Venue: Virtual / MS Teams Meeting with Outside Broadcasting
Contact: David Northover Email: d.r.northover@dorsetcc.gov.uk
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Apologies To receive any apologies for absence. Minutes: No apologies for absence were received at the meeting. |
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To note the minutes of the meeting held on 11 March 2021. Minutes: The minutes of
the meeting held on 11 March 2021 were confirmed by the Chairman. |
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Declarations of Interest To disclose any pecuniary,
other registrable or personal interest as set out in the adopted Code of
Conduct. In making their disclosure, councillors
are asked to state the agenda item, the nature of the interest and any action
they propose to take as part of their declaration. If required, further advice
should be sought from the Monitoring Officer in advance of the meeting. Minutes: No declarations of disclosable pecuniary interests were made at the meeting. |
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Public Participation PDF 422 KB To receive questions or statements on the business of the
committee from town and parish councils and members of the public. Minutes: The public questions together with the responses from
the Chairman of the Committee are set out in the Appendix to the minutes. The following statement was read by the Chairman: “We have received a large number of questions
from members of the public regarding the pension fund’s approach to investments
in fossil fuels and we welcome the interest in this important topic.
Written responses to each of the questions will be published alongside the
minutes of this meeting but I would like to make this statement today. This topic was discussed at length at our meeting in September
2020. The reports, minutes and a recording of those discussions are all
available on the Council’s website. I would like to remind everyone that the purpose of the pension fund is
to pay benefits to scheme members and that the Committee has a duty to scheme
members and their employers to ensure that their contributions to the fund are
invested appropriately to make returns sufficient to meet those obligations.
This duty overrides any other considerations. The approach agreed by the Committee in September 2020 was not to divest
completely from companies involved in the sourcing and refining of fossil
fuels, instead we will seek to reduce investment in all high carbon emitting
companies and to influence the demand for fossil fuels and their financing, not
just their supply. The decision was based upon evidence presented to the Committee by
independent investment consultants, Mercer, that a strategy of decarbonisation
can deliver significantly greater reductions in the ‘carbon footprint’ of
investments than can be achieved by divestment. Divestment is effectively a
transfer of ownership that does not directly lead to a reduction in either the
supply or demand for fossil fuels but it does remove the opportunity to
influence companies by working with them to transition to a lower carbon
future. I would like to add, however, that targeted divestment remains an
option from individual companies who will not positively engage. Significant decarbonisation has been and will continue to be achieved
through the transition of assets to the management of Brunel Pension
Partnership, the pension fund’s LGPS investment pooling manager. 10% of the pension fund’s assets are now
invested in Brunel’s global sustainable equities fund, which is 20% of our
total equities and is the fund’s largest single investment. All other
actively managed Brunel funds are committed to a policy of a 7% year on year
reduction in their carbon footprint. Brunel’s quarterly reports considered by the Committee and publicly
available include summaries of the carbon intensity and extractive exposure of
all the funds we are invested in compared to industry benchmarks. Brunel
are widely recognised as a ‘market leader’ within this field and their website
includes details of the underlying investments of all its funds plus a wealth
of information relating to its engagement activities with companies, including
voting records. In 2022 Brunel will complete a ‘stock take’ of their approach to engagement and divestment. If this review concludes that companies are not ... view the full minutes text for item 99. |
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Questions from Members To receive questions or statements on the business of the
committee from Dorset Council elected members. Minutes: There were no questions from members. |
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Urgent items To consider any items of business which the Chairman has had
prior notification and considers to be urgent pursuant to section 100B (4) b)
of the Local Government Act 1972. The reason for the urgency shall be recorded
in the minutes. Minutes: There were no urgent items. |
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Investment Pooling Update PDF 3 MB To consider the quarterly report from Brunel Pension Partnership,
the pension fund’s LGPS investment pooling manager. Minutes: The Committee
considered a report from David Vickers, Chief Investment Officer (CIO) of the
Brunel Pension Partnership (Brunel). He
gave his thoughts on the investment context for the quarter and summarised the
performance of the Brunel funds that the pension fund held investments in. Concerns about
inflation were discussed and it was agreed that the Committee would consider
the opportunity to increase the pension fund’s inflation hedging at its next
meeting in September 2021. Brunel felt that it
was not mutually exclusive to have a sustainable approach to investments and
for the Committee to meet its fiduciary duty to scheme members and
employers. The transition away from
fossil fuels was underway but there would be periods of volatility. The Chairman noted
that actual and benchmark carbon intensity and extractive exposure metrics were
reported by Brunel for each individual portfolio and asked if this could be
provided at aggregate level for all Dorset’s assets under Brunel’s management. Brunel had been
working with index providers to create useful ‘Paris aligned’ benchmarks and
were close to agreement with FTSE Russell.
