Minutes of Proceedings

75^th Meeting of the Pension Trustees held on

Tuesday 23 October 2018 at 11:00am, Room 106

The Chairperson thanked everyone for attending the meeting and welcomed Mr Burns, Mr McClintock, Mr Sutherland and Mr Humpherson from Deloitte, and Ms Burns and Ms Taggart from the Northern Ireland Audit Office.

1. APOLOGIES

No apologies were received.

2. MINUTES OF PREVIOUS TRUSTEES MEETINGS

The draft minutes of the regular meeting held on 27 March 2018, and the GDPR meeting held on 8 May 2018 were agreed.

Mr Beggs asked for an update on action points from the GDPR meeting and Mrs Anderson advised that an update would be provided at the next meeting.

Action required:

• Agreed minutes of the 27 March 2018 meeting to be uploaded to the Assembly website (Pensions Team);
• Progress on action points from May 2018 meeting to be provided at next meeting.

3. STANDING ITEMS

Risk Register

The Chairperson reminded the Trustees that it had been agreed that the Pensions Team would review the risk register once the Secretary of State’s determination on Member’s pay had been made.  He advised Members that a determination had been issued on 28 March 2018 stating that there would be no inflationary increase to Member’s pay; and that the Secretary of State had issued a statement outlining a 2-stage reduction in Member’s pay from 1 November 2018. 

The Chairperson informed the Trustees that the Assembly’s Finance Office would be writing to Members to explain how the determination would affect them, however there would be no financial impact to the Scheme or to Members’ accrued pension benefits.

Mrs Anderson clarified that the Members would pay contributions based on their reduced salary but the Assembly would make up the difference so that the Scheme would still receive the full amount of contributions.

The Trustees considered and agreed the Risk Register for 2018-19.

Action required:

• Letter to be issued to Members (Finance Office)

4. CONFLICTS OF INTEREST

Mr Wells advised that there is a case, which will be discussed under AOB, in which he has been giving tax advice to the Member.  He clarified that he has not taken any payment for this case.

5. MATTERS ARISING

Update on Action Points from the last meeting

Minutes

The minutes of the meeting on 30 January 2018 have been published on the Assembly website.

GAD Triennial Valuation 2014-17

The final valuation report was issued to the Trustees by GAD on 29 March 2018, and a copy issued to the Assembly Commission on 5 April 2018 for information.

GAD Revised Actuarial Factors

Revised factors were received from GAD on 10 April 2018 for use in calculating the pension payable following a member’s decision to take a tax free lump sum on retirement.  Revised factors for use in calculating Early Retirement and Cash Equivalent Transfer Values were received in June.

Retirements with AVCs

Following the review of the Deloitte quotation letter, the wording has been amended. 

The Pensions Team confirmed that they have amended their retirement procedures to ensure that Members with AVCs are contacted during the retirement process to explain their options regarding AVC flexibilities.

6. ANNUAL REPORT AND ACCOUNTS 2017-18

The Chairperson asked if there were any comments on the draft Annual Report and Accounts 2017-18.

Mr Wells queried the number of active Members in the Membership Statistics section of the report.  Mrs Anderson explained that the number of active scheme members is not the same as the number of current MLAs due to individuals continuing to hold office in the post-election period.

Mr Wells noted that administrative expenses have increased significantly from 2016-17.  Mrs Anderson explained that this was a typing error resulting in the administrative expenses and actuarial expenses figures being transposed, but that this has been amended in the final version of the report.

Mr Wells commented on the apparent contradiction between the Scheme funding level in the GAD statement for inclusion in the accounts, and the GAD Triennial Actuarial Valuation report.  Mr McClintock explained that the basis of the calculations differs, the Triennial Valuation assumes that the scheme will continue indefinitely; whereas the statement for inclusion in the annual accounts is calculated on a buy-out basis.

