Minutes of Proceedings

81^st Meeting of the Pension Trustees held on
Tuesday 18 February 2020 at 10:10am, Room 106

The Chairperson thanked everyone for attending the meeting and welcomed Mr Humpherson from Deloitte, and Mr Maclaren and Mr Mistry from the Government Actuary’s Department (GAD).

1. APOLOGIES

Mr Catney and Mr O’Dowd issued their apologies prior to the meeting.

2. MINUTES OF PREVIOUS TRUSTEES MEETING

Miss Foster said that a slight amendment to the minutes was required in relation to the section on the procurement of a new investment manager.  She explained that a query had arisen internally and amended minutes would be circulated in due course.

Action required:

• Amended minutes to be circulated to the Trustees for agreement (Pensions Team).

3. CHANGES TO THE BOARD OF PENSION TRUSTEES

Miss Foster informed the Trustees that she had received correspondence stating that Mr O’Dowd was expected to be replaced by another Member of his Party.  Mr Beggs raised a query regarding the process for filling the vacancies on the Board of Trustees.  Miss Foster agreed to follow up with the Business Office regarding the appointment of new Trustees.

Action required:

• Contact the Business Office to start the process of appointing new Trustees. (Pensions Team).

STANDING ITEMS

4. CONFLICT OF INTEREST

Mr Wells reminded the Trustees that he is a member of the AVC arrangement with Clerical Medical.

The Chairperson declared an interest in item 19 – transfer requests not caught by the statutory regime.

The Trustees all declared an interest in item 21 - transitional protection.

5. REVIEW OF ACTION POINTS ARISING FROM MEETINGS

The Chairperson handed over to Miss Foster for an update on the action points arising from previous meetings.  Miss Foster noted the following:

• The review of the contract with Eversheds has been put on hold until the procurement law advice has been finalised.
• Work on the Brewster judgement cannot be progressed until a new Independent Financial Review Panel is in place.
• Trustee Self-Assessment has been put on hold until the new Trustees are appointed.
• The Administration Agreement with the Assembly Commission has been agreed and is ready for the Chairperson to sign.  Revisions to the remainder of the contracts have now all been completed.
• The Annual Report and Accounts have been sent for printing, and will be laid before the Assembly upon receipt. The final report from the Northern Ireland Audit Office can then be issued to SARC.
• The SIP is to be reviewed as part of the investment manager tender exercise.
• Deloitte have provided an extract of the data they hold for the scheme, and any missing data will be updated by the Pensions Team.
• The rules of the scheme confirm that the Trustees would be indemnified out of the Fund in relation to any fines imposed by a regulatory body.

6. RISK REGISTER

Miss Foster noted that the Risk Scoring Workshop had taken place last week and the Risk Register had been updated.  Miss Foster asked Mr Maclaren and Mr Mistry to review the Risk Register and provide their comments.

Action required:

• Review the Risk Register and provide feedback (GAD).

7. M&G UPDATE

The Chairperson noted the inclusion of M&G’s quarterly report for the period to December 2019 in the meeting pack, along with an update on market performance during this period, and a report on the performance of the Episode Allocation Fund.

The Trustees discussed the investment performance with Mr Maclaren and Mr Humpherson.  Mr Maclaren felt that the funds, many of which are passive, have performed broadly in line with the index; and that the Episode Allocation Fund performed quite well last year.  He explained that the 1-year performance figure recorded in the update, did not include the Episode Allocation Fund, and that if it had been included, the mandate would have outperformed by 0.8% over the year.

The Trustees raised the issue of ethical investments.  They felt that when they had looked at this last year, there were few options with M&G, none of which had been operating long enough to have a proven track record.  Mr Maclaren commented that there had been a proliferation of ESG products lately, and that it might be worth considering other products available elsewhere.

8. GAD QUARTERLY INVESTMENT SUMMARY

The Chairperson handed over to Mr Maclaren for an update on the quarterly investment review for the period ending 30 December 2019. 

Mr Maclaren presented a summary of the investment performance, which was discussed by the Trustees, Mr Maclaren and Mr Humpherson. Mr Beggs queried a minor error in the graph on emerging markets. Mr Maclaren agreed to have this corrected in section 2, and to also add the relative performance of the combined mandates at the bottom line of the table in section 6.

