Agendas, reports and minutes

Pensions Committee and Board

Date: Thursday, 8 August 2019

Minutes: Read the Minutes

Minutes of Meeting of the Pensions Committee and Pension Board held in the Council Chamber, Council Headquarters, Glenurquhart Road, Inverness on Thursday, 8 August 2019 at 10.30am.
 
Present:
Pensions Committee
Mr R Gale; Mr R Bremner (By Video-Conference); Mrs H Carmichael; Mr C Fraser; Mr A Jarvie; Mr B Lobban; Mr D Louden; Mr P Saggers
 
Pension Board
Mr G Cruickshank, Highland Council; Mr R Fea, Representative for other Employers; Mr E Macniven, GMB; Ms L MacKay, Unison
 
Officials in attendance:
 
Mr E Foster, Head of Corporate Finance and Commercialism, Corporate Resources Service
Mr J Gibson, Joint Secretary (Trade Unions’ Side)
Mr C MacCallum, Payroll & Pensions Manager, Corporate Resources Service
Mr S Lorimer, Assistant Payroll & Pensions Manager, Corporate Resources Service
Mrs M Grigor, Finance Manager (Corporate Budgeting, Treasury and Taxation)
Ms D Sutherland, Corporate Audit Manager, Corporate Resources
Miss J MacLennan, Democratic Services Manager, Chief Executive’s Service 
Mr A MacInnes, Administrative Assistant, Chief Executive’s Service
 
Also in attendance:-
 
Mr J Boyd, External Auditor, Grant Thornton (By Video-Conference)
 
An asterisk in the margin denotes a recommendation to the Council.  All decisions with no marking in the margin are delegated to the Committee.
 
Mr R Gale in the Chair
 
BUSINESS 
 
1. Apologies for Absence
    Leisgeulan
 
Apologies for absence were intimated on behalf of Mr B Thompson, Mrs C Caddick, Mr C Nicolson, Mr D MacDonald and Mr D Main. 
 
2. Declarations of Interest
   Foillseachaidhean Com-pàirt
 
Item 8 – Mr A Jarvie (Non-Financial)
 
3. Recess Powers 
    Cumhachdan Fosaidh
 
It was NOTED that the Recess Powers granted by the Council at its meeting on 27 June 2019 had not been used in respect of this Committee.
 
4. Internal Audit
    In-Sgrùdadh
 
4.a Highland Council Pension Fund Internal Audit Annual Report 2018/19
      Aithisg In-Sgrùdaidh Maoin Peinnsein Chomhairle na Gàidhealtachd 2018/19
 
There had been circulated Report No. PC/5/19 by the Corporate Audit Manager.
 
In this regard, the report included an assessment of the Pension Fund’s framework of governance, risk management and control and the associated opinion which provided information for the Fund’s Annual Governance Statement.
 
The Committee NOTED the content of the report and the audit opinion provided as circulated.
 
4.b Highland Council Pension Fund Internal Audit Annual Plan 2019/20
      Plana In-Sgrùdaidh Bliadhnail Maoin Peinnsein Chomhairle na Gàidhealtachd 2019/20
 
There had been circulated Report No. PC/6/19 by the Corporate Audit Manager.
 
In this regard, it was confirmed that a three year plan was in place for the Pension Fund which ensured that the main activities, which comprised Pension Fund Investments, Contributions and Payments, were reviewed once every three years. Also, the following work was also being undertaken as part of the Pension Fund’s 2019/20 Audit Plan – Review of Pension Fund Contributions and Review of the Systems of Internal Control which was necessary to inform the Fund’s Annual Governance Statement and the Internal Audit Annual Report 2018/19.     
 
The Committee APPROVED the 2019/20 Audit Plan as circulated.
 
4.c Internal Audit Report – Pension Fund Investments
     Aithisg In-Sgrùdaidh – Tasgaidhean Maoin Peinnsein
 
There had been circulated Report No. PC/7/19 by the Corporate Audit Manager.
 
In this regard, it was confirmed that Full Assurance had been given and that the main findings of the report had concluded that the Fund’s investments were made in accordance with its statutory requirements and relevant policies, all Fund investments, acquisitions and disposals were properly controlled and recorded, all Pension Fund income was received in full and on time and was accurately recorded and there were appropriate arrangements in place for the monitoring and appraisal for the performance of the Fund’s investments.
 
During discussion, thanks were conveyed to the Officers concerned for an excellent report which had highlighted all aspects of what was a very well managed Fund.   
 
Thereafter, the Committee otherwise NOTED the content of the report and the audit opinion which had been provided.
 
