OUR ROUND-UP OF THE LATEST PUBLIC SECTOR NEWS AND INSIGHTS
Current Issues in the LGPS - October 2019
01 Oct 2019 - Estimated reading time: 5 minutes
Farewell Celtic Manor …
What single item should you ensure to stockpile ahead of a potential hard Brexit? How are gilts like the Government borrowing a loaf of bread from you? How is a well-run Fund like a Monopoly board? Find out the answers to these and other questions in our Conference Highlights from the last LGC Investment Summit at Celtic Manor (next year it will be in Leeds). And do get in touch if you would like a copy of the slides that our consultants Douglas Green and Nick Jellema delivered on “What does a well-run Fund look like?”
… and farewell RPI?
The Retail Prices Index is 72 years old, but will struggle to reach its centenary: various identified issues mean it is likely to be “aligned” with CPIH (our 60SS refers) in the second half of the next decade. There are many questions outstanding from the Chancellor’s announcement on 4 September, for instance around what to do with current hedging strategies and whether there will be compensation to index-linked gilt holders. A consultation has been promised in January, which should help give more of a steer.
The Department for Education has launched a new consultation regarding proposed changes to participation of independent schools in the England and Wales Teachers’ Pension Scheme (TPS). The latest proposal would allow independent schools to stop offering TPS to new hires, while current teachers could remain in TPS. We recently held a webinar to help independent schools understand their options when reviewing their participation in TPS. The consultation (closing on 3 November 2019) seeks views on the proposal and whether there are any alternative proposals to achieve the consultation aims.
NHS flexibility – just what the doctors ordered?
The Government has published proposals setting out the surgery required to provide flexibility into the NHS Pension Schemes for those high earners adversely impacted by the annual and lifetime allowances. This diagnosis suggests enabling flexibility of accrual and contributions (at the start and toward the end of the scheme year), phasing the “pensionability” of large pay increases, changing the approach to scheme pays elections and increasing member information and education. If adopted the expected date of the surgery would be April 2020.
Equitable – decision time
Further to last month’s article, all of you with Equitable Life AVCs should now have received your decision packs. These packs include illustrations that set out how individual members’ portfolio values may compare if the proposal is successful or not. This vote is important for investments with Equitable Life. It is important that funds assess these illustrations to help them decide (and evidence) how they elect to vote.
How are you engaging with your employers?
Employers are one of the key stakeholders an LGPS fund needs to liaise with during the valuation. Due to the large and diverse employer group within each fund, having an effective employer communications and engagement strategy is key to delivering a successful valuation. Together with our communications partner, like minds, we recently held a webinar to share our insights and practical tips on how Administering Authorities can overcome the challenges faced when engaging with employers and communicating valuation results.
Illiquidity – premium or prisoner
Illiquid assets have long been a feature of LGPS investment strategies. On the back of improved funding, increasing maturity and potential lower cost access via pooling, it is anticipated that funds’ exposures to illiquids will increase. One question we have had from a couple of funds is, “what is the maximum amount we can invest in illiquids?”. The short answer is, “it depends”, with factors to consider including
: maturity of existing private market profile and the Fund’s current and future net cashflow position. While most funds will be far away from their targets, it is something to consider as part of 2019/2020 strategic discussions alongside your actuarial valuation.
Counting the cost
Over the past month, the debate over active/passive management raised its head again with several press articles. Our long-held view is that both can have a place in the LGPS, with funds’ specific decisions driven by their underlying objectives and beliefs. Another long-held view is that funds must understand the costs that they pay – hence our support for the SAB’s Code of Transparency. In terms of the Code, the SAB has announced the appointment of Bhyiras to develop a system to enable managers to evidence compliance and provide comparison tools for funds and pools.
TPR emerges from its LGPS deep dive with a treasure trove of recommendations
As part of its programme of engagement with public service pension schemes, TPR conducted high level engagement sessions with 10 LGPS funds in late 2018 and into the summer of 2019. Its report into this ‘deep dive’ assessment has given it a strong insight into current Governance and Administration standards and practices in the LGPS. Read our recent 60SS for our thoughts on TPR’s ‘treasure trove’ of recommendations following this near year-long engagement.
Updated actuarial factors
LGA has advised funds in England and Wales to review and recalculate certain Club transfers that have been completed since 1 April 2019. The affected cases involve transfers in over age 65 on the relevant date, or transfers out where the members were over NPA or CRA for all or part of their benefits. The erroneous factors used for these cases have now been corrected by GAD and are available at the usual location. Meanwhile, Scottish funds have received new late retirement factors and guidance which can be found here.
A win for our LGPS Investment team!
We’re pleased to announce that we were successful in winning the award for Investment Consultancy of the Year at last month’s 2019 Local Authority Pension Fund (LAPF) Investments Awards. The awards are designed to recognise the best in the UK public sector arena and are a great way to celebrate achievement within the LGPS. Congratulations to all of the other winners and nominees on the night.