Key priorities for the LGPS in 2019
18 Jan 2019
Strategic - Focus on outcomes
Despite the recent market sell-off most funds have benefitted from strong market returns over recent years. As the valuation year in England and Wales kicks off, we encourage all funds to revisit their long-term objectives and consider if their current investment strategy remains appropriate. Questions to consider include: is it affordable to de-risk and what am I de-risking toward; does the “one size fits all” strategic approach remain appropriate; and how is my fund’s cashflow position expected to evolve and how will I manage this.
Responsible investment (RI) – acting as asset owner
2018 felt like the year that RI became part of the mainstream (including the private sector with the change to the Occupational Pension Regulations). The LGPS has been at the forefront of RI developments and we expect this to continue. We anticipate emphasis being on developing beliefs and policies (most notably on climate change), implementation (e.g. sustainable or lower carbon strategies, RI focused alternatives) and disclosure (e.g. voting and on adherence to the policies).
Pooling – moving in together
No LGPS article would be complete without a section on pooling. For E&W funds this will be a key part of 2019 meeting agendas, most notably in terms of sub-fund design and due diligence (i.e. making sure the pool offers what member funds need), mapping (linked to design and due diligence, to ensure the fund’s strategy is implemented as the local Committee intended), transition (making sure the costs and risks are managed effectively and efficiently) and pool governance as the pool will become the fund’s asset manager, it is important the appropriate monitoring and engagement is put in place to reflect this.
Forget Brexit - the 2019 valuation is coming!
Funds in England and Wales know that there is another big event happening at the end of March….*. Funding levels have improved a bit since 2016, but markets remain volatile and the cost management process will add on cost. As ever, the challenge will be to produce contribution strategies for employers that strike the right balance between affordability and keeping the fund safe. Many of our clients are implementing our employer asset tracking (HEAT) system for the first time. If you aim to use this to run more than one investment strategy after the valuation, the time is now right to kick off discussions, agree on employer groupings and new strategies and build them into your business plan.
*correct at time of writing.
Breathe life into your risk register
The valuation is an opportunity to identify your big risks - investment, funding and employer covenant. But how do you measure and track risks between valuations, bearing in mind that we are moving towards a longer 4 yearly cycle? A risk register can be very effective if it sets out an objective for each risk and identifies trigger points at which action will be taken. We can help you to get this up and running, and then regularly track progress to give comfort to stakeholders that risks are being proactively managed.
Big (and getting bigger) data
The best valuation outcomes rely on full and accurate data. There is of course a lot of it in the LGPS, so many funds are spending the early part of this year liaising with employers and resolving historic issues before the year end processing begins in earnest. Please use our Data Portal as regularly as you like and call us if you need any support e.g. with backlogs. As well as more reliable valuation results, cleaner data will help with your ABS exercise later this year and improve your data quality scoring (both of which will help to keep the Pensions Regulator at bay).
Benefits Consulting and Governance
Taking stock of administration
In a busy year with so much else on, not least the valuation, it is crucial that funds ensure that their administration is operating effectively. Whether the service is delivered in-house, outsourced or part of a shared service arrangement, it pays to carry out a strategic review of your administration. This type of exercise can help to identify issues with existing processes, identify pinch points and ensure you have the appropriate administration structure in place to deliver not only the increasingly challenging “business as usual” but also have the scope to carry out essential data work, valuation planning and other important projects.
We have recently seen an increase in funds looking to cast an eye over their governance arrangements. This may be because of a need to address a particular issue, ensure that the fund is fully complying with TPR’s requirements or it may be driven by a desire to ensure that the fund is operating as effectively as possible. Governance reviews can be designed to address specific issues but at heart they allow funds to check that they have structures and plans in place to deliver their objectives and to understand the key risks they face.
National Confidence Assessment: next steps
Last year saw half of LGPS funds participate in the first ever National Confidence Assessment. Those who took part will have already seen how confident their committee and pension board members are across a range of key LGPS related topics. But whether your fund took part or not there is still plenty you can do to prioritise the training and effectiveness of pensions committees and boards in 2019. A focus on training strategy can help committees and board members to improve their knowledge and understanding, increase their effectiveness and ultimately make better decisions.
If you would like to discuss any of these topics in more detail, please get in touch or contact your usual Hymans Robertson consultant.