5. Governance Policy Statement 2019/20
    Poileasaidh Riaghlaidh 2019/20
 
There had been circulated Report No. PC/8/19 by the Head of Corporate Finance & Commercialism.
 
In this regard, it was noted that the Statement set out the governance policy statement that applied to the Highland Council Pension Fund and was one of a number of key strategies, policies and procedures which the Fund was required to hold.
 
During discussion, a correction was made to Paragraph 8 (Role of Trustee) and specifically the reference which had been made to membership of the Pensions Committee and the Investment Sub Committee which included 2 non-voting members representing other employers. In this respect, it had been stated that there was currently a vacancy and this was not in fact the case.    
 
Thereafter, the Committee otherwise APPROVED the Highland Council Pension Fund Governance Policy Statement as circulated.
 
6. Pension Fund Contributions and Administration 
    Tabhartasan agus Rianachd Maoin Peinnsein
 
There had been circulated Report No. PC/9/19 by the Head of Corporate Finance & Commercialism.
 
In this regard, and with specific reference to the Guaranteed Minimum Pension (GMP) Comparison Exercise, it was advised that pension schemes were required to undertake a data reconciliation exercise with HMRC to ensure that both details of guaranteed minimum pensions and periods of contracted out service were up to date and robust. As such, the comparison exercise for the Highland Council was ongoing and the match rate had risen from an initial 52% to 91% as at the end of May 2019 and it was anticipated that this would rise to around 93% when the latest matching queries had been received from HMRc. The final stage of the exercise would be to analyse the remaining unmatched cases on an individual basis, understand and report the impact of the exercise on the fund and scheme members and agree a policy to deal with cases where GMP had been overpaid.      
 
During discussion, it was suggested that a further breakdown of Pensions Administration Costs and also Fund Manager Fees would be helpful in future.
 
Thereafter, the Committee otherwise NOTED the details of the report and APPROVED the 2019/20 Pension Fund budget as circulated.
 
7. Highland Council Pension Fund: Monitoring of Retirements
    Maoin Peinnsein Chomhairle na Gàidhealtachd: Sgrùdadh Cluaineis
 
There had been circulated Report No. PC/10/19 by the Head of Corporate Finance & Commercialism.
 
In this regard, it was noted that the Appendix to the report provided a summary of retirements, Highland Council retirements, non-Highland Council retirements and comparisons with previous years.
 
It was also confirmed that changes to the pension regulations meant that ‘employer consent’ at age 55 was now no longer required and this retirement type would no longer be reported in future years.   
 
Thereafter, the Committee otherwise NOTED the terms of the report as circulated.
 
8. Risk Management Update 
    Fios às Ùr mu Rianachd Chunnairt
 
Declaration of Interest – Mr A Jarvie declared a non-financial interest in this item as a Director of High Life Highland but, having applied the test outlined in Paragraphs 5.2 and 5.3 of the Councillors’ Code of Conduct, concluded that his interest did not preclude his involvement in the discussion.    
 
There had been circulated Report No. PC/11/19 by the Head of Corporate Finance & Commercialism.
 
In this regard, the report provided an update on the Fund’s Risk Register and compliance with the Pension Fund Regulator requirements on internal controls.
 
It was also confirmed that two new risks had been added to the Risk Register in relation to (i) increasing demands and complexity around pensions which created additional pressures for the Pension Administration team and (ii) the risk associated with the recent McCloud judgement although the quantitative impact on the Fund would not be known until a remedy to compensate the claimants had been decided.     
 
Thereafter, the Committee NOTED the updated Risk Register extract and compliance with the Pension Fund Regulator requirements as detailed in the report.
 
9. Training Policy and Training Plan 2019/20
    Poileasaidh Trèanaidh agus Plana Trèanaidh 2019/20
 
There had been circulated Report No. PC/12/19 by the Head of Corporate Finance & Commercialism.
 
In this regard, details of the training policy for the Highland Council Pension Fund, which applied to Officers responsible for supporting the Fund and members of the Pension Board, Committee and Investment Sub Committee, had been highlighted. The requirement for all recently appointed Board and Committee members to complete induction training was also noted.
 
During discussion, and in noting that a review of the current training policy would be considered if necessary, it was suggested that this should include an emphasis on the need for regular and ongoing training on pension matters, the identification of the location of training sources, the advantages of online training materials and feedback from members following the completion of training.        
 
