Sproatley Endowed Primary 1 2 50.00% Humber Education Trust - Adelaide Primary Academy 5 10 50.00% Humber NHS Foundation Trust (ERYC) 3 6 50.00% Lincoln Anglican Academy Trust - Canon Peter Hall Academy 2 4 50.00% NPS Humber Ltd 1 2 50.00% Outwood Academy Brumby 2 4 50.00% St Cuthberts - St Charles RC Primary Academy 2 4 50.00% The Green Way Primary Academy 1 2 50.00% VENN - The Boulevard Centre 1 2 50.00% Wheeler Primary Academy 2 4 50.00% The Education Alliance - Malet Lambert Academy 6 11 54.55% John Leggott College 16 29 55.17% Humber Education Trust - Woodland Primary Academy 5 9 55.56% Thoresby Primary Academy 5 9 55.56% Kingswood Academy 4 7 57.14% Franklin College 19 33 57.58% Isle Education Trust - Epworth Academy 7 12 58.33% The Education Alliance - Driffield School 20 34 58.82% Ebor - Marfleet Primary Academy 3 5 60.00% Lincs Inspire Limited 9 15 60.00%
210 Yorkshire and Humber - St Georges Primary School 3 5 60.00% Horizon - Thanet Primary Academy 5 8 62.50% Bude Park Primary Academy 9 14 64.29% The Chief Constable of Humberside 124 190 65.26% Bricknell Primary Academy 8 12 66.67% Delta - Mersey Primary Academy 2 3 66.67% Ebor - Alderman Cogan Primary Academy 2 3 66.67% HCAT - Gilberdyke Academy 2 3 66.67% Healing MAT - William Barcroft Junior Academy 2 3 66.67% Hornsea Town Council 2 3 66.67% Longhill Primary Academy 2 3 66.67% Oasis - Oasis Academy Henderson Avenue 4 6 66.67% St Cuthberts - St Anthonys Primary Academy 2 3 66.67% Swanland Primary School 4 6 66.67% VENN - Mountbatten Academy 6 9 66.67% Wansbeck Primary Academy 2 3 66.67% Yorkshire and Humber - Ings Primary School 4 6 66.67% Yorkshire and Humber - Newland School for Girls 4 6 66.67% Young Peoples Support CIC 6 9 66.67% Hull College 79 112 70.54% New Waltham Academy 5 7 71.43% Sirius Academy (West) 13 18 72.22% Wyke College 8 11 72.73% East Riding College 27 37 72.97% Beverley Grammar Academy 11 15 73.33% Eastfield Primary Academy (Hull) 3 4 75.00% Lincolnshire Housing Partnership Ltd 3 4 75.00% Humberston Park Special School 13 17 76.47% Archbishop Sentamu Academy 20 26 76.92% HCAT - The Marvell College 7 9 77.78% Sentamu Academy Trust - Aspire Academy 7 9 77.78% North Lincolnshire Council 488 627 77.83% Humber Bridge Board 12 15 80.00% Humber NHS Foundation Trust (HULL) 4 5 80.00% St Cuthberts - St Mary's College 16 20 80.00% St Josephs Catholic Academy 4 5 80.00% St Marys Catholic Primary Voluntary Academy 4 5 80.00% The Axholme Academy 4 5 80.00% Ashwell Pupil Referral Unit 14 17 82.35% Healing MAT - Healing Primary Academy 5 6 83.33% Humber Education Trust - Broadacre Primary Academy 7 8 87.50% Ormiston Academy Trust - Ormiston Maritime Academy 15 17 88.24% North East Lincolnshire Council 183 207 88.41% Cambridge Park Maths Academy 32 36 88.89% Sentamu Academy Trust - Newland St Johns C of E Primary Academy 8 9 88.89%
211 Appleton Primary Academy 2 2 100.00% Beacon Academy 2 2 100.00% Bellfield Academy 3 3 100.00% City Health Care Partnership CIC 7 7 100.00% Consortium Academy Trust - Cottingham Croxby Primary Academy 2 2 100.00% Delta - Estcourt Primary Academy 2 2 100.00% Dorchester Primary Academy 7 7 100.00% Ebor - Riston Primary Academy 2 2 100.00% Elloughton-cum-Brough Town Council 1 1 100.00% Endsleigh Holy Child RC Primary Academy 6 6 100.00% Enfield Academy of New Waltham 1 1 100.00% Engineering UTC Northern Lincolnshire 2 2 100.00% Goole Town Council 2 2 100.00% Healing MAT - Great Coates Primary Academy 5 5 100.00% Healing MAT - Woodlands Academy 8 8 100.00% Healing Science Academy Ltd 11 11 100.00% Humber Education Trust - Parkstone Primary Academy 2 2 100.00% Independent Cleaning Services Ltd (Hessle Trust) 8 8 100.00% Isle Education Trust - Coritani Academy 2 2 100.00% KGB Cleaning Services Ltd 2 2 100.00% Market Weighton Town Council 1 1 100.00% Maybury Primary Academy 1 1 100.00% Nth Eastern Inshore Fisheries 4 4 100.00% Ouse & Humber Drainage Board 1 1 100.00% Phoenix Park Academy 1 1 100.00% Pickering and Ferens Homes 2 2 100.00% Pocklington School Foundation 16 16 100.00% Ron Dearing UTC 2 2 100.00% Scartho Academy 1 1 100.00% Sentamu Academy Trust - St James C of E Primary Academy 1 1 100.00% Sewell Facilities Management 1 1 100.00% Springfield Academy 2 2 100.00% St Mary's Academy Brigg 1 1 100.00% St Richards RC Primary Academy 4 4 100.00% St Vincents RC Primary Academy 1 1 100.00% The Deep 10 10 100.00% The St Lawrence Academy 4 4 100.00% Thrunscoe Academy 1 1 100.00% Welholme Primary Academy 1 1 100.00% Wilberforce College 8 8 100.00% Wold Learning - Pocklington Junior School 1 1 100.00% Yarborough Academy 2 2 100.00% Yorkshire and Humber - Sidmouth Primary Academy 1 1 100.00% Yorkshire and Humber - Stepney Primary Academy 3 3 100.00%