Mr Wells noted the decrease in the Scheme surplus and queried whether it would continue to decrease.  Mrs Anderson confirmed that it would, reminding the Trustees that following the last triennial valuation, they had taken the decision to use some of the surplus to maintain the Consolidated Fund contribution rate at a lower level than would otherwise have been required.

Action required:

• Annual report and accounts to be printed, laid and distributed to scheme members (Pensions Team).

7. NORTHERN IRELAND AUDIT OFFICE

The Chairperson reminded the Trustees that each year the Scheme Annual Report and Accounts is audited by the Northern Ireland Audit Office.  The Trustees had been asked to consider a ‘Letter of Understanding’ between the Audit Office and the Trustees, and the Audit Strategy for the 2017-18 accounts.

The Chairperson handed over to Ms Burns and Ms Taggart.

Ms Burns explained that the ‘Letter of Understanding’ is a standard document issued to all audited bodies, which sets out everyone’s role in relation to the preparation of the Accounts.  The Chairperson asked if this was issued every year.  Ms Burns explained that it is not usually issued each year, but due to staffing changes in the Audit Office it was necessary to update the agreement this year.  She confirmed that the terms and conditions remain the same.

Ms Burns talked through the key elements of the NIAO Audit Strategy 2018.  She explained that they had not identified any significant risk factors; and that two levels of materiality had been set for the Fund Account and the Net Assets Account due to the significant variance in figures between the two.  Ms Burns also talked through the Audit Approach, and highlighted the Audit Office’s independence, the management of personal data, use of management experts, and the Internal Audit team’s work.  She drew the Trustees attention to the timetable detailed in the Audit Strategy.

Ms Burns talked through the Draft 2017-18 Report to Those Charged with Governance.  Ms Burns noted one small adjustment that has been added into the report relating to a small ex-gratia payment, but advised that the proposal to the C&AG would be a clean and unqualified Audit Certificate.  Ms Burns also pointed out the draft Letter of Representation, and draft Audit Certificate included as Appendices to the report.

Mr Beggs commended everyone for the positive outcome of the Audit.

The Chairperson thanked Ms Burns and Ms Taggart for attending the meeting

Action required:

• Signed Letter of Understanding, Letter of Representation, and signed accounts to be sent to NI Audit Office (Pensions Team).

11:25am Ms Burns and Ms Taggart left the meeting

8. ANNUAL FUNDING UPDATE

The Chairperson reminded the Trustees that the full valuation of the Scheme covered the period up to 31 March 2017. As a full valuation is only carried out every three years, it was agreed that at the end of each financial year GAD would prepare a short paper updating the funding position.  The Chairperson asked if there were any comments on the paper and one-page summary of the position at 31 March 2018.

Mr Wells said his query regarding the decrease in the Scheme surplus had been answered earlier in the meeting.  Mr Beggs noted that there was a reduction in the funding level due to lower than expected investment returns over the year, and queried if this needed to be considered.  Mr Sutherland explained that a series of factors have recently caused market volatility.  He said that looking back over the past 5-10 years the equity markets have delivered strong returns, but with uncertain times ahead they will probably not deliver as well.  Mr Sutherland advised discussing this with M&G.

9. TRUSTEE MEMBERSHIP

The Chairperson reminded the Trustees that correspondence had been sent to the Assembly Commission and more recently to the Secretary of State in relation to the number of Trustees and the political make-up of the Trustee board.  A response from the Secretary of State has been received and was noted by the Trustees.

The Chairperson also reminded the Trustees that at the last meeting it had been agreed that further consideration would be given to inviting an ‘Observer’ from Sinn Fein and the SDLP to attend Trustee meetings and participate in discussions.  While these individuals would have no voting rights, their presence may assist in a more rounded discussion.  The Chairperson asked the Trustees to consider the draft invitation letter to be issued.

The Trustees agreed that it would be preferable to have all sides of the community represented.  Mr McClintock reminded the Trustees that in Trust law, Trustees are appointed to represent all members within the Scheme. Mr Beggs suggested amending the 6^th paragraph on the letter to read “Currently there is no broad representation on the Trustee board.  While decisions around pensions are made in the interests of the membership of the Scheme as a whole, it is important to us that all MLAs are widely represented and involved in discussions about the running of the Scheme.”