This would allow new Paris aligned passive equity funds to be offered to
clients as alternatives to existing options.
The new benchmarks could also be used as secondary benchmarks for other
Brunel funds. Brunel and the
other LGPS investment pooling managers were asking government to work with them
to develop and offer infrastructure investment opportunities suitable for LGPS
funds. The Scheme Advisory Board could
also play a part in bringing pressure to bear on this topic. The Independent
Adviser raised concerns that the benchmark for the Diversifying Returns Fund
(DRF) was ‘cash’ and not ‘cash plus x%’ as had been the case with pension
fund’s legacy mandate with Barings.
Brunel agreed to review this. Cllr John Beesley,
the pension fund’s representative on the Brunel Oversight Board, updated the Committee
on governance matters relating to the investment pooling arrangements. At the Annual General Meeting on 25 March
2021 the chair and other non-executive directors were reappointed. In line with best practice, the company board
now consisted of four executive directors and five non-executive
directors. The non-executive directors
now spanned a very wide range of knowledge and experience. Resolved
i.
That Brunel provide actual and benchmark carbon intensity and extractive
exposure metrics at aggregate level for all the pension fund’s assets under
Brunel’s management.
ii.
That
the benchmark for Brunel’s Diversifying Returns Fund be reviewed by Brunel and
clients. |
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Pensions Administration PDF 98 KB To consider the quarterly report on Pension Fund Administration. Additional documents:
Minutes: The Committee
considered a report from officers on operational and administration matters
relating to the pension fund. Performance as
measured by the Key Performance Indicators (KPIs) had been pleasing,
particularly given the challenges of working from home. The Committee were
asked to approve new policies needed to reflect changes in regulations that
extended flexibilities when dealing with exiting employers and the ability to
review employer contribution rates in between valuations. The Funding Strategy Statement would also
need to be updated to reflect these new policies. Officers would confirm whether time periods
in the policies referred to working days or calendar days. The most common
reasons for employers to exit the pension fund were that there were no
employees left in the scheme, the employer had gone into administration or
ceased trading, or that the employer had been taken over by another
organisation. The administration
system changes were nearing completion and were on track to ‘go live’ 28 July
2021, with the scheme employers’ portal live 30 July 2021 and the scheme
members’ portal live 2 August 2021.
Relocation of the team within County Hall would be planned so that it
does not impact on implementation of the new systems. A workaround had
been developed to get year-end returns from the pension fund’s Additional
Voluntary Contributions (AVC) provider, Prudential, and a checking exercise
will be undertake once all the information had been received. Officers will confirm whether a review of AVC
provision has been undertaken or is planned. Resolved
i. That the new
policies relating to increased flexibility when dealing with exiting members
and the ability to review employer contribution rates in between valuations be
approved, subject to confirmation that time periods are measured in working
days or calendar days.
ii. That the
Funding Strategy Statement be updated to reflect the adoption of these new
policies.
iii. That officers confirm whether a review of AVC
provision has been undertaken or is planned. |
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Independent Investment Adviser's Report PDF 258 KB To consider the quarterly report of the Pension Fund’s Independent Investment Adviser on the outlook for the pension fund’s investments. Minutes: The Committee
considered a report from Alan Saunders, the pension fund’s Independent
Investment Adviser, that gave his views on the economic background to the
pension fund’s investments, the outlook for different asset classes and key
market risks. Inflation concerns
due to increases in material costs and labour shortages had unsettled
markets. There were concerns about how
central banks would respond and a more cautious approach to investment
decisions was recommended. Labour shortages in
the UK may be temporarily exaggerated due to the Job Retention Scheme but this
was a global issue, particularly in the US.