Action required:

• Circulate updated Quarterly Investment Summary (GAD).

9. TENDER FOR INVESTMENT MANAGER SERVICES

On review of the two proposed tender processes, Mr Humpherson noted that the two-stage process would take longer and result in a higher overall fee for the exercise.  However, he recognised that the legal advice would ultimately drive the Trustees’ decision on which process to adopt.

Mr Humpherson said that the Trustees would have to consider certain questions when deciding on the new investment strategy, and recommended that this takes place at the pre-tender stage.

Miss Foster asked if Mr Humpherson could provide some written questions in relation to the formation of the new investment strategy.  Mr Humpherson agreed to put something in writing and send to the Pensions Team and GAD. 

Mr Humpherson commented that there are a reasonably small number of investment managers who would be suited to managing a largely passive fund and who also have a good range of ethical investment options.  Mr Maclaren agreed to discuss further with Deloitte, but recommended that the Trustees continue to adopt a passive strategy, with the aim of inviting 3-5 investment managers to present at a future meeting.

Action required:

• Questions to be issued to direct the investment strategy pre-tender (Deloitte).

10. AMPS STATEMENT OF INVESTMENT PRINCIPLES

Miss Foster made reference to the recently updated SIP, which was signed by the Trustees in October 2019, in Page 82 of the pack.

11. INVESTMENT STRATEGY

Mr Maclaren referred to Page 93 of the pack, which listed some suggestions from GAD on potentially desirable features which the Trustees may wish to include in the new investment mandate.  This was discussed with the Trustees in further detail.

The Chairperson asked if GAD’s suggestions differed to those of Deloitte.  Mr Humpherson felt that they did not differ in terms of strategy, but that he would need have a further discussion with GAD to agree on the finer details.

12. ACTUARIAL TRIENNIAL VALUATION

Mr Mistry explained that at least once every three years an actuarial valuation has be carried out in respect of the scheme.  The last valuation was carried out in 2017, so the next is due as at 31 March 2020, and will take about a year to complete.  Mr Mistry asked that the Pensions Team provide him with dates for the next couple of Trustees’ Meetings, which will allow GAD to provide papers, and updates, on the progress of the valuation at each of the meetings.

Mr Mistry provided a handout with a provisional timetable, and talked through the key steps of the valuation, which are:

• GAD to request membership data, which they hope to receive by April/May.
• Data is processed and checked, and compared to previous data sets.  The process can take 3-4 months.
• Other data sets are requested, such as the assets, Trustees’ Report & Accounts for the past three years, and expected returns from the investment strategy.
• By October, the final membership data will have been processed and funding valuation results produced on 2017 assumptions.  Provisional results will also be provided on the 2020 funding valuation, which takes account of investment returns, mortality tables, and financial and demographic assumptions.  At this point information will need to be provided by the Trustees in respect of which discount rates to use, how to rectify the scheme if it is in deficit, or how to manage any surplus.
• Final funding valuation results will be produced by the end of January, with a draft valuation report produced in February.
• The final valuation report will be signed off by GAD by the end of March 2021.

Mr Mistry provided an update on the McCloud Judgement.  He advised that GAD are expecting an announcement in the next 2-3 months from the government providing a remedy.  He said that if no update is provided by August, GAD will provide an indicative remedy, but they hope that the final signed report at the end of the year will include the government’s solution.  Mr Mistry indicated that it is likely that the contribution rate will increase because of McCloud, and that there may be a past service cost which will increase the liability by a couple of million pounds.

Mr Wells said that it has been announced by the Head of Government Pensions, that they will be implementing McCloud for all government departments, but that the cost of doing this would be covered by Westminster.  Mr Wells asked if the same principle would apply here.  Mr Mistry said that he would look into this, but as far as he is aware, GAD are still waiting on an announcement from the government.

Miss Foster asked if the valuation would make an allowance for the six members of the scheme who have recently been identified as having transferred-in GMP.  Mr Mistry explained that GMP can only be accrued in pension schemes across the period from 1978 – 1997, and therefore members of the scheme were unlikely to have a GMP benefit as the pension scheme was established in 1999, unless it was transferred in.  Mr Mistry felt that because there are only a small number of people with GMP, it would not make a material difference to the funding level.  Miss Foster asked if a GMP equalisation exercise would be required.  Mr Mistry said he would discuss further with the team dedicated to this and provide the Pensions Team with an update.