The draft letter was agreed for issue to Sinn Fein and SDLP with the proposed amendment.

Action required:

• Letter re observers to be issued to Sinn Fein and SDLP (Pensions Team);

10. GENERAL DATA PROTECTION REGULATIONS (GDPR)

The Chairperson acknowledged that GDPR has been in force since 25 May 2018.  He asked the Trustees to note that the only action yet to be completed is in relation to contracts.  A number of contracts are still being revised and further updates will be provided in due course.

Mr Beggs queried if the Trustees would be liable if a sub-contractor breached GDPR.  Mrs Anderson said that the Trustees, as data controllers, would always be liable; however, advised that robust procedures are in place to minimise the risk of any data breaches even though the contracts are still being revised.

Action required:

• Outstanding contracts to be revised to be GDPR compliant (Pensions Team).

11. ANNUAL REVIEW OF ADMINISTRATION AGREEMENT

The Chairperson explained that the Scheme and Trustees are supported in house by the Pensions Team, and externally by Deloitte.  This item of business concerns the service provided by the Pensions Team and assesses performance against service standards agreed by the Assembly Commission and Trustees.  There were no comments regarding the Administration Report covering the period 1 April 2017 – 31 March 2018.

12. INTERNAL DISPUTE RESOLUTION PROCEDURE

The Chairperson explained that every pension scheme is required to have a dispute resolution procedure.  Due to changes to the structure of the Pensions Ombudsman, references to the Ombudsman need to be updated in the procedure.

The Chairperson suggested that this would be a good opportunity to review the procedure itself.  The current procedure is a 2-stage process.  Disputes are raised with the Pensions Manager in Stage 1 before being escalated to the Trustees in Stage 2.  Prior to submitting a complaint under stage 1 of the procedure, Scheme members are encouraged to contact the Pensions Team to try to resolve the issue informally.

As the Pensions Team do not have any decision making authority, there is no value in continuing to have a formal Stage 1 when the only action available to the Pensions Team is providing an explanation.  Therefore, the Pensions Team suggest the Trustees consider changing the process to a single stage process which is simpler for Scheme members to use.  As previously, Scheme members are encouraged to resolve issues informally with the Pensions Team, where possible.

The Trustees discussed the current and proposed procedures and approved the suggestion to move to a single stage process.

Action required:

• Revised IDRP to be uploaded to Assembly website (Pensions Team).

13. REVIEW OF INVESTMENT PERFORMANCE – GAD QUARTERLY REPORT

The Trustees considered the GAD quarterly report on investment performance for Quarter 1 and Quarter 2. 

Mr Wells raised concerns about the performance of certain funds against the benchmark.  Mr Sutherland explained that passive funds deliver the benchmark performance without costs which means the M&G passive funds have to deliver a slightly better than benchmark return in order to offset transaction costs.

The Trustees noted that over the 3-year period the Fund’s performance has exceeded the benchmark but it has underperformed over the year to date.  The Trustees long-term view was to be more conservative and they re-iterated their view that now is a time for caution given future uncertainties.

14. ANY OTHER BUSINESS

Pensioner Update

The Trustees were saddened to hear of the death of 2 former Members, Mr Oliver Gibson and Reverend Robert Coulter and expressed their condolences to the families.

Permitted Maximum Pension

The Trustees noted that a Member of the final salary section of the scheme has reached the maximum pension permitted under the Scheme rules.  Mrs Anderson informed the Trustees that the Pensions Team was liaising with the Member regarding a necessary refund of contributions.

Action required:

• Excess contributions to be refunded (Pensions Team).

Age Related Issue

The Trustees were advised that the Pensions Team is dealing with a Member regarding his continued scheme membership and personal tax position due to his age.  Mr Wells is providing the Member with assistance in understanding his pension options.