The chief economist at the Bank of England had warned that there was not
enough slack in labour markets and so wages could start to respond. The Chairman
believed it was right to focus on inflation and proposed that the Committee met
with Insight, the pension fund’s Liability Driven Investment (LDI), to revisit
the mandate and consider options in September 2021. The Independent Investment Adviser noted that
there was scope to increase the inflation hedge or reduce collateral to invest
elsewhere. The estimated
funding ratio had fallen to 85% from 92% at the last full valuation as at March
2019. Possible reasons were the
smoothing of asset valuations by the actuary, rises in inflation expectations
and/or falls in expected investment returns – as equities had shown such strong
returns the actuary was now factoring in reduced returns leading to reduced
discount rate and therefore higher liabilities. Cllr John Beesley
highlighted that the LGPS Scheme Advisory Board (SAB) were very aware of the
risk of reduced funding levels at the next triennial valuation across the
LGPS. The Government Actuary’s
Department (GAD) were looking at deficit recovery periods and other mitigation
options. He hoped to report back at the
September 2021 meeting as this would be hugely influential on what Dorset’s
actuary perceived to be permissible for the pension fund. Noted That the Committee
review the Liability Driven Investment (LDI) mandate and consider increasing
the pension fund’s inflation hedging position at its meeting in September 2021. |
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Fund Administrator's Report PDF 196 KB To consider the quarterly report
of the Fund Administrator including an update on the funding position, the
value and performance of investments and other topical issues. Additional documents:
Minutes: The Committee
considered a report from officers on the pension fund’s funding position, asset
valuation, investment performance and asset allocation as at 31 March 2021. The value of the
pension fund’s assets ended the financial year at £3.3 billion compared to £2.7
billion at the start of the financial year, approximately 10% higher than the
position as at March 2019 the date of the last full valuation by the actuary and
broadly in line with the estimated average annual return of 5%. However, the
funding position estimated by our actuary is that the value of the pension
fund’s assets only covers 85% of the present value of our liabilities,
significantly lower than the 92% it was estimated to be at the March 2019
valuation. The actuary had
made some small increases to their assumptions for pension increases (CPI) and
salary increases which will increase expected liabilities but the main reason
for the fall in funding level is that the actuary had revised down their
expectations for asset returns from 5% at the March 2019 valuation to 4.5% now. The investment return for the financial year
was 24% above the combined benchmark by about 3%. The last quarter of the year was below
benchmark, driven by the pension fund’s reduced UK and fossil fuels exposure
which did well in the quarter. The
pension fund is believed to be positioned well for longer term trends, but
there will be times of underperformance over shorter periods. Just under 30% of the pension fund’s
liabilities were hedged against inflation sensitivity but using roughly 11.5%
of assets to do so. Nearly 60% of the
pension fund’s assets are now under the management of Brunel. Allocations for
equities and other publicly traded assets were now broadly near the targets
agreed by the Committee in September 2020.