212
4. ERPF Web Notification of Retirement received 10 days before the active member’s retirement
Received within Total Employer target received % Delta - Weelsby Academy 0 1 0% Kingswood Academy 0 2 0% Lincs Inspire Limited 0 2 0% Oasis - Oasis Academy (Immingham) 0 1 0% Outwood Academy Brumby 0 2 0% Signhills Academy 0 1 0% Sirius (North) Academy 0 1 0% The St Lawrence Academy 0 1 0% Yorkshire and Humber - Kelvin Hall School 0 1 0% Yorkshire and Humber - Stepney Primary Academy 0 1 0% Beacon Academy 1 2 50% ENGIE Service Limited 2 3 67% South Hunsley Academy 2 3 67% Hull Culture & Leisure Ltd 7 8 88% East Riding of Yorkshire Council 42 45 93% North Lincolnshire Council 103 110 94% Hull City Council 74 77 96% Beverley Grammar Academy 3 3 100% Bishop Burton College 1 1 100% Bursar Academy 1 1 100% City Health Care Partnership CIC 1 1 100% Delta - Macaulay Academy 3 3 100% Delta - Strand Academy 2 2 100% Delta - Vale Academy 3 3 100% Delta - Wybers Wood Primary Academy 2 2 100% Dorchester Primary Academy 1 1 100% DRET - Fairfield Academy 2 2 100% DRET - Havelock Academy 2 2 100% East Riding College 3 3 100% Ebor - Marfleet Primary Academy 1 1 100% Emergency Fleet Services Management ( Humberside) Ltd 3 3 100% Ganton Academy 1 1 100% Horizon - Thanet Primary Academy 2 2 100% Hull College 1 1 100% Humber Bridge Board 2 2 100% Humber Education Trust - Broadacre Primary Academy 2 2 100% Humber Education Trust - Christopher Pickering Academy 1 1 100% Humber Education Trust - Clifton Primary School 1 1 100%
213 Humber Education Trust - Parkstone Primary Academy 2 2 100% Humber Education Trust - St Nicholas Primary Academy 1 1 100% Humberside Fire Authority 1 1 100% Humberston Park Special School 1 1 100% Kingstown Works 1 1 100% Maybury Primary Academy 1 1 100% North East Lincolnshire Council 13 13 100% NPS Humber Ltd 1 1 100% Oasis - Oasis Academy (Wintringham) 1 1 100% Oasis - Oasis Academy Henderson Avenue 2 2 100% Oasis - Oasis Academy Parkwood 1 1 100% Ormiston Academy Trust - Ormiston Maritime Academy 4 4 100% Phoenix Park Academy 2 2 100% Pocklington School Foundation 1 1 100% Quay Primary Academy 2 2 100% Signhills Infant Academy 4 4 100% Sirius Academy (West) 2 2 100% Spring Cottage Academy 2 2 100% St Cuthberts - St Anthonys Primary Academy 2 2 100% St Cuthberts - St Mary's College 2 2 100% St Richards RC Primary Academy 1 1 100% The Chief Constable of Humberside 2 2 100% The Education Alliance - Driffield School 3 3 100% Tollbar - Pilgrim Academy 1 1 100% University of Lincoln 14 14 100% VENN - Griffin Primary Academy 1 1 100% VENN - Whitehouse Pupil Referral Unit 1 1 100% Waltham Leas Academy 1 1 100% Winterton Community Academy 1 1 100% Wold Learning - Pocklington Junior School 1 1 100%
214 No of employers Percentage of employers Description KPI% submitting meeting KPI information New member joins the scheme 90 50 28% Election to change scheme section (50/50 & main scheme) 90 12 67% Early Leavers 90 81 38% Retirements 100 29 79%
1.3 The performance for all scheme employers was reviewed for Q1 and scheme employers that failed to meet the KPIs were identified.
1.4 As reported to the Board at its meeting on 2 November 2018 with regard to the 2017-18 year end submission, 20 scheme employers failed to submit a return by the statutory deadline of 30 June 2018. Each scheme employer was issued with an improvement notice and requested to complete an action plan outlining how they would meet the deadline for the 2018-19 scheme year end.
1.5 For the 2017-18 year end, two scheme employers submitted a return that caused the Fund significant additional work. These employers were recharged for the cost of the additional work needed to complete their submission.
