Agenda item

This report presents the Pension Fund Annual Report and Statement of Accounts for 2019/20 for the Pensions Committee and Board’s approval. The report also presents the annual audit report from the Fund’s external auditor, BDO.

The Head of Pensions and Treasury introduced the report which presented the Pension Fund Annual Report and audited Accounts for 2019/20 for the Pension Committee and Board’s approval. The draft annual audit report from the Fund’s external auditor, BDO, was also presented. It was explained that the annual report and accounts would normally be considered in July but that the deadline had been extended due to the Covid-19 pandemic. The Pensions Committee and Board was asked to note the interim findings of the annual report and accounts. It was highlighted that the audit was very near completion and that the conclusion would be finalised in the next few days; it was noted that there was no audit opinion yet but the BDO Partner working on the audit would expand on this later in the meeting. It was added that no major changes were anticipated but that, if there were any, they would be reported back to the Pensions Committee and Board.

As the audit had not concluded, the Pensions Committee and Board was asked to delegate authority to Director of Finance, after consultation with the Chair, to make any necessary final changes and approve the final accounts, subject to reporting back any major changes. Additionally, it was requested to authorise the Chair of the Pensions Committee and Board and Director of Finance to sign the letter of representation to the auditor to acknowledge the Council’s responsibility for the fair presentation of the information in the financial statement and annual report.

The Head of Pensions and Treasury provided a summary of the annual report that was included in the agenda pack. It was noted that there had been a modest growth of 51 members in 2019-2020, some movement of members to retired and deferred membership, and a slight reduction in active membership. It was explained that there had been a slight reduction in the Pension Fund’s value as a result of the Covid-19 pandemic and that, at 31 March 2020, there had been a negative return of 3.7% which equated to a loss in value of approximately £56 million. It was noted that this did not compare well against the benchmark target of -1.2% but it was highlighted that the Pension Fund had outperformed the average local authority fund performance which was -4.1%. It was added that most of the losses as a result of the Covid-19 pandemic had now been recovered.

A member of the Pension Committee and Board noted that the annual report showed that, compared to 2010-2011, there were 30% more pensioners drawing their payment and 8% fewer paying members; it was enquired whether this was a concerning trend and whether there should be a strategy for the Council to transition more staff from temporary to permanent posts. The Head of Pensions and Treasury noted that the Council was not the only employer in the Pension Fund and so the actions of a number of employers had impacts. It was explained that Pension Funds were designed to operate so that all members could retire and draw their payments. It was acknowledged that people were living longer and that it would be important to ensure that the Pension Fund’s assets matched its liabilities; it was noted that, when the liabilities were last valued, there were sufficient assets.

A member noted that Millbrook Park Primary School and Braybourne Mulberry School were employers in the Pension Fund but were not located in Haringey. The Pensions Manager explained that Millbrook Park Primary School was not located in Haringey but was part of a Multi-Academy Trust (MAT) and could join the Pension Fund. In relation to Braybourne Mulberry School, it was noted that Braybourne provided the catering for Mulberry School. It was also explained that there may be different arrangements in different Pension Funds. It was clarified that the actual pension benefit rules were the same across the Local Government Pension Scheme (LGPS) but that, in relation to redundancy packages, the statutory payment was universal and the calculation of the enhanced payment was agreed locally.

It was noted that all of the Haringey Pension Fund managers except one had signed up to the United Nations (UN) Principles for Responsible Investment initiative; it was enquired whether this fund manager could be required to sign up. The Assistant Director of Finance noted that this fund manager was one of the renewable energy managers and it was believed that they had not signed up due to their size and the fact that they were not based in the UK. It was explained that the Pensions Committee and Board may need to exercise caution in imposing requirements as it may not be possible for all managers to comply.

A member of the Pensions Committee and Board believed that there were smaller sign up costs for smaller businesses and asked whether it would be possible to write to this manager and ask them to join the UN initiative. The Assistant Director of Finance understood that the sign up costs were quite costly but noted that it would be possible to write to the manager to obtain some feedback. It was agreed that the Pension Fund would contact the manager to see whether they wanted to be a signatory and to determine whether there were any barriers to joining the UN initiative. It was added that, in future, any renewable energy investments would be managed through the London Collective Investment Vehicle (CIV) and this issue would be considered when the London CIV appointed their manager.

A member noted that some Pension Funds invested in university halls of residents and that these were not being occupied during the Covid-19 pandemic; it was enquired whether this presented any investment risks for the Haringey Pension Fund. The Head of Pensions and Treasury explained that this would not present a risk as contracts for halls of residence had been signed for the year and the universities would be liable for any defaults. It was confirmed that the Pension Fund had not experienced any loss of income and, in terms of future years, it was noted that the sign up rate for the upcoming university year was similar to previous years.

It was clarified that i-connect was a system that connected payroll and pensions which provided both monthly and annual updates about individual contributions. It was explained that this system was already used by Haringey Council and was being rolled out to other employers in the Pension Fund.

