Current Issues in the LGPS - November 2017
31 Oct 2017 - Estimated reading time: 5 minutes
Independent thoughts please
We have surveyed LGPS independent advisers for their opinions on a range of investment topics. Details and commentary relating to the responses can be found in our publication. Highlights included; 90% of respondents felt that Committees had an understanding of their Fund’s objectives, but only 66% believed Committees had a clear view of how their strategy will look once the objectives have been achieved, and the risk of funds being unable to generate sufficient asset returns was viewed as the main market risk for the LGPS.
An ideal time for employer engagement
As the 2017 Scottish valuations progress, we will be hosting a discussion on 10 November about employer engagement as part of our Valuation webinar series. The valuation process is an excellent opportunity for funds to use the ‘pension’ focus of their employers to further solidify the fund/employer relationship. You can register here and there will be a Q&A session following the webinar.
When discussing MiFID II, LGPS conversations have focused largely on the impact of being classified as a Retail, rather than Professional, client and the process of opting back up to the latter. Further details can be found here. However, there are other implications, two of the most notable being: managers’ approaches to dealing with charging for external research and the need to have a Legal Entity Identifier for segregated mandates. We discuss this in more detail in our blog. Please note, MiFID II comes into effect on 3 January 2018, so time is pressing.
Seeking investment protection
We are seeing increased discussion around the potential use of protection strategies in the LGPS. A number of these strategies have merit e.g. efficient use of capital, degree of protection from a market sell off. However, as with any investment, it is important to understand how they fit with your objectives, beliefs, strategy and governance arrangements and what the long-term risk and return implications at a total fund level might be e.g. zero cost does not necessarily mean no impact on return.
The 2016 valuation saw an increase in pension costs for many housing associations. The Social Housing Pension Scheme is also in the middle of a formal valuation which could lead to an increase in deficits and future service costs. In response, we recently held a webinar to help housing associations better understand their pension costs and risks and what they can do to manage them more effectively.
88/5 = 8
There are just five months to go until the E&W LGPS moves from 88 funds of assets to eight pools. So much good work has been done so far. Key next steps for funds include: considering how their investment strategy has been replicated by their Pool’s sub funds; ensuring pools will provide suitable reporting of all decisions that are made at the pool (i.e. not just manager performance) and understanding the transition process to ensure costs and market risks are managed fairly and efficiently.
What’s the score?
LGPS funds are well versed in the push for better and more accurate member data. In a recent magazine article, the Regulator emphasised that gathering data about the scheme is mandatory and an “essential part of making sure that a scheme is being run well”. It also announced that ‘defined benefit pension scheme’ annual return notices issued from January 2018 will, for the first time, require schemes to state in their return when a data review was last carried out and what the scheme’s data score is (a % assessment of the full and accurate common and scheme-specific data held). A guide on measuring data and how to calculate a data score will be available in November. It’s not currently clear if these new requirements also apply to the LGPS although there’s no reason to suggest why they wouldn’t.