Agenda item

This report presents the current Risk Register (in Appendix A) for the Pension Fund and highlights any changes made since the last review carried out at the Pension Committee meeting held on 11 June 2024.

The Head of Pensions and Treasury introduced the item and explained that officers had added two risks to the risk register, officers had slightly modified a risk in relation to the levelling up agenda however since the change in government this risk was on hold.

The Head of Pensions and Treasury informed the Committee that risk 18 on the register related to more reporting requirements for the annual report.  these are. The Head of Pensions and Treasury stated that this would add to the teams’ pressures in terms of resourcing and keeping up to date with being able to report on those items.

The Head of Pensions and Treasury explained that risk 17 was in relation to investments going forward and the government's view on more consolidation and looking at mergers with other funds. The Head of Pensions and Treasury stated that their external legal advisors believed that if this was to come to fruition, it would have major legal implications.

The Head of Pensions and Treasury informed the Committee that the government issued a call for evidence on the 4th September, this posed 10 questions in relation to defined contribution and local government pension schemes. The Head of Pensions and Treasury stated that whilst there were 10 questions, only five were related to the LGPS.

Robbie Sinnott stated that the government had either mentioned directly or referred to things that would impact the LGPS quite frequently. Robbie Sinnott explained that the first thing the government did was change the name of the department, so it was no longer referred to as Department for Levelling Up, Housing and Communities (DLUHC) it was now the Ministry of Housing, Communities and Local Government (MHCLG).

Robbie Sinnott explained that Mercer had discussed with their colleagues in Canada about their approach and found that they were having similar conversations to the LGPS about trying to get Canadian pension schemes to invest more in Canada.

Robbie Sinnott stated that the new government had a similar agenda to the previous government, however they had more urgency and were promoting more pooling and consolidation in an attempt to drive the LGPS to invest in UK assets.

Robbie Sinnott explained that there was a pensions review, with regards to the LGPS it was highlighted that it was going to tackle fragmentation and inefficiency through consolidation and improved governance and focus on outcomes rather than costs.

Robbie Sinnott believed that this was slightly unfair on the LGPS who overall had focused more on outcomes rather than costs, and if there had been a focus on cost it that had potentially come from statements made by the government.

Robbie Sinnott stated that in order to assess how successful the LGPS asset pooling had been they had to look at the initial aims of pooling which was to drive down costs and to increase investment in other asset classes, specifically infrastructure that were more difficult for LGPS funds to access. Robbie Sinnott informed the Committee that there was evidence that the pooling had driven down costs, and the fund was consistent with all other funds as it had larger allocations to private markets, private debt, infrastructure and private equity which was seen across the board.

Robbie Sinnott stated that in regard to the government encouraging pension schemes to increase their investment budget and take on more risk so that it can invest in higher return in asset classes to encourage more investment into private equity or infrastructure, there needed to be some consideration towards the pension funds primary duty right which was to meet the members benefits. Robbie Sinnott believed that it was important to establish who was under-writing the risk and who was getting the benefit of any need to take on more risk.

Robbie Sinnott stated that there was no proof that consolidating the LGPS would mean that more assets would flow into the UK and they should focus on incentivising people to invest in the UK as opposed to pushing them to invest in the UK.

Robbie Sinnott explained that whilst the LGPS had a higher allocation to UK equities than the private sector, there had been reduction in its allocation into UK equities overtime. Robbie Sinnott stated that most pension funds now took a global approach to investment.

Robbie Sinnott informed the Committee that across Mercers LGPS base, their clients had committed over £4 billion of assets in the UK over the last five years. Robbie Sinnott stated that a lot of those commitments would have been supporting government agendas such as investments in renewable infrastructure in the UK.

Robbie Sinnott explained that LGPS funds had started to make local investments which promoted local and regional growth and there were also funds who had been doing it outside of pooling as well. 

Robbie Sinnott stated that Mercers view was that the best course of action was to try and be constructive with the government proposals rather than being too combative against it.

Robbie Sinnott explained that the LGPS employer contribution rates were low in comparison to other public sector pension schemes, and it was significantly lower than some of the unfunded public sector schemes.

Robbie Sinnott stated that Mercer would share their response with the Head of Pensions and Treasury when it had been finalised and it would be published on their website as well in June 2025.

In response to questions from Members officers informed the Committee:

• Officers had assessed their resourcing and were in the process of transferring some of the positions in the team around. The previous structure of the team was not fit for purpose and there were some governance positions which would be advertised once the job description had been finalised. There was one admin role vacant and there was also agency staff who will need to be replaced on a permanent basis eventually on the investment side of the team.
• In terms of succession planning, there was a limited pool of individuals and there had been discussions amongst the LCIV and the Society of London Treasurers about the lack of available resource across London. This was an area of focus in order to make the department more resilient and ensure that it had access to resources. The LCIV would provide more resourcing on the investment side.
• The LCIV had provided the last three training sessions for Members before Committee.
• There was a project going on which was being led by another Borough which looked at the admin and governance functions regarding consolidation.
• Officers were starting to look externally for support and seeing how they could work with other London funds.
• In the structure that was currently in place there were positions which did not have any job descriptions behind them, this was a historic issue. Officers had to make sure that they had the right job descriptions to go with those positions, this would take some time as it needed to go through HR procedures.

Councillor Hopley stated that it would be interesting to have an individual from the LCIV attend a meeting to present on infrastructure and other asset classes that they were considering.

Resolved:

1.1  To review and note the contents of the Pension Fund Risk Register.