1.6 At its meeting on 21 June 2019, the Board was advised by Officers of the Fund that a further annual update on employer performance during 2018-19 would be provided to the Board on 1 November 2019, including details of any instances of scheme employers having been issued with an improvement notice or having had a fine levied.
2 Employer Performance – Key Performance Indicators (KPIs)
2.1 Within the PAS, a number of KPIs are set out for measuring the performance of scheme employers. 2018-19 is the first year that the KPIs have been measured and will serve as a benchmark for the future reporting of employer performance.
2.2 Of the six KPIs in the PAS in place during the 2018-19 scheme year the following have been measured:
Event for notification Approved Timescales for Performance target method of submission submission New member joins the ERPF Web Received within 3 90% of new starter forms are scheme New Joiner weeks of the member received within 3 weeks joining the scheme Election to change ERPF Web Received within 6 90% of change of scheme scheme section (50/50 & 50-50 weeks of the member elections notified within 6 main scheme) changing the scheme weeks Early Leavers ERPF Web Received within 6 90% of notifications received Leaver weeks of the within 4 weeks of the last Form member’s last day of day of membership scheme membership
215 Event for notification Approved Timescales for Performance target method of submission submission Retirements ERPF Web Received 10 days 100% of Notifications of Notification before the active Retirement forms received of member’s retirement 10 days before retirement Retirement date
2.3 Notification of the death of a member has not been reported on in the 2018-19 scheme year due to difficulties in extracting the information from the current processes. This area is under review and a measure will be built in to report on the target in the amended PAS.
2.4 The performance target for submission of the scheme employer year-end return is 100%. For 2018-19, 99.4% of scheme employers completed their submission by the final date set by the Fund compared to 96% in 2017-18. Only one scheme employer failed to submit a return. However, 16 scheme employers failed to submit a valid file by the statutory deadline of 30 June 2019.
2.5 The table below shows the overall performance of all Scheme employers for the 2018-19 scheme year:
Description Number Total within KPI% received KPI New member joins the scheme 2,641 1,089 41%
Election to change scheme section (50/50 & main scheme) 213 122 57% Early Leavers 4,512 2,301 51% Retirements 371 341 92%
2.6 The table below shows a breakdown of scheme employer performance during the 2018-19 scheme year. A detailed breakdown for each employer can be found in the management information report attached as Appendix 1.
No of employers Percentage of employers Description KPI% submitting meeting KPI information New member joins the scheme 90 178 10% Election to change scheme section (50/50 & main scheme) 90 34 38% Early Leavers 90 219 20% Retirements 100 68 75%
2.7 The performance summary shows that a large number of scheme employers are failing to meet the KPI for every event that they notify the Fund about.
2.8 East Riding of Yorkshire Council and Hull City Council notify new joiners via the bulk data interface (BDI) for their own new joiners and their associated business units, including North
216 Lincolnshire Council. These joiners are not included in the above statistics as the records are automatically created on the system via the BDI. This means that they do not have a reportable process.
2.9 Due to the current backlog in deferred benefits and the system configuration, it is not possible to report on Early Leavers that have not yet been finalised by the Fund. These cases are not included in the above statistics.
3 Update on the PAS
3.1 To date, no scheme employers have been issued with an additional charge or an official improvement plan for the 2018-19 scheme year. Any issues identified with scheme employers have been resolved informally without the need to move to an improvement plan. Following the completion of the 2018-19 year end return exercise, 16 scheme employers that failed to provide an accurate year end return file by 30 June 2019 in line with the Pension Administration Strategy will be issued with an improvement notice.
3.2 In November 2018, two employer training sessions were held outlining scheme employer responsibilities and the timescales in which documentation should be received by the Fund. 33 employers attended these sessions and the overall feedback score was 83%.
3.3 The PAS and the employer KPIs have been reviewed to incorporate the phasing in of MDC and the revised PAS was endorsed by the Local Pension Board on 21 June 2019 and agreed by Pensions Committee on 26 July 2019.
3.4 Following a consultation with scheme employers the revised PAS came into force on 1 October 2019.
3.5 In the lead up to the 2018-19 year end exercise and the 2019 valuation, scheme employers with large amounts of outstanding missing data or data queries were asked to perform a data cleanse. This compared the active members, current hours and service history and personal data held on the scheme employer’s records, to that held on UPM (the Fund’s pensions’ administration system). This identified and rectified a large number of missing starters, leavers, changes in hours and breaks in service.
3.6 Although targeted work with all individual employers failing to meet the KPIs has not progressed as much as anticipated due to limitations in resource, it has become clear that engaging and supporting employers is essential for good quality member data. This is evidenced by the increase in percentage of annual returns received for 2018-19 following the targeted data cleansing and engagement as outlined above.
4 Next Steps
4.1 Within the Fund, the quality of the member data is extremely important and a number of ongoing projects are concentrating on this area. The Fund is currently looking at the structure and staffing of the section to establish how this will support good member data and the phased introduction of MDC.
4.2 Monitoring employers and improving performance will form an integral part of these projects, therefore an overall employer data improvement plan will be looked at as scheme employers switch to MDC, which is a mandatory requirement by April 2021. This ensures that monitoring is not duplicated and resources can be used efficiently.