Some further investment in the Brunel Diversifying Returns Fund (DRF)
was needed to reach target, funded by cash and/or partial redemption from
corporate bonds which was above target. Achieving target
allocations for private market assets, particularly private equity, remained a
challenge. There will be an opportunity
to commit to the next cycle of Brunel’s private offerings in March 2022, therefore
it would be useful to consider this in more depth at the September 2021
meeting. Noted |
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Dates of Future Meetings To confirm the dates for
the meetings of the Committee in 2021: 10am
Wednesday 7 September 2021 – London (tbc) 10am
Tuesday 30 November 2021 – County Hall (tbc) Minutes: Resolved That meetings be
held on the following dates: 10am
Wednesday 8 September 2021 – London (tbc) 10am
Tuesday 30 November 2021 – County Hall, Dorchester (tbc) |
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Exempt Business To move the exclusion of the press and the public for the following item
in view of the likely disclosure of exempt information within the meaning of
paragraph 3 of schedule 12 A to the Local Government Act 1972 (as amended). The public and the press will be asked to leave the meeting whilst the
item of business is considered. Minutes: Resolved That under Section
100A(4) of the Local Government Act 1972, the public be excluded from the
meeting for the business specified in minute 14 because it was likely that if
members of the public were present there would be disclosure to them of exempt
information as defined in Paragraph 3 of Part 1 of Schedule 12A to the Act and
the public interest in withholding the information outweighs the public interest
in disclosing that information.
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Independent Investment Advice To consider future provision of independent investment advice to the Committee. Minutes: The pension fund’s independent adviser, Alan Saunders,
will be retiring from this role after the meeting of the Committee in September
2021. A working group of officers, the
Chairman and Vice Chairman reviewed the requirements for independent advice and
concluded that there is still a need for a retained independent investment
adviser supplemented by the use of investment
consultants as and when appropriate. Resolved That officers begin
the process to procure the services of a retained independent investment
adviser and that these services are supplemented by the use
of investment consultants as and when appropriate. |
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Questions/Answers for the Pension Fund Committee - 15 June 2021 Minutes: Question 1:
Julie-Ann Booker, on behalf of Dorset Action on Pensions In
considering the possibility of stranded assets, The Brunel Pension Fund Carbon
Metrics report analyses its potential relationship with fossil fuel reserves
both probable and proven, and then examines the potential emissions from these
reserves: “Taking
the reserves exposures discussed above, we can look at an assessment of
potential future emissions that may incur from these reserves being realised.
This metric is not included in the WACI figure (which focuses on current
intensity) and so it is an important assessment of company's potential
contribution to emissions via its stockpile of fossil fuels. We have been able
to assess the potential emissions associated with the proven and probable
reserves for companies within our Portfolios, as well as an overall Portfolio assessment.”
(Brunel Pension Partnership Carbon Metrics report). This
abstraction in the face of a climate emergency seems like madness to me. I am no finance expert but have done some
research and the Custom Benchmark appears to only relate to comparative
investment funds and pays no attention to the health of the planet or to the
science of climate change. “It
is crazy that our banks and our pensions are investing in fossil fuels, when
these are the very things that are jeopardising the future we are saving
for”. (Sir David Attenborough, Nov
2020). Sir
David is also not a financial expert, but is one of
the most respected naturalists on the planet and his message on fossil fuels is
quite clear. Dorset Action on Pensions (https://dtaction.co.uk/pension-divestment/)
feel that Dorset Council should stop investing in fossil fuels and start
investing in a greener future. Is
Dorset Council seeking investments that are both good for the planet and good
for returns as demonstrated by six other local government pension funds, half
of all UK Universities, and over 1,250 institutions representing over $14.5
trillion in assets who have already committed to going fossil free (Nauman,
2020). Or is it in fact risking the
threat of stranded assets, and ignoring the health of the planet and the
science of climate change? Answer 1 The Local Government Pension Scheme (LGPS)
is a national pension scheme administered locally. Dorset Council (DC) is the administering
authority for the LGPS in Dorset which provides pensions and other benefits for
employees of DC, other councils and a range of other
organisations within the county. DC has
delegated its responsibilities as an administering authority to the Pension Fund
Committee, which consists of five DC elected members, three Bournemouth, Christchurch and Poole Council (BCP) elected members, and
one scheme member representative nominated by the trade unions. The purpose of
the pension fund is to pay benefits to scheme members. The Pension Fund Committee has a duty to
scheme members and their employers to ensure that their contributions to the
pension fund are invested appropriately to make returns sufficient to meet
those obligations. This duty overrides any other considerations. The decarbonisation approach agreed by the Committee at its meeting ... view the full minutes text for item 109. |