Action required:

• Trustee meeting dates to be provided to GAD (Pensions Team).
• Confirmation to be obtained on whether a GMP equalisation exercise is required (GAD).

13. AMPS ANNUAL REPORT AND ACCOUNTS

Miss Foster explained that the Annual Report and Accounts had been included for reference, stating this is the final version and has now been sent for printing and distribution to the membership.

Mr Wells noted that on Page 107 of the pack, the AVC contributions for the year ending 2019 are £7,544, which he believes are correct, however on Page 125 the report states that AVC investments for the same year are £210,619 which he believes may be incorrect and requested a breakdown of the figure included. Miss Foster agreed to look into this and provide a response.

Miss Foster raised a query that the Trustees had discussed at the Risk Scoring Workshop.  She made reference to Page 110 of the pack, which provides information on the Funding Level at 31 March 2018, and has a value of 68%.  The Trustees had queried where this figure had come from as they believed that the Fund was in surplus.

Mr Mistry explained that the figures detailed on Page 110 have been calculated on the accounting basis, which is very different to the funding basis, in which a different methodology is adopted.  The accounting basis is a prescribed methodology, and does not take into account investment strategy, it assumes that you invest in corporate bonds at a certain rate.  The funding basis takes into account investment strategy and contribution rate, accounting for a higher return than the prescribed amount, and therefore the values differ.  The funding level currently sits at around 100%.

Action required:

• AVC investment figure to be checked (Pensions Team).

14. DELOITTE ANNUAL ADMINISTRATION REPORT

Miss Foster noted the inclusion of Deloitte’s Annual Administration Report, which gives a breakdown of member movements, and tasks completed in accordance with the service level agreement.

15. COMMON AND CONDITIONAL DATA REPORT

Miss Foster reminded the Trustees that Mr Burns (Deloitte) had provided training at the previous meeting on The Pensions Regulator’s requirements on record keeping and common and conditional data.  Miss Foster confirmed that Deloitte have now provided an extract of the data they hold on record in respect of the scheme, for the Pensions Team to review, fill in any gaps and provide up to date information.  Miss Foster said that she expects the common and conditional data report to be presented at the September meeting.

Action required:

• Deloitte’s data extract to be reviewed, completed and amended as required (Pensions Team).

16. PENSION SHARING ORDERS

Miss Foster explained that there is an ongoing case involving a pension sharing order in respect of a pensioner member of the scheme. The last pension sharing order to be implemented took place in 2013, at which time the Trustees had decided that the fees in respect of this would be paid out of the Fund, instead of being split between the member and the ex-spouse.  Miss Foster asked if the Trustees were content to continue with this approach.  The Trustees approved the payment of any fees associated with a pension sharing order from the Fund.

17. CLERICAL MEDICAL DATA PROCESSING AGREEMENT

Miss Foster reminded the Trustees that Mr Beggs had asked for further guidance on the updated agreement from Clerical Medical at the previous meeting, and made reference to the response from Eversheds, which had been included on Page 153 of the pack.  Eversheds concluded that the liability and indemnity provisions are one-sided, with no reciprocal protection for the Trustees however it was noted that, with only a small number of members in the AVC arrangement and the robust processes in place, the risk is very low and accepted the updated agreement.

18. MLAS WHO ARE ALSO OFFICE HOLDERS AND SERVING AS MEPS

Miss Foster explained that following the restoration of the Executive and the appointment of Office Holders, there are two MLAs who are Office Holders and also Members of the European Parliament (MEP).  The Trustees asked whether the two MLAs were still MEPs, as it was their understanding that they ceased being MEPs with effect from 31 January 2020.  Miss Foster agreed to check this with the Finance Office.

Miss Foster informed the Trustees that she had sought legal advice relating to the pensionable salaries and contributions payable in regards to the two impacted scheme members, which has been included in the packs for noting.

Action required:

• Confirmation to be sought from the Finance Office that the scheme members impacted have now ceased being MEPs (Pensions Team).