217 4.3 Two further scheme employer training sessions are scheduled to take place in October 2019 with 46 employers already booked to attend.
Darren Stevens Director of Corporate Resources
Contact Officer: Julian Neilson Head of Finance Telephone Number: 01482 394100 E-mail: [email protected]
Contact Officer: Jenny Gregory Assistant Pensions Manager Telephone Number: 01482 394153 E-mail: [email protected]
218
11i(a) EAST RIDING OF YORKSHIRE COUNCIL
PENSIONS COMMITTEE
26 JULY 2019
PRESENT: Councillors Meredith (in the Chair), Beaumont, Hammond, Healy, Holtby, Lee, Rudd, Whittle and Wilkinson.
Councillor Shreeve - North East Lincolnshire Council Mr G Day - Schroder Investment Management Mr A Stone - Border to Coast Pensions Partnership Mr R Worrall - Independent Advisor
Also in attendance: Press - 0 Public - 0
The Committee met at County Hall, Beverley.
1354 DECLARATIONS OF PECUNIARY AND NON-PECUNIARY INTEREST - Councillors Rudd and Whittle declared an interest in Minutes 1356 to 1365 as members of the Local Government Pension Scheme.
1355 MINUTES - Resolved - That the minutes of the Pensions Committee meeting held on 26 April 2019 be approved as a correct record.
1356 LOCAL AUTHORITY PENSION FUND FORUM BUSINESS MEETING - The Director of Corporate Resources submitted a report which summarised the business meeting of the Local Authority Pension Fund Forum (LAPFF). The LAPFF continued to engage with companies, other institutional shareholders, and regulatory organisations with respect to a number of corporate governance issues. The LAPFF provided the ideal forum to deal with these types of issues as it had both the resources and the influence with which to effect change. This was demonstrated by the vast number of collaborative initiatives and consultation responses that the LAPFF had participated in.
The Fund joined the LAPFF in November 2009. Membership of the LAPFF currently consisted of 86 local authority pension funds representing circa 90% of LGPS assets under management, including all funds in the Border to Coast Pensions Partnership. The LAPFF held a business meeting in April 2019 to discuss a range of current corporate governance and investment issues.
Resolved - That the report be noted.
1357 PENSION FUND ANNUAL REPORT AND ACCOUNTS 2018-19 - The Director of Corporate Resources submitted a report which included a copy of the Draft Pension Fund Accounts for 2018-19 which were approved by the Head of Finance on 31 May 2019. The audit of the accounts by Mazars had been completed and an unqualified opinion was expected to be issued by 31 July 2019.
During the year to 31 March 2019:
The Fund increased in value to £5,057.7m (2017-18: £4,785.5m).
B:/DDPC/CR/Democratic/Pensions/Committee/26jul19.docx (ie/lb) 219 Pensions 26 July 2019
The number of employers increased to 321 (2017-18: 300).
Membership increased by 1.8% to 114,882 (2017-18: 112,882).
The average pension paid was £4,531.78 per annum (2017-18: £4,798.26).
The Fund generated a return of 6.8% compared to the benchmark return of 6.4%.
The Pension Fund's annual report, including the audited accounts would be presented to the Committee on 1 November 2019.
Resolved - That the report be noted.
1358 AUDIT AND ASSURANCE REPORTS - The Director of Corporate Resources submitted a report that covered the findings of the work undertaken to assess the internal controls and procedures in place at:
Schroder Investment Management Limited and Border to Coast Pensions Partnership, the Pension Fund's external investment managers.
State Street Global Services, the Pension Fund's global custodian.
The Investments Section, the Pension Fund's internal investment manager, and
The Pensions Administration section.
The conclusion of the reports in respect of Schroder Investment Management, State Street Global Services, the Investments section and the Pensions Administration section were that each of these managers had adequate risk controls and procedures in place. The report relating to Border to Coast Pensions Partnership was not yet available and would be reported to the Pensions Committee at its next meeting on 27 September 2019.
The Investment Strategy Statement (ISS) effective from 1 April 2018 required an annual written statement from the Investment Managers that they had adhered to the principles set out in the ISS. Attached to the report were letters of compliance with the ISS for the financial year ended 31 March 2019 from the Director of Corporate Resources and Schroder Investment Management Limited.
The Pension Fund's Independent Advisor, Rohan Worrall, would periodically provide an updated list of directorships and shareholdings. Any potential conflict of interest with the Pension Fund would be disclosed in the Investment Risk Management Schedule of the relevant Quarterly report.
Resolved - That the report be noted.
1359 PENSION FUND RISK REGISTER - The Director of Corporate Resources submitted a report which presented a six monthly review of the Pension Fund's Risk Register. No new strategic risk areas had been identified during the latest review.
The residual risk score for Risk 1 - "The Pension Fund's assets do not meet expected liabilities when they fall due" had been reduced from 15 to 10, as the Fund's triannual actuarial
B:/DDPC/CR/Democratic/Pensions/Committee/26jul19.docx (ie/lb) 220 Pensions 26 July 2019 valuation targeted a 66% likelihood of success in 20 years' time and therefore it was considered that this risk was unlikely to materialise in the medium term.
