Minutes of Proceedings

71st Meeting of the Pension Trustees held on

Tuesday 09 May 2017 at 9:15am, Room 106

The Chairperson thanked everyone for attending the first meeting of the new mandate. 

The Chairperson welcomed to the meeting Mr Burns from Deloitte, and Mr Knox and Ms Mason from the Northern Ireland Audit Office.  The Chairperson welcomed Mr Beggs to his first proper Trustee meeting.  The Chairperson updated the Trustees on Trustee Membership in the current political climate.  Ms Ruane and Mr McPhillips will continue as Trustees until they resign, are replaced by Resolution of the Assembly or until 6 months after they cease to be Members of the Assembly. 

The Chairperson expressed condolences to the families of 2 pensioner Members who died in March 2017.  Mrs Anderson confirmed that a letter of condolence had been issued to each spouse in March 2017 by the Pensions Team on behalf of the Trustees.

The Chairperson vacated the Chair at this time to allow a new Chairperson to be voted in. Mr Wells proposed Mr Lunn for Chairperson, Mr Beggs seconded the proposal.

Mr Lunn resumed the Chair and the meeting continued.

1. APOLOGIES

Apologies were received from Ms Ruane and Mr McPhillips.

2. MINUTES OF PREVIOUS TRUSTEES MEETINGS

The draft minutes of the meeting held on 15 November 2016 were agreed.  The minutes of the closed meeting held on 24 February 2017, to discuss an Ill Health retirement application were agreed with one amendment.

Action required:

• Agreed minutes of the 15 November 2016 meeting to be uploaded to the Assembly website (Pensions Team).

3. Standing Items

Risk Register

The Risk Register has been updated for the 2017/18 year.  Risks around Brexit have been added as agreed at the last meeting.  The Trustees agreed the Risk Register.

4. Conflicts of Interest

The Trustees declared that their membership of the Scheme is an ongoing conflict.  Mr Wells declared his personal interest in relation to AVC Flexibility.  Both Mr Lunn and Mr Wells declared a conflict of interest in transitional protection in relation to item 10 ‘GAD triennial valuation 2014-17 – valuation assumptions’.  No other conflicts of interest were declared.

5. Matters Arising

Update on Action Points from the last meeting

AVC Flexibility

The Chairperson informed the Trustees that letters had been issued to Clerical Medical, GAD and Eversheds on 15 November 2016, with a copy of the Trustee Resolution on AVC Flexibility. 

Letters were issued to AVC Members on 06 December 2016, to advise of the Trustee decision on AVC Flexibility.

MLA Duties

The agreed amendments have been made and the Trustees have now agreed the final version by e-mail.

Administration Agreement

The amendments relating to the deadline for the Annual Report and Accounts have been made as agreed.

Extension of Contract with Eversheds

A letter was issued to Eversheds on 06 December 2016, to extend the contract for a further 3 years.  The next review will be October 2019.

M&G Update

The Trustees noted the Quarterly Report for the period ending 31 December 2016; and the Investment Summary reports ending 31 December 2016 and 31 March 2017 provided by M&G.  The overall Scheme return for the quarter was 5.1% which is just ahead of the benchmark of 5%.  This is as expected now that nearly all assets are passively managed.   Over the year the scheme had a return of 25.4%, beating the benchmark by 0.7%.

6. NORTHERN IRELAND AUDIT OFFICE

The Chairperson handed over to Mr Knox and Ms Mason from the Northern Ireland Audit Office.  Ms Mason thanked the Trustees for inviting them to the meeting to present their reports.  Mr Knox summarised the ‘NIAO Report to those charged with Governance’ and advised the NIAO have no concerns over the running of the Scheme, and no issues that were highlighted as a priority rating of one.  The main concern was with regards to an adjustment that had to be made to the accounts due to a cut off error.  This is not a significant risk factor, and the NIAO will review cut-off procedures in 2016/17.

Mr Knox summarised the ‘Accounts Direction’ paper and advised that in line with best practice, the Accounts should be certified by October each year and set out a timetable which should enable this timeframe to be met.

Mr Knox summarised the ‘Audit Strategy’ and highlighted that the fact that the NIAO will continue to work closely with GAD and the Scheme Investment Manager (currently M&G).  Mr Knox brought to the Trustees attention that in line with best practice, since the Fund account figures are significantly lower than the balance sheet and there is a separate audit opinion on contribution income, a materiality of 1% (£284,000) has been chosen for the investments and 2% (£36,000) materiality chosen for contributions.

The Trustees noted the Audit timetable, staffing and fees.  A short discussion took place around the notional fees.

The Trustees discussed the funding position of the Scheme in light of the current political situation and potential implications.  This will be kept under review.

The Chairperson thanked Mr Knox and Ms Mason for attending the meeting today. 

