Agenda item

Report FSD17041

Details were provided of the Fund’s investment performance for the fourth quarter 2016/17. Additional detail was provided in an appended report from the Fund’s external advisers, AllenbridgeEpic and Baillie Gifford provided commentary on its performance and view of the economic outlook. Information on general financial and membership trends of the Pension Fund was also outlined along with summarised information on early retirements.

The market value of the Fund ended the March quarter at £943.8m and had fallen slightly to £943.0m as at 30th April 2017. The total fund return for the fourth quarter was 5.7% against a 4.5% benchmark. This compares to an estimated average of 3.7% across LGPS funds for the quarter based on initial figures from PIRC.

Report FSD17041 also advised that officers were currently liaising with relevant contractors for the Extra Care Housing contract and the proposed Libraries contract in relation to obtaining admitted body status with the L B Bromley Fund. Further updates would be provided in future quarterly performance reports.

A provisional net surplus of £5.6m was achieved during 2016/17 (mainly due to investment income of £7.5m) and total membership numbers rose by 733. The net surplus of £5.6m includes £7.5m investment income, which is currently reinvested in the fund. As such, the Fund had an estimated £1.9m cash deficit for the year in cash-flow terms – cash-flow being one of the main drivers for the recent asset allocation review.

Overall, the fourth quarter was considered good by Allenbridge and significant returns were achieved. Although performance had fallen a little at the end of April the position was understood to have recovered. There had been no major issues in the quarter.

In view of the intention to sell all holdings in Diversified Growth Funds there seemed little point in having Standard Life address the Sub-Committee at its meeting on 19^th September 2017. Accordingly, the Sub-Committee agreed that an invitation for Standard Life to attend the meeting was no longer necessary. 

A share of the Fund assets relating to Bromley College (now part of London South East Colleges) would be transferred to the Local Pensions Partnership as a result of the College leaving the Fund. A Member suggested that proceeds from the DGF disposal be considered first for funding the transfer. However, much depended on the position of markets at the time of transfer and the market should therefore be reviewed the time to decide what assets to sell to generate the cash needed. Another Member supported use of DGF funds unless there was a good case not to do so. However, it was indicated that (at this stage) it was best not to be too rigid in selling DGFs to fund the transfer. The proportions of the Fund’s asset allocation would change and any final decision on funding the transfer would be subject to consideration by the Director of Finance, following the advice of Allenbridge, in consultation with the Chairman and Vice-Chairman of the Sub-Committee.

A Member also highlighted the level of employer contribution being paid to the Fund which he felt was unsustainable for the future. The scenario was replicated nationally and there were a number of unfunded pension liabilities in the UK. The situation was such that it was necessary to lobby government on the problem for action to be taken. The Member suggested that the matter should be raised with the Government to address the unsustainable position for local government pension funds. The Chairman confirmed that he would write to Government on this issue. The Director highlighted that the Council’s concerns are consistently raised in responses to consultation on pension matters and the Leader had met the Special Adviser to the Secretary of State for Communities and Local Government where the matter was raised. It had also been raised with the local M.Ps to seek to influence Government policy on such matters. Another issue of concern related to TUPE and the protection of staff pension liabilities when outsourcing work. This was off-putting to some tenderers and it was agreed that this would form part of the response to Government following the general election.

RESOLVED that the contents of the report be noted.