The Pensions Committee of Bexley Council met on Monday 24 June 2024, approving the Business Plan and Investment Work Plan for 2024/25, and the CMA Investment Consultant Targets for the same period. The committee also noted the Pension Fund's financial outturn for 2023/24 and its cash flow forecast for 2024/25, and received updates on investment performance and administration.

Business Plan and Investment Work Plan Approved

The committee approved the draft Business Plan and budget for 2024/25, which outlines the strategic medium-term objectives and budget forecast for the year. Alongside this, the Investment Work Plan for 2024/25, developed in collaboration with Redington, was also approved. This plan details the investment topics and presentations scheduled for the year. Members raised concerns about the high audit and pension administration costs. It was explained that local authority auditors are appointed by an external body, and the council has no control over these appointments. While audit fees had initially decreased after the abolition of the Audit Commission, they have since begun to rise again. Pension administration costs have increased significantly, partly because the council had been paying below market rates for the previous contract, and also due to inflationary pressures. The Chair indicated that these costs would be closely monitored.

CMA Investment Consultant Targets for 2024/25 Approved

New targets for investment consultants for 2024/25 were approved by the committee. These targets follow a review that was initially approved in November 2023. Each objective will be assessed at the end of the financial year and assigned a rating from unsatisfactory to excellent. Members noted that the proposed targets did not include specific information on investment costs. Jill Davys from Redington clarified that these were objectives rather than Key Performance Indicators (KPIs), but she could provide information on the costs of specific investments if requested.

Pension Fund Outturn and Cash Flow Forecast Noted

The committee received a report detailing the Pension Fund's actual income and expenditure for 2023/24, along with the forecast income, expenditure, and cash flow for 2024/25. The Fund ended the year with a deficit of £1.516m, which was significantly better than the projected overspend of £4.475m. This improvement was primarily attributed to higher-than-expected income receipts and a change in asset allocation. Members were reminded that predicting investment income is challenging, and a cautious approach is always taken. The cash flow forecast for 2024/25 was presented, and it was stated that this would be regularly reviewed to ensure sufficient liquidity to meet liabilities as they fall due. The current level of liquidity within the Fund was noted as being quite good.

Pension Fund Investment Performance Reviewed

A summary of the Bexley Pension Fund's investment performance for the quarter ending 31 March 2024 was considered. Charlie Sheridan from Redington provided an update on market conditions, noting a strong period for risk assets. Inflation was reported to be nearing control, although it remained persistent in the US. Central banks were signalling potential interest rate cuts in the near future. Global equities had risen by 11% year-to-date, with seven key stocks showing significant outperformance. The outcome of the UK general election was not expected to have a major impact on markets. Regarding potential changes in government, it was suggested that the trend towards pension fund pooling would likely continue, and possibly accelerate. Rachel Reeves, Shadow Chancellor, has reportedly expressed that the number of Local Government Pension Scheme (LGPS) funds is too high and is considering reducing them to eight. Concerns about the potential election of a far-right government in France were addressed, with the report indicating that any exposure to French government debt within the Fund was likely to be minimal.

Jill Davys from Redington then presented the performance of the investment managers during the quarter. The Fund had outperformed its benchmark overall, with all equity managers, including RBC, also exceeding their benchmarks. The LCIV Long Income Fund's performance remained disappointing, and the LaSalle Property Fund had also underperformed, though it was closer to its benchmark. The UBS infrastructure fund had been affected by its holding in Southern Water, which represented a small portion of the overall Fund. Strong returns were noted across equities and bonds, with the exception of the Sustainable Equity Fund. The UBS infrastructure fund had also underperformed, but this was a minor holding.

Residential Property Review and Deferred Decision

The committee reviewed the key findings from Redington's analysis of the residential property market. This review was part of the second phase of the strategy review, focusing on opportunities in residential housing following the implementation of key strategies from the first phase. Charlie Sheridan outlined options for social and affordable housing and different investment approaches. Jill Davys presented Redington's findings on the LCIV UK Housing Fund. Some committee members expressed concern due to the poor performance of certain LCIV funds in which the Bexley Fund had invested. Jill Davys assured the committee that LCIV had conducted thorough due diligence and Redington had no issues with the three managers within the Fund. It was suggested that LCIV could be invited to the next committee meeting to discuss their strategy, and other investment options could also be explored. A decision on allocating funds to residential property was deferred until September 2024, and LCIV was invited to attend the September meeting to discuss their affordable housing mandate.

Investment and Administration Update

The committee received an update on various investment and administration matters. The latest version of the risk register was presented, with no changes noted in the red items since the previous meeting. An update on London CIV (LCIV) assets was provided, including funds currently under enhanced monitoring. The transition to the new impact equity manager, Ninety One, was completed in early March 2024. Charlie Sheridan reported on meetings held with LaSalle and Aviva (LCIV Long Income Fund) concerning their performance. LaSalle had agreed to reduce their fees from 0.25% to 0.2%, resulting in an annual saving of approximately £50,000 for the Fund. Concerns regarding the LCIV Long Income Fund persisted, and it was recommended that close monitoring continue. Information on Freedom of Information (FOI) requests related to the Pension Fund received over the past year was also noted. A question was raised regarding the decision to disinvest from Russian assets and whether a similar decision would be made concerning Israel/Palestine. Officers advised that Fund managers had not been instructed to withdraw from Russian investments but had independently decided to write off funds in the Bexley portfolio to zero value as they had become worthless. Regarding Israeli investments, officers are tracking holdings in companies such as Booking.com and AirBnB. However, due to the presence of some companies in various tracker funds and indices, complete eradication of exposure is considered almost impossible.

Michelle Doman from Mercer, the Fund's actuary, informed the committee of termination requests from two admitted bodies that no longer had employees within the Fund. The process for handling these requests, including determining whether employers owe payments to or are due exit payments from the Fund, had been covered in the committee's training session prior to the meeting. Following extensive discussions between Mercer and officers from the Tri-Borough Partnership, it was determined that both L&Q and Avante were due exit credits based on the assumptions outlined in the Funding Statement. The committee also noted the latest update on the work being undertaken to apply the McCloud remedy¹.

The committee approved the termination amounts for L&Q and Avante, noted the outcomes achieved with LaSalle, and confirmed that regular enhanced monitoring of the LCIV Long Income Fund would continue. Other updates within the report were also noted.

Draft Pension Administration Strategy Approved for Consultation

The committee considered the draft Pensions Administration Strategy, designed to help the fund deliver an efficient, high-quality, and value-for-money service to its scheme employers and members. The draft strategy outlines the relationship between the fund, its administrators, and scheme employers, detailing their respective roles and responsibilities. It also specifies expected performance levels, how performance will be monitored, and actions that may be taken if standards are not met. Once approved by the committee, the draft strategy will be subject to consultation with scheme employers and other relevant stakeholders. The draft Pensions Administration Strategy was approved for consultation.