Mr Knox and Ms Mason left the meeting at 9:45am

7. BREWSTER JUDGEMENT

The Chairperson referred the Trustees to the Eversheds paper on the legal case regarding the payment of pensions to unmarried partners.  Under the new Scheme that was introduced in May 2016, the scope for dependents pensions was extended to include unmarried partners.  However, there was a condition that certain paperwork has to be completed to qualify.

The Brewster Judgement was that the use of nomination forms makes enforcement of rights harder for unmarried claimants than for married couples, and cannot be justified.

The Trustees agreed that asking MLAs to complete a death nomination form and partner declaration form is reasonable and assists the Scheme Administrators in identifying who the Members want to receive their dependents pension if they were to die in service; but that this should not be an essential requirement.  The Trustees agreed that it would be interesting for them to know the number of MLAs that have not yet completed a death nomination form or partner declaration form.

The Chairperson asked the Trustees to consider a recommendation to revise the Scheme rules, in line with the Brewster Judgement, and put this to the Panel (once a new Panel is appointed).  The Trustees agreed with the recommendation.

Action required:

• To provide the Trustees with the number of MLAs that have not yet completed a death nomination form or partner declaration form (Pensions Team).
• To put a recommendation to the Panel (when one is appointed) to revise the Scheme rules and remove the requirement for documentation to be completed by the Member and their partner (Pensions Team).

8. REVIEW OF INVESTMENT PERFORMANCE

The Chairperson reminded the Trustees that each year they carry out a review of M&Gs investment performance, and referred the Trustees to the GAD paper.  The Chairperson handed over to Mrs Anderson.

Mrs Anderson advised the Trustees that the last 12 months have seen the fund perform better.  But the performance over the 3year/5year period is still poor due to the low returns of the Recovery Fund. 

Mrs Anderson informed the Trustees that whilst the Recovery Fund has performed better over the past year, poor performance over the medium term and the reduced size of the fund would raise concerns about its continued use and transferring the Fund assets from the Recovery Fund to the UK Passive Equity Fund as agreed at the Trustee meeting on 15 March 2016 was considered to be prudent.

The Episode Allocation Fund has beaten the benchmark, whilst this is good news, GAD have advised the need to see how the performance does over a longer time period.

Mrs Anderson advised the Trustees that GAD have recommended that they make no changes to the Investment Strategy at this time, but review strategic asset allocation once the valuation results are known.

Mrs Anderson handed back to the Chairperson who asked the Trustees if they are content to review the strategic investment objectives in conjunction with the funding strategy, when the valuation results are known.  The Trustees agreed this recommendation.

Action required:

• To inform GAD that the Trustees have agreed to review the strategic investment objectives in conjunction with the funding strategy, when the valuation results are known (Pensions Team).

9. GAD TRIENNIAL VALUATION 2014-17 – VALUATION ASSUMPTIONS

The Chairperson informed the Trustees that the Triennial valuation of the Scheme covering the period 01 April 2014 – 31 March 2017 is now due.  GAD have prepared a timetable and a preliminary paper outlining the proposed assumptions to be used in the 2017 valuation.  The Chairperson handed over to Mrs Anderson to summarise the valuation paper for the Trustees.

With regards to Transitional Protection, Mrs Anderson advised the Trustees that an employment tribunal found that the transitional protection (whereby Members who were within a certain period from normal retirement age continued to accrue benefits under the previous final salary scheme rather than moving to the new CARE scheme) in that Scheme was age discriminatory.  However, in another recent case (involving the Firefighters Pension Scheme) an employment tribunal found that the transitional protection provisions in that scheme were not age discriminatory.

As transitional protection arrangements also exist in the Scheme, GAD’s advice is to ‘wait and see’ what the implications are for the two rulings.  In the meantime, the 2017 valuation will proceed using the current rules in the Scheme on transitional protection.

The Trustees discussed the possibility of transitional protection being removed from the Scheme, and if this was to happen the likelihood would be that this would change from an agreed date, but benefits built up before this would be protected.  Mrs Anderson reminded the Trustees that under the current Scheme transitional protection ends in 2021.

Mrs Anderson asked if the Trustees are content to adopt GAD’s recommendation of the ‘best estimate’, whereby the assumptions represent the expected return on investments.  Mrs Anderson advised that the alternative is a more prudent approach, whereby the assumptions are lower than the returns expected.  The Trustees were in agreement to accept GAD’s recommendation of the ‘best estimate’.

The value of the liabilities is obtained by discounting the projected expenditure at market-related yields, and because of market volatility, this means that discount rates could vary significantly from one valuation to the next.  At 31 December 2016, GADs view of the expected return on equities was 0.75% per annum lower (using CPI at plus 3.5%) than at the previous valuation date (using CPI at plus 4.5%).  However, the discount rate recommendations have been revised past March 2017, as CPI is now plus 2.5%, which would cause liabilities to increase by approximately 20%.  The last valuation funding level was 105% and there may be mitigating factors from other areas, such as demographic assumptions.  The overall message that GAD wanted to share with the Trustees is that the contribution rate is likely to increase.  Last year the contribution rate dropped from 20.6% to 14.4%.  However, any increase is not likely to take it back to the 20.6% level.  The Trustees agreed that they are content to adopt the valuation objectives.

