Agenda item

This report presents the Pension Fund Annual Report and audited Accounts for 2017/18 for the Committee and Board’s approval.  The annual audit report from the Fund’s external auditor BDO is also presented. 

Annex 1 BDO Audit Report (ISA 260) – to follow

The Committee and Board considered the Pension Fund Annual Report and audited Accounts for 2017/18 for the Committee and Board’s approval, presented by Thomas Skeen, Head of Pensions. The annual audit report from the Fund’s external auditor BDO was also presented. The Committee was referred to Annex 2 for the full contents of the report and the recommendations as shown at 3.1 – 3.3.

The Committee and Board was referred to the financial statements and notes in Appendix 1 which showed that the value of the Fund's assets increased by £48m to £1,356m as at 31 March 2018. During the year, the rate of return on the Fund’s investments was 4.40%. It was noted that this was 1.02% below the Fund’s target of 5.42% for the year, however, it was emphasised that when this target figure was compared with that of other funds, it actually performed higher than the average.

The external auditor, BDO, was present to give an update to the Committee on the audit that they carried out on the Council’s accounts. The auditor went through the pension fund accounts that has been prepared (Annex 2, Appendix 1). The auditor noted they were impressed with how the Pension team was carrying out the Council’s duties as administering authority for Haringey Pension Fund.

With regard to the future, the auditor noted that in looking at the cash balances and investment plans, there was a balance of £3.1 million, which Council Officers had treated as part of the investment portfolio in the accounts, whereas BDO took the view that this should be treated as a current asset.  BDO noted that this makes no bottom line difference to the value of the fund overall, but that this was noted in their audit report.

The auditor concluded stating that it was a thoroughly positive audit and that they were ready to sign on the pension fund account, however, would like it to be noted that there appeared to be some discrepancies in the actuaries sum and those presented by Haringey Council’s accounts.

The independent legal advisor, John Raisin, spoke to the Committee about the report that he had prepared on ‘Market Background 2017/18’ for the Committee and Board to consider. Amongst the significant events that affected the market during this time, were:

·         The United States Federal Reserve initiating a significant change of direction in monetary policy;

·         The unpredictability of current administration in the USA;

·         Japan continuing their quantitative easing programme;

·         Since the end of last year, emerging markets had performed well.

·         Due to the uncertainties surrounding the United Kingdom exiting the European Union, foreign investors were wary of investing in the United Kingdom.

With regard to cash balance, it was noted that the College of Enfield and Haringey was leaving the Fund imminently, which meant that approximately £40 million had to be made available to cover this transfer of pension funds. It was understood that this would now take place in September 2018, later than what was originally planned for. A further £8-10 million was set aside to cover the transfer of pension funds once the Shared Digital Service (SDS) project goes ahead. It was understood that this will now take place in October 2018, again later than what was originally anticipated. 

In further discussing Shared Digital Service and the delay in this being delivered, it was noted that, as of 31 March 2018, it was understood that all of the Council’s IT staff would move to Camden in April 2018, but this was revised and now only a percentage will. The Pension fund had set aside £8-10 million to cover the move of pension assets attributable to any staff who transfer to Camden Pension Fund. The Committee queried whether assets could be sold as and when funding is needed because if the equity market had performed poorly, money might have been made by investing. It was noted that the Council was not able to foresee such issues and that it tries to prepare as best it can to cover contractual commitments and contingent liabilities. The Council plans on the basis that a bulk transfer was going to go ahead, based on information provided by services and employers, and it was regrettable when delays occur that the Fund cannot control. The Council carefully considers when it is appropriate to make cash available and whilst it could technically reinvest the money set aside for the above two pension fund transfers until the money is needed, there was a risk that the investment market may turn negative and that cash invested could lose value before it was needed.

In discussing the investment strategy and the asset allocation of 1% to renewable energy, the committee questioned why there was a discrepancy between this and the target benchmark allocation of 5% to renewable energy. It was noted that investment is illiquid and can usually take a significant period to meet the benchmark target as the idea behind the benchmark target was that this would be achieved gradually.

In discussing how benchmark figures were allocated, it was noted that it is the committee that sets these in the Fund’s Investment Strategy Statement. The Committee had differing views over whether there would need to be a change in the current allocations to low carbon equity, between a cautious approach to allow the Committee to gain more experience before making such a judgement call and increasing the low carbon equity now to reflect the wishes of residents within the borough of Haringey. It was advised by the Independent Advisor that the Committee and Board could consider environmental factors but that these must not be to the detriment of the Fund. The Committee and Board was reassured that no decision has ever been taken recklessly and that reducing carbon has always been sought in an appropriate, measured way. It was noted that the Committee and Board only recently did a thorough review of stock market investment, including low carbon equity, in March 2018.

After discussion amongst the Committee, the following points were noted:

• In discussing management expenses, it was noted that the Fund previously had not contributed towards the costs of all officers, but this has been revised going forwards to ensure that recharging is fair and accurate.  It was also noted that there is an industry wide move to make investment management expenses/fees more transparent;
• Regarding academy employees, the Council would not be able to present to the Committee the proportion of academy employees who are members of the fund, as they are not able to collect information about how many academy employees are not members of the fund; and
• Regarding the use of RPI, as opposed to the use of CPI, the Council’s actuary noted that they do also use CPI. They use the RPI and then make a 1% deduction to this to get the CPI.

Resolved

That the Committee and Board:

• note the findings of the external auditor in their report attached in Annex 1.
• note and approve the Pension Fund Annual Report and Fund Accounts for 2017/18.
• gives the Chair of the Committee and Board and Director of Finance (S151 Officer) authority to sign the letter of representation to the Auditor as set out in paragraph 6.4 of the report.

Reason for Decision

The Committee and Board is required by law to approve the Pension Fund Accounts and Annual Report before the final version is published.