The inherent risk score for Risk 2 - "The Fund is unable to meet the requirements of Government policy on pooling investments across LGPS fund" had been reduced from 16 to 4 and the risk was now considered to have reduced to a level where it could be removed from the register, as the Fund had successfully transitioned 35% off its assets to Border to Coast and was actively engaged with Border to Coast to transfer more assets over the next two years.
With regard to Risk 3 - "The potential for disruption, monetary losses, and adverse investment performance from the transfer of assets and personnel into Border to Coast Pensions Partnership Limited", the transfer of personnel had already taken place and reference to the personnel was now removed.
The residual risk score for Risk 8 - "Failure to report a breach of the law to the Pensions Regulator (TPR)" had been reduced from 4 to 2 and the risk was now considered to have reduced to a level where it could be removed from the register, as the legal duty to report a breach to the Pensions Regulator was now embedded in the Fund's processes and highlighted in key Fund documents, including the Pension Administration Strategy.
The Risk Register had been updated for news/issues since the previous review and it was attached to the report for consideration.
The report also reported any breaches of the law which required reporting to the Pensions Regulator. There were no new breaches to report since the last review on 1 February 2019.
Resolved - (a) That the updates to the Pension Fund Risk Register be noted;
(b) that Risk 2 be removed from the Risk Register, and
(c) that Risk 8 be removed from the Risk Register.
1360 CONSULTATION ON CHANGES TO THE LOCAL VALUATION CYCLE AND MANAGEMENT OF EMPLOYER RISK - The Director of Corporate Resources submitted a report which informed the Committee that the Ministry of Housing, Communities and Local Government (MHCLG) had issued a consultation entitled "Changes to the Local Valuation Cycle and the Management of Employer Risk" and was seeking comments on a number of matters relating to the Local Government Pension Scheme (LGPS).
The key proposals in the consultation were as follows:
To amend the local fund valuation cycle of the LGPS from the current three year (triennial) cycle to a four year (quadrennial) cycle with effect from 2024. The MHCLG's preferred option for transitioning into this was to allow the 2019 valuation to complete as anticipated (setting the employer contribution rates for three years) and then have an out-of-cycle-valuation performed in 2022 (setting the employer contribution rates for two years). The introduction of a power for LGPS funds to undertake interim valuations (in full or in part). The widening of the power that allows LGPS administering authorities to amend an employer’s contribution rate in between valuations.
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The introduction of a ‘deferred employer’ status that would allow funds to defer the triggering of an exit payment for certain employers who had a sufficiently strong covenant. Allowing an exit payment calculated on a full buy-out basis to be recovered over a period of time for cases where ‘deferred employer’ status might not be appropriate. A review of the arrangements for paying exit credits in cases where risk sharing provisions exist within the contractual agreements with an employer. A removal of the requirement for further education corporations, six form college corporations and higher education corporations in England to offer membership of the LGPS to their non-teaching staff for new entrants.
The East Riding Pension Fund Local Pension Board had considered the consultation paper at its meeting on 21 June 2019 and the Board's draft response was attached to the report for consideration.
Resolved - That the Local Pension Board's draft response be approved.
1361 PENSION ADMINISTRATION STRATEGY - The Director of Corporate Resources submitted a report which detailed proposed amendments to the Pension Administration Strategy (PAS) which was previously approved by the Pensions Committee at its meeting on 29 September 2017. Following a statutory consultation with scheme employers, the PAS came into force on 1 January 2018.
The amended PAS had been drafted in accordance with Regulation 59 of the Local Government Pension Scheme (LGPS) Regulations (2013). The proposed amendments were to update the performance targets for the East Riding Pension Fund and for the scheme employers taking account of statutory timescales and the introduction of monthly data collection. Additional scheme employer responsibilities had been added, including the supply of information following a change of payroll provider.
At its meeting on 21 June 2019, the East Riding Pension Fund Local Pension Board recommended a revised Pension Administration Strategy for approval by the Committee.
Resolved - That the revised Pension Administration Strategy be approved.
1362 EXCLUSION OF THE PRESS AND PUBLIC - That the Press and Public be excluded from the meeting for consideration of the following items (Minutes 1363 to 1365) on the grounds that they are likely to involve disclosure of exempt information as defined in Paragraph 3 of Part I of Schedule 12A of the Local Government Act 1972. In making this decision, the Committee confirmed that having regard to all the circumstances it was satisfied that the public interest in maintaining the exemption outweighed the public interest in disclosing the information.
1363 UPDATE ON BORDER TO COAST PENSIONS PARTNERSHIP - The Director of Corporate Resources submitted a report which reminded the Committee that Border to Coast Pensions Partnership Limited (Border to Coast) was an alternative investment fund manager, authorised by the Financial Conduct Authority (FCA) and wholly owned by 12 Local Government Pension Scheme (LGPS) administering authorities which included East Riding of Yorkshire Council. Border to Coast operated investment funds for these administering authorities to invest pension fund assets, based on their strategic asset allocation. The timeline for the development of new sub-funds showed that a range of new sub-funds would become available to partner Funds in the next nine months covering Equities, Fixed Income and Alternatives. Officer working
B:/DDPC/CR/Democratic/Pensions/Committee/26jul19.docx (ie/lb) 222 Pensions 26 July 2019 groups had been established with Border to Coast to create sub-funds that met the requirements of partner funds.