Mrs Anderson advised the Trustees that Members pay increases are known.  The Panels Determination states if CPI increases by 1%, this will dictate a pay rise of £500 per annum.

Action required:

• GAD to be informed of known pay increase for Members (Pensions Team).
• GAD to be informed that Members are content to adopt the valuation objectives detailed at paragraphs 1.3 – 1.6 of the paper (Pensions Team).
• GAD to be informed that Members are content to adopt a ‘best estimate’ approach and to adopt the financial assumptions detailed at paragraphs 4.2 – 4.8 of the paper (Pensions Team).

10. TRUSTEE SELF ASSESSMENT

The NIAO as one of their recommendations from the audit 2015-16 Accounts and Report was for the Trustees to consider completing self-assessment questionnaires.  The Pensions Team has sourced a questionnaire.

The Trustees considered this recommendation from the Audit Office, and discussed if they felt completing an annual questionnaire would be a valuable exercise.  The Trustees agreed that they are content to accept the recommendation and complete this questionnaire annually in hard copy.

The Chairperson led a discussion with the Trustees regarding the requirement of the Trustees to complete the Trustee Toolkit online.  The Trustees also felt that it would be useful to have Deloitte provide training at each Trustee meeting.

Action required:

• The questionnaire to be issued annually to the Trustees in hard copy (Pensions Team).
• Training to be provided by Deloitte at Trustee meetings when the Pensions Team feel that the Agenda allows time for this (Pensions Team and Deloitte).

11. ANNUAL REVIEW OF ADMINISTRATION AGREEMENT

The Chairperson reminded the Trustees that the Scheme and the Trustees are supported in house by the Pensions Team, and externally by Deloitte.  The Chairperson handed over to Mrs Anderson. 

Mrs Anderson took the Trustees through the Administration Report highlighting the two core services which no longer apply.  The Trustees agreed that the two core services that no longer apply, (relating to transfers into the Scheme and contracted out Members) can be removed from the Administration Agreement. 

Mrs Anderson highlighted the change to the date of the Accounts and Report from October to March.  Mrs Anderson also raised the one item that has not been achieved by the agreed timeframe in the Administration Agreement, the Newsletter.  At the Trustee meeting on 23 September 2014, the Trustees agreed to issue a Newsletter once a year, the last Newsletter issued was in June 2015.  The Trustees agreed that in the current political climate this is a sensitive time and issuing a Newsletter with not much substance to it would be pointless.  The Trustees agreed to add this item to the Agenda for the meeting on 26 September 2017.

The Chairperson thanked the Pensions Team and Deloitte for their continued hard work with regards to administrating the Scheme.

Action required:

• The two core services that no longer apply (transfers in and contracted out members) to be removed from the Administration Agreement (Pensions Team).

12.  ANY OTHER BUSINESS

The Chairperson asked the Trustees to ratify eight new pensions for Scheme Members; and two new Spouses Pensions.  The Trustees agreed.  The Chairperson informed the Trustees of a refund of contributions for five former Members, the Trustees noted this.

13.  DATE OF NEXT MEETING

Tuesday 26 September 2017 at 9:15am.

The Chairperson thanked Mr Burns for attending the meeting.

Mr Burns left the meeting at 10:50am

14. PROCUREMENT EXERCISE – TENDER FOR OUTSOURCED ADMINISTRATION

The Chairperson informed the Trustees that since 01 September 2012, the contract for outsourced Administration for the Scheme has been with Deloitte.  This expires on 31 August 2017, so it is necessary to carry out a tender exercise.  The Chairperson advised that the proposal is for the Pensions team to identify providers through market research and then invite approximately three providers to tender for the work. 

The Chairperson referred the Trustees to the draft ‘Instructions to Quote’ which had been prepared.  The Trustees discussed the details and agreed the content and the proposed procurement process.

Providers will be asked to submit their bids by 09 June 2017, and once quotes are received they will be evaluated by the panel, and a decision made.  The Chairperson proposed that two Trustees sit on the evaluation panel along with a member of the Pensions Team.  Mr Lunn and Mr Wells were nominated to sit on the evaluation panel.  The Chairperson asked for agreement from the Trustees to delegate authority to the Evaluation Panel in order to select and appoint the third party administrator.  The Trustees agreed.

Action required:

•     The Procurement Exercise to be carried out (Pensions Team).

The Chairperson thanked everyone for attending the meeting today.

The Trustee meeting ended at 11:05am