Agenda item

The Committee is asked to note the report.

6.1         The Head of Pensions presented the report which summarised the Fund’s funding position, market value, asset allocation, investment performance for the quarter ending 31 December 2022.

6.2         Members noted that by the end of the quarter to 31 December 2022, the Fund’s total market value had increased by £60.4m to £2,947.9m and over the quarter, total Fund assets produced a positive return of 2.1%, compared to a target of -2.0%, outperforming the strategic benchmark by 0.1%. It was reported that performance over the 3 years to 31 December 2022 was 3.7% annualised which was 0.1 behind the benchmark.  The fund was still regarded to be in a healthy position. 

6.3         In response to a question, members were advised that employer contributions would be covered under agenda item 10 and the vast majority of employers within the fund were open to new members with long term time horizons.  The Actuary explained in terms of stability, contributions weren't usually reviewed during valuations.  The Committee noted the funding level, which was driven by inflation  and interest rates.  Members were advised that during a period of volatility it would be unwise to change direction until the situation had settled down. 

6.4         The Independent Adviser (IA) drew the committee's attention to page 73 of the report, which detailed the performance summary.  In the IA opinion, he felt the market had moved through peak inflation based on year on year calculation.  He added that energy prices were falling and the speed of inflation had declined, yet there would be less of an impact on wage inflation.   The IA remarked that consumers were still prepared to spend and that supported markets, however it was a different environment for many asset classes. 

6.5         The IA continued to give a detailed presentation of his report and informed members of the long term capital market assumptions, he added that UK Gilts had increased to 4.2%, based on the 10 year return forecast and given the fall in real estate assets it would take time for prices to reset.  

6.6.        The Committee proceeded to discuss the performance v benchmark chart on page 21 of the report.  The IA explained that performance was in line with sustainable funds, which had been presented with some challenges.  The Head of Pensions  was working closely with Brunel to develop secondary benchmarks, as the industry standard progressed. It was noted that funds was measured against Morgan Stanley Capital International (MCSI) index. 

6.7         A member wished to know at what point were equities reviewed, as markets changed over time.  The IA explained that the Strategic Asset Allocation (SAA) was reviewed every three years, as SAA was driven by the long term forecast assumptions. 

6.8         Members were informed there was a poor rate of productivity in the UK and more stability was required.  The Committee discussed the labour market in the UK, and some members felt that low wages had supressed market productivity.  The IA informed the committee that historically the UK had issues with inflation, and it would take time to redress the balance and Government would need to set a clear roadmap. 

6.9         The Head of Pensions introduced the Andy Cunningham, Pension Administration Manager to the Committee and the remaining three Pension Officer posts had been recruited too.  The Head of Pensions informed Committee that there was some improvement in the Administration Key Performance Indicator's (KPI's) and the team were actively working to resolve the issues. Members reiterated their frustration with the KPI's and felt there was no point in having the targets if they were unachievable. 

6.10       It was noted the review of the administration strategy would help to establish what were the relevant indicators and they would be reported back to the June Committee meeting.  The Committee were reassured that none of the statutory targets had been breached. During the discussion, members requested that the statutory deadlines be included in future reports, and that a detailed plan including dates, for accountability purposes be presented to the June Committee.  In addition, members requested a benchmark comparison against other funds in terms of KPI's.  (Action MT)

6.11       The Head of Pensions advised the Committee the performance indicators were as a result of a combination of factors over a period of time, and they would be impacted further by the complex change of calculations and the McCloud ruling.  In response to a question, it was noted that volume and complexity of the pension administration had increased and the service was actively looking at working practices and technology to improve the current situation.  It was noted that the Committee had been very supportive of the new staffing positions and officers appreciated the continued support and understanding. 

6.12       In terms of the Business Plan, it was reported that the service was operating to target and the Pension Audit Opinion had been issued and would be incorporated in to the annual report and published on the Fund's website. 

6.13       Member were advised that the LGPS National Knowledge assessment had been completed by five committee members, and 5 Pension Board members and Gloucestershire ranked fifth out of 16 funds.  It was noted that a training plan was being developed based on the responses received. 

6.14       A member suggested there needed to be more interaction between the Pension Committee and the Audit & Governance Committee, in terms of the accounts and audit reports, in order to develop a wider understanding. It was suggested that the external auditor could attend a future meeting, in order to explain their role in relation to the Pension Fund and help to bridge the gap between committees (Action MT). Members welcomed this approach.  The Head of Pensions advised Committee that the Pension Board were in place to ensure good governance.

6.15       Resolved

That the Committee noted in accordance with the regulations, the Fund’s position and governance activities as at the 31 December 2022. 

That the Committee noted the performance of the investments as detailed in appendix 1.