The Pension Board of Harrow Council met on Thursday 2 March 2023 to discuss the triennial valuation of the pension fund, the draft responsible investment policy, and updates on investment pooling. The meeting confirmed that the pension fund's funding level has improved to 96%, and discussed the implementation of a new responsible investment policy focusing on environmental, social, and governance (ESG) factors. Significant progress was also reported on investment pooling through the London Collective Investment Vehicle (CIV), with Harrow Council benefiting from fee reductions and a cumulative saving of nearly half a million pounds.

Pensions Administration and Valuations

The meeting began with an update on the pensions administration, noting that performance had improved following challenges with new payroll arrangements and the triennial valuation workload. The team leader, Amy Cronin, had returned from maternity leave, and a backlog of out-of-date work was now minimal. Technological improvements, including member self-service options and the iConnect system for data uploading, are being implemented to further streamline processes. The total number of members in the scheme has increased to 19,155, with a small growth in active membership attributed to auto-enrolment.

A key discussion point was the triennial valuation of the pension fund, which revealed a healthy funding level of 96%, an improvement from 94% at the previous valuation. This improvement was attributed to strong investment returns of 6.6% per annum over the three-year period, outperforming the expected 4.3%. However, increased inflation, with an average CPI assumption of 2.7%, has led to higher liabilities. The valuation also confirmed that no employers would see an increase in their contribution rates, with 63% of employers receiving a reduction and 37% seeing no change. The report highlighted that the biggest risk identified from the valuation is cash flow risk, where benefit payments may exceed incoming cash and investment income, potentially forcing the sale of assets.

Concerns were raised regarding an Ombudsman decision concerning an ill-health retirement case. The Ombudsman found that the council's process did not fully comply with scheme regulations, leading to a small compensation payment and a requirement to reconsider the retirement application. The council has appointed a new occupational health provider for this assessment. The board sought reassurance that lessons learned from this case would be applied to future ill-health retirement decisions.

Responsible Investment Policy

The board reviewed the draft responsible investment policy, which outlines the Pension Fund Committee's approach to environmental, social, and governance (ESG) matters. This policy is a standalone document, moving beyond its previous inclusion within the investment strategy statement, reflecting best practice. The policy details the committee's investment beliefs and how they will approach responsible investment, including voting and engagement strategies.

Discussions focused on the practicalities of voting and engagement, particularly given that the fund invests in pooled funds rather than directly owning shares. It was explained that investment managers, such as BlackRock, have established voting policies, and engagement with companies is a key aspect of influencing behaviour. London CIV, which manages a significant portion of the fund's assets, actively engages with companies through a firm called Hermes, which monitors voting and engagement activity. The board also discussed the potential for pooling arrangements, such as London CIV, to collaborate with other similar bodies like Borders to Coast to increase their collective influence.

Investment Pooling and Other Matters

Updates were provided on the progress of investment pooling through the London Collective Investment Vehicle (CIV). The CIV is managing a significant volume of assets and has negotiated fee reductions for member funds, including Harrow Council, which has seen cumulative savings of just under half a million pounds. The report detailed the structure of the CIV's investments, including authorised contractual schemes for fixed income and equity, and a private markets report for non-listed assets. The board noted the time commitment involved in participating in CIV meetings and the role of investment advisors, such as Aon, in liaising with the CIV.

The meeting also touched upon the pension fund's annual report and accounts, noting that the audit findings were still pending due to issues with the council's main accounts rather than the pension fund itself. The total value of the pension fund investment at 31 December 2022 was hovering between £920 million and £960 million.

Finally, the board reviewed the draft work program for the 2023-24 municipal year, with additions made to include the annual review of the pension fund governance statement and the board's own annual report. The discussion confirmed that the current meeting time of 6:30 PM would likely remain for the new municipal year due to scheduling constraints for some members.