The Border to Coast Pensions Partnership Limited Annual General Meeting was held on 18 July 2019. The agenda included a range of Ordinary Business matters, including updates from the Chief Executive Officer, the Chief Operating Officer, the Chair of the Audit and Risk Committee and the Chair of the Remuneration and Nomination Committee. A number of Special Resolutions were also considered, including the Adoption of the Accounts, Reappointment for External Auditors, Conflicts of Interest and a Board Composition.
Border to Coast had confirmed that its Annual Conference would take place on 10 and 11 October 2019 at the Royal Armouries. The East Riding Pensions Fund had been allocated ten places in the first instance, available to members of the Committee, Local Pension Board members and officers.
Officers would continue to monitor the development of the pool and further updates would be provided to the Pensions Committee.
Resolved - (a) That the report be noted, and
(b) that expressions of interest in attending the Annual Conference be submitted to the Senior Committee Manager.
1364 CORPORATE GOVERNANCE AND VOTING ACTIVITY - The Director of Corporate Resources submitted a report that informed the Committee of the voting record of the internal and external investment managers for the quarter ended 30 June 2019. Of the 25 proposals voted, the internal manager voted in accordance with the UK Corporate Governance Code on 99.6% of occasions.
Schroder Investment Management had provided the voting record for its discretionary equity portfolios for the quarter ended 30 June 2019. Of the 1,552 proposals voted, the manager voted in accordance with its stated policy on 96.5% of occasions.
Border to Coast Pensions Partnership had provided its voting record for the quarter ended 30 June 2019. Of the 5,463 proposals voted, the manager voted in accordance with its stated policy on 100% of occasions.
Resolved - That the report be noted.
1365 REVIEW OF THE PORTFOLIO AND TRANSACTIONS FOR QUARTER ENDED 30 JUNE 2019
Internally Managed Funds - The Director of Corporate Resources submitted a report which summarised the position of the whole Fund for the quarter ended 30 June 2019 and considered the Internally Managed Portfolio and associated transactions in more depth. The value of the Fund as at 30 June 2019 was £5,253.2m, an increase of £200m from the value of the previous quarter.
Border to Coast Pensions Partnership - Mr A Stone presented a report to the Committee on the portfolio of investments managed by Border to Coast Pensions Partnership.
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Schroder Investment Management - Mr G Day presented a report to the Committee on the portfolio of investments managed by Schroder Investment Management Limited.
Independent Advisor - Mr R Worrall submitted his comments on the Fund's performance within the quarter on the proposed asset allocation.
Consideration was given to the recommended tactical asset allocation from both the internal and external managers and advice from the independent advisor.
Resolved - (a) That the future investment policy be reviewed in light of advice from external managers, independent advisor and Director of Corporate Resources, and
(b) that the strategic asset allocation be noted and the allocation for this quarter be agreed at 57.2% equities, 1.1% derivatives, 16.1% bonds and cash and 25.6% alternatives.
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PENSIONS COMMITTEE
27 SEPTEMBER 2019
PRESENT: Councillors Meredith (in the Chair), Beaumont, Hammond, Healy, Holtby, Lee, Rudd, Whittle and Wilkinson.
Ms N Jadhav - Unison Mr R Weightman - Unite
Also in attendance: Press - 0 Public - 0
The Committee met at County Hall, Beverley.
1366 DECLARATIONS OF PECUNIARY AND NON-PECUNIARY INTEREST - Councillors Rudd and Whittle, and Mr R Weightman declared an interest in Minutes 1368 to 1371 as members of the Local Government Pension Scheme.
1367 MINUTES - Resolved - That the minutes of the Pensions Committee meeting held on 26 July 2019 be approved as a correct record.
1368 LOCAL AUTHORITY PENSION FUND FORUM AGM AND BUSINESS MEETING - The Director of Corporate Resources submitted a report that summarised the Annual General Meeting and Business Meeting of the Local Authority Pension Fund Forum (LAPFF) held in July 2019. The LAPFF continued to engage with companies and other institutional shareholders, and regulatory organisations with respect to a number of corporate governance issues. The LAPFF provided the ideal forum to deal with these types of issues as it had both the resources and the influence with which to effect change. This was demonstrated by the vast number of collaborative initiatives and consultation responses that the LAPFF had participated in. It was also demonstrated by the significant increase in membership in recent years as local authority pension funds are increasingly seeing the benefit of collaboration and pooling of interest.
The Fund joined the LAPFF in November 2009. Membership of the LAPFF currently consists of 82 local authority pension funds representing circa 88% of LGPS assets under management including all funds in the Border to Coast Pensions Partnership. The business meeting held in July discussed a number of current corporate governance and investment issues. The forum’s Annual Report 2018 and draft financial statements were presented to the Annual General Meeting.
The members raised a number of questions, particularly in relation to the quality of audits which the Head of Finance and Head of Investments responded to.
Resolved - That the report be noted.
