A report of the Strategic Director Finance, Governance and Support was presented to follow up the reports on LGPS Investment Reform presented at previous meetings and inform Members of the Teesside Pension Board (the Board) of the latest developments in setting up the new Pool (BCPP - Border to Coast Pension Partnership).
The Minister for Department for Communities and Local Government (DCLG) had approved the BCPP proposal in December 2016. Three Member sub groups were formed from the Member Steering Group and had tendered for some key services including tax advisers, a recruitment consultant to assist with creating the remuneration package for senior executives of the BCPP and their recruitment and legal assistance with preparation of the key documents required for the Pool to function.
A report had been prepared for each administering authority to obtain authority from each partner Council to set up the Joint Committee to oversee the investment activities of the BCPP and for each Council to acquire the required shareholdings. The Funds report was presented to Middlesbrough Council on 15 February 2017 and the recommendations were agreed. All reports would be presented to the administering authorities of each BCPP partner by the end of March and full Joint Committee and shareholder meetings to be held in April 2017. It was highlighted that there were still some outstanding delegations to amend and key governance documents to finalise. The Chair of the Teesside Pension Fund and Investment Panel would be the representative on the Joint Committee and the Mayor would have responsibility for shareholder matters. It was noted that one Council had deferred a decision pending further information in relation to non-voting Trade Union representation.
The Member Steering Group had agreed the Executive Officers remuneration in principle and an outline draft of packages for senior executives, non-executives and the Chair would be presented to the next meeting of Teesside Pension Fund and Investment Panel for consideration. Following approval, recruitment for the Chair and Chief Executive of BCPP would take place and once those positions were filled a management team would be recruited. Approval from the Financial Conduct Authority (FCA) could then be sought and this could take approximately nine to twelve months.
A transition plan was in development to identify and mitigate risks to the Fund with pooling assets with BCPP. All current staff in the Loans and Investment service area were listed for TUPE (Transfer of Undertakings (Protection of Employment)). All pension administration services were currently outsourced to Kier Business Services and some of the accounting function was carried out by the Councils Finance Section. However, if the staff moved to BCPP under TUPE, the Fund would be left with insufficient resources to manage BCPP and any legacy assets not transferred to BCPP, service the Board and Investment Panel, monitor the activities of pension administration, and key parts of the Funds Report and Accounts would be incomplete.
In addition since the service in Middlesbrough could effectively close and move to Leeds, staff were looking at protecting their own futures. This had had a detrimental effect on moral and three key staff had already left the service, leaving gaps in the skills and knowledge base. One new member of staff had been recruited on a fixed term basis. Once this member of the team had been fully trained another one would be recruited.
For a period of time the Fund might have to be managed slightly different from the way it was currently in order to mitigate the risks identified. This would involve creating an effective staffing structure to manage the transition to the pool, the activities of the pool after transfer of assets, manage the assets not transferred and carry out other governance and accounting work required. All options would be explored to retain existing staff for as long as they were needed and supplement them with additional staff to ensure the investment assets continued to be effectively managed in the interim.
The key risks to assets were the continued management of existing investment assets, the identification of assets to transfer to BCPP and the actual transfer itself, monitoring the investment management of BCPP in the future, and management of any legacy assets that were not transferred, for example direct property. The key to mitigating the asset risk was identifying the assets to transfer to BCPP for management and there were three main issues as follows:
BCPP did not yet have a timetable for receiving assets to start managing them.
BCPP needed to create an in-house team from the existing staff of three internally managed Funds in BCPP, plus additional new staff in order to continue with low cost, active management.
The Minister for DCLG had originally stated that all authorities were expected to place all their assets in the pool unless there was a strong value for money case for delay. However the criteria for a strong VFM case had not been set out. For Teesside it was recognised that the current arrangements for management of quoted equities and bonds was cost effective and had a strong long term performance track record. It was proposed to seek clarification as to Teessides position and whether there was an option for delay.
It was acknowledged that potentially some of the risks were considerable and it was the role of Board to gain assurance that everything was under control and the various contingencies that might arise would be dealt with. The considerable workload faced by staff was also acknowledged.
The Chair read out an email from the Chair of the Tyne and Wear Pension Board requesting the Boards views on non-voting Trade Union representation on the BCPP Joint Committee. Following discussion, the Chair undertook to respond with his personal view that it would be helpful to have a non-voting Trade Union representative and that this view was supported by the Board.
AGREED that the information provided was received and noted.