Thereafter, the Committee:- 
 
i.   NOTED the assessment and training resources provided by the Pensions Regulator and the requirement for newly appointed Board and Committee members to complete induction training;
ii.  NOTED the adoption of the CIPFA Local Pensions Boards Technical Knowledge and Skills framework, including the self-assessment matrix and the guide for local Pension Boards issued by CIPFA;
iii. NOTED the training delivered to date on Pension Fund matters;
iv. AGREED the training policy and programme for 2019/20 set out within the report; and
v.  NOTED that details of individual attendance at Pensions Committee, Investment Committee and training would be reported in the Pension Fund Annual Report and Annual Accounts for 2019/20.                                                                                 
 
10. Investment Sub Committee: Minutes of Meetings
     Fo-chomataidh Tasgaidh: Geàrr-chunntas na Coinneimh
 
The Minutes of Meetings of the Investment Sub-Committee held on 15 March and 14 June 2019 had been circulated for confirmation and were APPROVED.
 
11. External Annual Audit
     Sgrùdadh Bliadhnail on Taobh A-muigh
 
11.a External Annual Audit Report to Members of the Pensions Committee and the Controller of Audit
       Aithisg In-sgrùdaidh Bhliadhnail on Taobh A-muigh do Bhuill de Chomataidh nam Peinnsean agus Rianadair an Sgrùdaidh
 
There had been circulated Report No. PC/13/19 by the External Auditor, Grant Thornton.
 
During a summary of the report, the findings from the external audit work for the financial year ended 31 March 2019 were highlighted and it was confirmed that it was planned to issue an unqualified audit opinion. As such, the report was being presented as a draft to the Committee following which it would be signed by the Chief Finance Officer on behalf of the Highland Council Pension Fund. 
 
Detail was also provided on the identified audit risks and associated conclusions as follows – risk of fraud in revenue, management override of controls and valuation of investments being incorrect.
 
During discussion, reference was made to the following:-
 
Pension Scheme Legal Cases – noted that, during 2018/19, there had been two ongoing developments which impacted on the Pension Fund’s liabilities, namely the McCloud/Sargeant case and the potential impact of the Guaranteed Minimum Pension (GMP) comparison exercise. In this regard, the Pension Fund’s actuary had undertaken an initial assessment of the former on the scheme liabilities and had estimated the impact to be approximately £15m. Further provision was likely for the GMP impact but was considered unlikely to be material. 
 
Follow up of 2017/18 recommendations – Fund Valuation - noted that the valuation in the financial statements for one of the fund’s investment managers had been understated by £2.903m as the actual 31 March 2017 valuations had not been used due to these being unavailable at the time of preparing the year end accounts. However, the issue had now been closed as Officers had completed a full reconciliation.
 
Follow up of 2017/18 recommendations – Meeting Frequency – noted that the only area where the Fund had not complied with the best practice arrangements set out in the Governance Compliance Statement had been in relation to meeting frequency. However, the issue had now been closed as it was considered that two Pension Committee meetings per year adequately covered business, with responsibility for monitoring investment performance and delivering the Fund’s investment objectives, strategies and policies being delegated to the Investment Sub Committee which met quarterly. 
 
Audit Adjustments – in regard to the uncorrected misstatement in relation to investment valuations as at 31 March where there had been an estimation difference of £4.73m in the carrying value of investment, it was agreed that further clarification should be provided on whether this had been an under or over estimation.
 
Accounting Estimates and Judgements – noted that, as at 31 March 2019, the Present Value of Promised Retirements Benefits had been estimated to be £2.501bn and it was agreed that further clarification should be provided in this regard, specifically in terms of whether this represented a change from 100% funding in the previous year to 80% in the current year.                  
Thereafter, the Committee otherwise NOTED the terms of the report as circulated.
 
11.b Letter of Representation 2018/19
        Litir Riochdachaidh 2018/19
 
There had been circulated Report No. PC/14/19 which contained a copy of the annual audit Letter of Representation for 2018/19.
 
The Committee AGREED that the letter as circulated be signed on behalf of the Highland Council.
 
11.c Audited Accounts 2018/19
       Cunntasan Sgrùdaichte 2018/19
 
It was noted that the Audited Statement of Accounts for the financial year 2018/19 were available for viewing at the following weblink:-
 
https://www.highland.gov.uk/downloads/file/20893/audited_accounts_april_2018_to_march_2019
 
In this regard, information in respect of the year end assets, management statistics (including the increase in the number of members to 31,500), overall surplus for the year (approx. £115m), fund performance (overall return of 6.4%), key performance indicators (including administration of the fund which was positive) and a breakdown of management expenses was provided. 
 
 
During discussion, and in response to a query as to why administration costs had increased, it was confirmed that this was due to a number of factors, including the Guaranteed Minimum Pension (GMP) comparison exercise (which was a one-off issue in the current year) and also the staff pay award for current and future years.      
 
Thereafter, the Committee otherwise APPROVED the Annual Accounts for 2018/19 as detailed.
 
 
The meeting ended at 11.35am.