1369 EXCLUSION OF THE PRESS AND PUBLIC - Resolved - That the press and public be excluded from the meeting for consideration of the following items (Minutes 1370 and 1371) on the grounds that they are likely to involve disclosure of exempt information as defined in Paragraph 3 of Part 1 of Schedule 12A of the Local Government Act 1972. In making this decision the Committee confirmed that having regard to all the circumstances, it was satisfied that the
DDPC/CR/Democratic/pensions/minutes/27sep19 (ie/ac) 225 Pensions 27 September 2019 public interest in maintaining the exemption outweighed the public interest in disclosing the information.
1370 UPDATE ON BORDER TO COAST PENSIONS PARTNERSHIP - The Director of Corporate Resources submitted a report which reminded the Committee that Border to Coast Pensions Partnership Limited (Border to Coast) was an alternative investment fund manager authorised by the Financial Conduct Authority (FCA) and wholly owned by 12 Local Government Pension Scheme (LGPS) administering authorities which included East Riding of Yorkshire Council. Border to Coast operated investment funds for all these administering authorities to invest pension fund assets, based on their strategic asset allocation.
The governance timeline for the development of new sub-funds showed that a range of new sub-funds would become available to partner funds in the next 12 months covering. Officer working groups had been established with Border to Coast to create sub-funds that met the requirements of partner funds. Border to Coast would provide a controls assurance review for 2018-19 from its external auditors KPMG by the end of September 2019.
Border to Coast would be holding its Annual Conference on 10 and 11 October 2019 at the Royal Armouries in Leeds. The ERPF had been allocated 11 places which have been allocated to members of the Pensions Committee, Local Pension Board members and officers.
The Committee was informed that Councillor Holtby, Vice Chair of the Pensions Committee had been elected as a Non-Executive Director to the board of Border to Coast following an election at the Joint Committee meeting on 11 September 2019, subject to Financial Control Authority (FCA) and shareholder approval. Nominees for the second Non-Executive Director role had been requested by 27 September 2019 and election to the position would be carried out by a postal ballot.
Resolved - (a) That Border to Coast Pensions Partnership be given indicative levels of investment for the next three financial years of £30 million per annum for Private Debt;
(b) that the Committee confirmed the transfer of the UK and Overseas corporate bond portfolios, to the Investment Grade Bond Fund in 2020, and
(c) that the report be noted.
1371 YORKSHIRE AND HUMBERSIDE GRID FOR LEARNING - The Director of Corporate Resources submitted a report which informed the Committee that Yorkshire and Humberside Grid for Learning (YHGFL) joined the East Riding Pension Fund on 1 April 2003. YHGFL was a consortium consisting of 12 local authorities including the four Unitary Councils in the Fund, whose aim was to bring broadband technology to schools in the Yorkshire and Humber region. The consortium was established as a company limited by guarantee and each constituent authority had a maximum liability of £1. As a company under the control of bodies listed in Schedule 2 of the Local Government Pension Scheme (LGPS) Regulations 1997, YHGFL had the automatic right under the regulations to join the Fund without the need for a guarantor agreement.
In 2014, YHGFL created a subsidiary company ICT4 Collaboration Limited (ICT4C) because it recognised that the market was changing and it needed to trade from a more commercial footing. When YHGFL transferred all its employees to ICT4C in February 2015, it triggered a crystallisation of its pension liabilities as it no longer had any current contributors.
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The Fund raised an invoice in October 2017 for YHGFL’s deficit liabilities, known as the cessation deficit, which the Fund’s actuary had calculated as £1,310,000. Both YHGFL and ICT4C companies had since become insolvent. The pension fund deficit for ICT4C was estimated by the Fund to be £130,000 in January 2018.
The invoice in relation to the pension fund deficit for YHGFL remained outstanding and it was recommended that the Pension Committee approved the write off of the invoice and the allocation of the pension liabilities of YHGFL and ICT4C to all participating employers in the Fund.
Members raised a number of questions which the Head of Finance and Pensions Manager responded to.
Resolved - (a) That the invoice for £1,310,000 in respect of the pension liabilities for YHGFL be written off, and
(b) that the allocation of the outstanding pension liabilities of YHGFL and ICT4C to all participating employers in the Fund be approved.
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11ii EAST RIDING OF YORKSHIRE COUNCIL
Report to: East Riding Pension Fund Local Pension Board 1 November 2019
Local Authority Pension Fund Forum AGM & Business Meeting
Report of the Director of Corporate Resources
A. Executive Summary
This report summarises the Annual General Meeting and Business Meeting of the Local Authority Pension Fund Forum (LAPFF) held in July 2019.
The LAPFF continues to engage with companies, other institutional shareholders, and regulatory organisations with respect to a number of corporate governance issues.
The LAPFF provides the ideal forum to deal with these types of issues as it has both the resources and the influence with which to effect change. This is demonstrated by the vast number of collaborative initiatives and consultation responses that the LAPFF has participated in.
It is also demonstrated by the significant increase in membership in recent years as local authority pension funds are increasingly seeing the benefit of collaboration and pooling of interest.
B. Recommendation
That the report be noted.
C. Equality Implications
There are no equality implications.
1. Background
1.1 The Fund joined the Local Authority Pension Fund Forum (LAPFF) in November 2009. Membership of the LAPFF currently consists of 82 local authority pension funds representing c. 88% of LGPS assets under management (c. £200bn), including all funds in the Border to Coast Pension Partnership (BCPP). The LAPFF held its AGM followed by a business meeting in July 2010 to discuss a number of current corporate governance and investment issues.