The Chair enquired whether the Pension Fund regularly wrote to people about joining the scheme. The Pensions Manager explained that staff were automatically brought into the pension scheme when they joined relevant employment. It was noted that staff had a choice to opt out of the scheme but that this choice needed to be reaffirmed every three years.

It was noted that the report presented to the Pensions Committee and Board was not the finalised report and some members expressed concern that they would not be approving the final version. The Head of Pensions and Treasury explained that the report would be finalised in the next few days and that issues were more likely to be removed from the report rather than added; it was also confirmed that any major changes would be reported to the Pensions Committee and Board.

The Head of Pensions and Treasury explained that, in addition to the annual report, the statement of accounts was presented to the Pension Committee and Board. It was noted that contributions had gone up by approximately £4 million, mainly due to secondary payments, and benefit payments had decreased significantly, mainly due to the departure of College of Haringey, Enfield, and North East London (CoNEL) from the Pension Fund. It was added that most other numbers were comparable to the accounts from 2018-2019.

Leigh Lloyd-Thomas, BDO, noted that conducting the audit remotely had taken longer and that the government had extended the deadline for submitting the annual report and accounts. He provided an update on the auditor’s key findings. It was noted that the materiality, or the level over which differences needed to be reported, was 1% of the Pension Funds investment assets, or £13 million. It was stated that there were no errors in the accounts and it was considered that the funds were well managed.

It was explained that the audit risks were set out in the audit progress report. In relation to the management override of controls risk, it was reported that, once the final portion of testing which related to seven journals was completed, it should be possible to sign off the accounts. In relation to the pension liability risk, it was noted that there had been a marked reduction in liabilities this year due to pay and pension increase assumptions and the flattening out of life expectancy assumptions. Leigh Lloyd-Thomas, BDO, also noted that this was a triennial year where all membership data was refreshed; it was explained that this data would be used in the 31 March 2021 accounting valuation.

It was stated that the key legal cases at present were GMP (gender equality), McCloud (age discrimination), and Goodwin (spousal pensions). In relation to GMP, it was explained that the actuary had not included any GMP indexation in last year’s accounts but had applied full GMP indexation this year, assuming that the Council would take liability for this. It was noted that McCloud was also now included and the auditor was content that the liability included the correct amount. Leigh Lloyd-Thomas stated that, although the liability had reduced, it could be lower and this may be reflected by a further reduction at the next valuation of mortality. It was clarified that the actuaries national index was based on the 2018 data for mortalities but that the 2019 data suggested a further flattening of longevity.

It was noted that the auditor had also examined investment assets, particularly focusing on fund that were carrying harder to value assets, such as property, infrastructure, and private equity, to ensure that the valuations had factored in the impact of the Covid-19 pandemic. In relation to property, the auditor considered the impact of the valuation uncertainty warning issued by the manager and decided that it was not sufficiently significant to require specific reference in the audit report but had suggested that the uncertainties over fund pricing should be included in the valuation notes. In relation to private equity and infrastructure, it was considered that there were no major concerns and the auditor was content that the harder to value funds had factored in an appropriate reduction in valuation.

Leigh Lloyd-Thomas, BDO, noted that the testing of benefits payable and contributions in had now completed and no errors had been found. The letter of representation was included in the audit progress report and there was only one instance where the auditor had sought specific representations; it was explained that this askedthe Pensions Committee and Board to confirm the pension actuarial assumptions around financial and mortality assumptions. It was added that this was recommended by the actuary and any opinions on the assumptions were sought before the deadline of 30 November 2020. It was noted that the audit fees were included in the report, with additional funds budgeted this year relating to the Covid and triennial valuations.

A member of the Pensions Committee and Board noted that some retail companies were not paying rent at present and it was enquired how this might affect the Pension Fund’s portfolio. Leigh Lloyd-Thomas, BDO, explained that retail was a known issue, even prior to the Covid-19 pandemic. A number of retail rents had been reduced during the pandemic and it was unknown whether the rates would increase to their former amounts. It was noted that the Pension Fund did have some investments in UK retail and these would have to be monitored in the future.

RESOLVED

1.    To note the findings of the external auditor in their report, attached as Annexe 1 to the report.

2.    To note the content of the Pension Fund Annual Report and Fund Accounts for 2019/20.

3.    To approve the Pension Fund Annual Report and Fund Accounts for 2019/20.

4.    To delegate authority to the Director of Finance, after consultation with Chair of the Pensions Committee and Board, to make any necessary final changes to the published accounts and approve the Audited Statement of Accounts for 2019/20, subject to reporting back any significant changes made, to ensure that the accounts were signed off by the 30 November deadline.

5.    To authorise the Chair of the Pensions Committee and Board and Director of Finance (S151 Officer) to sign the letter of representation to the Auditor to acknowledge the Council’s responsibility for the fair presentation of the information in the financial statement and the Pension Fund Annual Report.