Action required:

• Member’s selected option to be actioned in due course (Pensions Team).

15. DATE OF NEXT MEETING

The next meeting to be arranged for Tuesday 29 January 2019 @ 10:00am

Action required:

• Set up meeting for 29 January 2019 (Pensions Team).

12:05pm Alec Spooner and Tony Finding (M&G) join the meeting for items 16 & 17

16. INVESTMENT MANAGER UPDATE

The Chairperson welcomed Alec Spooner and Tony Finding from M&G and invited them to update the Trustees on the Fund performance.

Mr Spooner reminded the Trustees of the changes to the funding structure which were made in December 2017 and talked through his paper on the performance of the Fund over the last quarter, year to date, 3 year and 5 year periods.  The Trustees noted that the returns over the quarter were in excess of the benchmark, over the year to date the returns were in line with the benchmark but below benchmark for the 3 and 5 year periods.  The reason for this was discussed.

Mr Finding went into more detail on the performance of the Episode Allocation Fund, explaining the philosophy and process behind the investment decisions taken in this fund.

The Trustees were disappointed to note that the passive funds are returning below benchmark returns and invited Mr Sutherland and Mr Humpherson to participate in the discussion.

Mr Sutherland suggested that M&G might wish to amend their reports going forward so that the Trustees can see what active measures M&G are taking to add value.

The Chairperson expressed disappointment that the Fund performance is below the benchmark for the 3 and 5 year periods.  Mr Spooner explained that the poor performance of the Recovery Fund is pulling down the 3 and 5 year figures. 

The Chairperson asked Mr Spooner about the performance of Long Dated Corporate Bonds and Long Term Gilts and whether they would recommend any changes to the mandate based on recent performance.  Mr McClintock reminded the Trustees that they hold bonds and gilts to match pension liabilities and provide some liability protection for valuation purposes.

Mr Spooner stated that he would not advise any further changes to the mandate at this time, following last year’s review and subsequent changes.  He re-iterated that the mandate was not an uncomplicated one to manage, and within the allocation set by the Trustees M&G have discretion to hold more or less of the asset in line with the control ranges set by the Trustees.

17. INVESTMENTS - FOSSIL FUEL QUESTION

The Chairperson informed the Trustees that a query had been received from a Member relating to the Scheme’s investment in fossil fuels.  The Trustees discussed the wider issue of climate change. 

Mr Sutherland informed the Trustees that there are 2 main ways to approach the issue – either avoid investing in stock of certain companies, or actively engage with companies to change and improve their operational approach and environmental impact.  The Trustees discussed the difficulty in reaching a consensus on their core investment beliefs.

Mr Spooner confirmed that currently the fund is invested in fossil fuels in line with the index, and that it is difficult to avoid investment in fossil fuels when investing in passive tracker funds unless investing in a specific restricted fund. 

While ‘green’ funds are becoming more widely available, there is often little performance record to judge whether they are good investment choices.  Mr Spooner informed the Trustees that M&G have signed up to industry initiatives supporting climate change and actively engage with companies regarding ethical and social issues.

The Trustees understand their primary duty, as stated in the Statement of Investment Principles, is a fiduciary one, to ensure that the fund is of a sufficient size to ensure that all liabilities can be paid.  It is difficult to balance this with a desire to move away from fossil fuels.

Mr Beggs also queried the Fund’s investment in other stocks such as tobacco.  The Trustees agreed that the fossil fuel question was more complex than it might first appear and that more information was required.  It was agreed that before the next meeting, the Trustees would informally seek the opinion of some of the Members and consider the issue further.

Action required:

• Trustees to seek the opinion of a sample of Members (Trustees);
• Further information / facilitated discussion on fossil fuels question to be arranged (Pensions Team);
• Letter to be issued to Member who raised the query (Pensions Team).

The Chairperson thanked everyone for attending the meeting today.

The Trustee meeting ended at 1.22pm