2 Annual General Meeting
2.1 The agenda contained the following items:
To receive the Report of the Hon. Treasurer:
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LAPFF members were requested to approve the submission to the auditors of the draft financial statements for the year to 31 March 2019. Members were asked to approve publication of the signed accounts and audit report within the Members area of the website.
To receive the Annual Report 2018
To agree the proposed date of the AGM 2020 as15 July 2020.
3 Business Meeting
3.1 The following issues were discussed at the meeting:
3.2 Response to the Independent review into the Quality and Effectiveness of Audit – Brydon Review – Call for Views
. The Forum is a voluntary association of 80 local authority pension funds and six LGPS pools. It exists to promote the investment interests of the funds and to promote high standards of corporate governance amongst the companies in which they invest. Issues on accounting and audit have been a major concern since the banking crises.
. The Forum was pleased to respond to the Call for Views which it regarded as pertinent and well researched. It has long been of the opinion that the crises of audit quality has been due to the model pursued by the industry as poor and defensive by design. According to the FRC some 27% of audits are below quality and that this was unacceptable.
. The questions posed by the review include the issue of ‘producer led standards’ and that the definition of statutory audit was open to different interpretations.
. The purpose of audit is clearly set out within case law and statute in particular Section 837 of the Companies Act 2006. This contains a definition of materiality that is perfectly sufficient to direct the audit approach to unequivocal outcomes. Case law establishes two central features of the audit process namely protecting the company itself from wrongdoing and accountability of management. Both have been issues for the audit profession in the past especially where auditors have adopted management-serving business models.
. Responsibilities can be clouded by the accounting profession but Company Law is explicit and clear. True and fair view accounts are a duty of the directors under company law and auditors report on compliance with company law, including that requirement. Proper accounting records is an obligation on the company and auditors report on compliance with that to directors.
. The review is in the form of a wide ranging questionnaire to obtain views on the future role of the audit function and how best to improve its quality within the current regulatory framework.
3.3 Independent Review of the Financial Reporting Council (FRC) – Initial Consultation
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. The Forum has felt for some time that there was leadership failure with the FRC to such an extent that it should be disbanded and replaced, that the position of standard setting and enforcement should be separated and that the new body should be constituted by statute and accountable to parliament.
. Global auditing firms have influenced global auditing standards with a disconnect from the proper purpose set out in Company Law applicable to limited liability companies, which is to deal with the risks to creditors and the public. There is less focus on the detail inspection and enforcement which needs to improve to deliver sensible and fundamental statutory objectives.
3.4 Climate Risk Survey
. The LAPFF Executive meeting in January 2019 agreed that a survey of funds be conducted to understand how they were addressing climate risk. Following a review in April, it was agreed to circulate all funds and pools to act as a marketing tool for the Forum. It was agreed that the optimum timing for the survey would be September after the summer break.
. The survey is based on the LAPFF climate change policy framework with supplementary questions on how the Forum can best support funds on climate risk. The survey is a short on line poll, anonymised with the exception of one open ended question where funds can chose to share what their fund is doing on climate related investments. A report will be written up for members but it is not proposed that the survey is published publically.
3.5 Quarterly Engagement Report April to June 2019
. Tailings Dam Investor Initiative – a copy of a letter has been sent to 680 mining companies requesting information on whether they have tailings dams, the location of these dams and the state of these dams, among other data points. A spreadsheet of responses so far was circulated. The Vale dam collapse has led to a complete breakdown of trust in the company and local communities have asked that investors visit the collapse sites and engage meaningfully with affected populations. Concerns surround poor health and safety, possible future dam collapses, increased medical problems and lack of transparency in the issuing of licenses.
. A range of engagements took place during the quarter including enquiries to nine defence companies regarding the provision of weapons to Saudi Arabia, a request to Boeing for information on the 737MAX aircraft crashes and discussions with Persimmon over a possible appointment of an employee to the board.
3.6 Report of the Honorary Treasurer – Income and Expenditure to 11 June 2019
. The budget is based on the current membership level of 82 full-year and paying Forum memberships. Pool members whose participant funds are 100% LAPFF members do not pay a membership fee and are not included within this membership count.
230 . The surplus carried forward from 2018/19 was £238,428 and the projected surplus for the current year is £62,112 which will increase reserves to £300,540 at the end of the year.
4 Conclusion
4.1 The LAPFF engages with companies, other institutional shareholders, and regulatory organisations with respect to a wide range of corporate governance issues.
4.2 The LAPFF provides the ideal forum to deal with these types of issues as it has both the resources and the influence with which to effect change. This is demonstrated by the number of collaborative initiatives and consultation responses that the LAPFF has participated in.
4.3 It is also demonstrated by the significant increase in membership in recent years as local authority pension funds are increasingly seeing the benefit of collaboration and pooling of interest.
Darren Stevens Director of Corporate Resources
Contact Officer: Julian Neilson Head of Finance Telephone Number: 01482 394100 E-mail: [email protected]
Contact Officer: Kevin Dervey Head of Investments Telephone Number: 4135 E-mail: [email protected]
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