19. TRANSFER REQUESTS NOT CAUGHT BY STATUTORY TRANSFER REGIME

Miss Foster informed the Trustees that two transfer requests had been received from Members who are over the age of 65.  Miss Foster explained that a Member has a statutory right to transfer up to one year before normal retirement age

Miss Foster explained that she had sought legal advice, which has been included in the pack for reference.  Miss Foster noted a couple of points from the legal advice; firstly that a transfer request which is not caught by the statutory transfer regime is not a CETV and is therefore not guaranteed. This means that the figure in the initial quotation may vary from the final transfer value figure on settlement.  Secondly, the transfer paperwork must be updated to reflect that the transfer value is not a CETV.

Mr Beggs asked that it is made clear to the impacted Members in the paperwork that the transfer value may go down on settlement.  Miss Foster agreed to take this forward.

Miss Foster invited Mr Mistry to explain how GAD calculates the factors in respect of the transfer values for Members over the age of 65.  Mr Mistry explained that at age 65, normal retirement age (NRA), for every £1 of pension, you get a factor of 20 on a transfer value.  The figure of 20 for a member who is 65, takes into account how long the member is going to live and if there is a spouse’s pension.  Mr Mistry advised that when a member is below NRA, the factor will increase, however once the member has passed NRA they take into account that the member will live less than a 65-year old, so the factor will be lower than that of a member at 65.

20. CONTRIBUTION TOP UP PAYMENTS

Miss Foster advised the Trustees that legal advice had been sought in relation to whether the top up payments made from the consolidated fund during the period that Members were on reduced salaries are to be considered as employee contributions for pension administration purposes. 

Miss Foster agreed to update the Trustees once the legal advice had been received.

21. TRANSITIONAL PROTECTION (MCCLOUD JUDGEMENT)

Miss Foster made reference to the latest statement published on the McCloud Judgement which had been included in the meeting pack for the Trustees to note.

22. ANY OTHER BUSINESS

Change to Trustee Board

Mr Wells informed the Trustees that he anticipates that his Party will nominate a new representative to the Board of Pension Trustees, and therefore he expects this to be his last Trustees’ meeting.  Mr Wells noted that he had served under various chairpersons, and sat with many different Trustees over the past 17 years; and that he has appreciated Mrs Anderson’s contribution over 13 years, and now Miss Foster’s contribution.  Mr Wells felt it a pleasure to sit as a Trustee, and wished everyone the best going forward.

The Chairperson acknowledged Mr Wells’ contribution as a Trustee, and expressed his appreciation for Mr Wells’ interest and valuable input over the years.  Mr Beggs added his appreciation for Mr Wells’ contribution and felt that the Trustees have benefitted from his experience and knowledge over the years, and thanked Mr Wells for his service.

Changes to Processes

Mrs Martin updated the Trustees regarding a change in processes going forward.  She explained that it has become apparent from the various pieces of legal advice recently received that the Finance Office also have a large role in respect of the administration of the Assembly Members Pension Scheme.  She advised that the role of the Pensions Team, and those colleagues in the Finance Office, is one of general support, relying on GAD, Deloitte and Eversheds for their expertise.  In order to continue to provide good administration support, it has been agreed that the Pensions Team, along with colleagues in the Finance Office, will receive some training around the Scheme Rules and the role that the Assembly Commission fulfils.

Mrs Martin advised that Mr Burns (Deloitte) had attended a meeting with the Pensions Team regarding concerns over the quality of data and processes already in place.  It has been agreed that the Pensions Team will perform a full analysis of the data held by Deloitte, to make sure that it is completely up to date.

Mr Beggs suggested making a change to the process regarding discussing items that are a conflict of interest in Trustees’ meetings.  He explained that because of the unusual circumstances of the past few years, when discussing issues involving a potential conflict of interest, the Trustees have been unable to leave the room as all three Trustees had to remain present to maintain a quorum for the meeting.  Mr Beggs felt that going forward, with a full board of Trustees, they should leave the room when discussing items that are a conflict of interest.

Start Time of Meetings

Mr Maclaren requested that the Trustees’ meetings start after eleven o’clock, or that the GAD items are moved to later in the agenda, to allow them adequate travel time for getting to the meetings.  Miss Foster agreed to consider this when arranging future meetings.

23. DATE OF NEXT MEETING

Miss Foster agreed to circulate potential dates in due course.

The Chairperson thanked everyone for attending the meeting today.

The Trustee meeting ended at 11:55am