Hounslow Council


Agenda and draft minutes

Venue: Committee Room 1, Civic Centre, Lampton Road, Hounslow. View directions

Contact: Carol Stiles Tel: 020 8583 2066 Email:  carol.stiles@hounslow.gov.uk 

Items
No. Item

14.

Apologies for absence, declarations of interest or any other communications from Members

Minutes:

Apologies had been received from Neil Mason, who was unwell. All other members of the Board were present. The Board was informed that Councillor Mukesh Malhotra, Chair of the Pension Fund Panel, would attend at 3.00 p.m. until approximately 3.45 p.m. when he needed to leave for another appointment.

 

A mechanical problem within the Print Unit had led to the agenda packs having to be printed in black and white. Members of the Board had been provided with a supplementary colour pack of Agenda Items 7-10, where much of the information was clearer to understand in a colour format.

15.

Minutes of the meeting held on 11 July 2016 pdf icon PDF 143 KB

Minutes:

The minutes of the meeting held on 11 July 2016 were confirmed as a true and accurate record.

16.

Voting Annual Report - report by Rapinder Sangha, Strategic Pensions and Treasury Accountant pdf icon PDF 244 KB

Minutes:

See the report by Rapinder Sangha, Strategic Pensions and Treasury Accountant – Agenda Item 3.

 

Rapinder Sangha, Strategic Pensions and Treasury Accountant, introduced the report which set out the voting pattern of the votes cast on behalf of the London Borough of Hounslow’s Pension Fund by PIRC Ltd, the Fund’s appointed proxy voting agent, in respect of voting rights attached to the shares held within the fund’s investment portfolio. PIRC Ltd were operating in the fourth year of a five year contract and voted in accordance with a template based on major issues included in the UK Corporate Governance Code.

 

Tables 1-3 of the report showed the percentages of votes cast in support and against resolutions at shareholders’ meetings, the regional breakdown and the details of the types of resolutions supported or opposed. Two of the key areas in which resolutions might be opposed on corporate governance grounds were those concerning Company Board Structure and the independence of the Company’s Board and Remuneration, which related to excessive payments for executives compared with similar companies.

 

In response to questions it was clarified to Board members that:

 

·       PIRC Ltd operated to a policy set by the Pension Fund but they undertook the research and cast the votes on the Fund’s behalf.

·       Controversial shareholder resolutions were circulated to the Pension Fund Panel for debate.

·       The Pension Fund Panel had had particular involvement in resolutions relating to climate change, for example resolutions in respect of carbon emissions for Shell and BP.

·       Votes against the appointment of Auditors related to issues of independence or that the non-audit fees and non- audit services were excessive. The changes to regulations in respect of auditors was new.

 

The Chair noted that the Pension Board welcomed the fact that the voting service was in place as the practice of voting as a shareholder at Annual General and Extraordinary General Meetings assisted with good corporate governance and led to good companies to invest in long term.

 

At a later point in the meeting when the Chair of the Pension Fund Panel was in attendance, the Chair did ask the Chair of the Pension Fund Panel how involved the Panel were if there were issues around voting rights. Councillor Mukesh Malhotra advised that whilst PIRC provided the services on behalf of the Fund, the strategy followed that of the Local Authority Pension Fund Forum (LAPFF). Officers would bring information to the Chair and significant matters would be brought to the Panel’s attention at a meeting or circulated outside a meeting. For example, in the case of the Shell/BP resolutions advice was taken from PIRC and the LAPFF.

 

 

Resolved:

 

That the Board noted the voting outcome for all votes cast for the period October 2015 to September 2016.

17.

General Matters and Appendix 1 - report by Lorelei Watson, Head of Treasury, Pensions and Capital pdf icon PDF 404 KB

Additional documents:

Minutes:

See the report by Lorelei Watson, Head of Treasury, Pensions and Capital – Agenda Item 4.

 

Lorelei Watson, Head of Treasury, Pensions and Capital, introduced the report which focused on the active engagement of the two main Fund Managers, Aberdeen Asset Management and BlackRock, with companies in which they were investing, particularly in respect of the Modern Slavery Act. Both Fund Managers identified wider involvement with engagement.

 

In discussion Board members raised the following points: -

 

·       Members questioned whether compliance with the minimum wage was considered when Fund Managers selected companies in which to invest. There was concern that non- compliance and resulting poor publicity would impact on the share value.  However, it was noted that the Fund Managers monitored fulfilment of statutory responsibilities which included compliance with the national minimum wage for companies in the UK.

·       It was noted that both Fund Managers met regularly with the companies in which they were investing and this provided the opportunity to monitor such issues.

·       The Chair suggested that the Board might ask the Chair of the Pension Fund Panel if the Panel was happy with the level of monitoring.

 

At a later point in the meeting, following the Chair of the Pension Fund Panel’s attendance, the Chair asked whether the Panel considered that the discussions of the Fund Managers with companies at one remove was sufficient to ensure compliance with legislation. Councillor Mukesh Malhotra advised that there had to be a degree of trust and faith. He noted that organisations such as PIRC and LAPFF, of which he was an executive member, had a specific voice in these matters and there was open dialogue. There was no equivalent for this service yet for the London CIV. The Panel would ask the Fund Managers to report to the Panel if there were an issue with a specific company.

 

The Board then discussed further general matters about their operation and role.

 

·       The Board noted that there was limited time in twice yearly meetings to look at a high level at compliance with corporate governance. The Board had discussed a checklist and considered undertaking more work in this area. The Chair undertook to progress this and look at how an organisation achieved satisfactory compliance.

 

       Action:  by the Chair

 

·       The Board discussed the attendance of the Chair of the Pension Fund Panel at the meeting and considered whether there might be areas relating to the discussions of the Panel that the Board might wish to explore without the presence of the Chair of the Panel. For example, they might wish to discuss whether the Panel had given sufficient weight to the findings of the voting patterns and the PIRC report.

 

It was proposed that there should be a standing item on the agenda to allow for feedback from the Pension Fund Panel meetings, prior to the Chair of the Panel joining the meeting. The Board agreed it would be helpful to have the opportunity to discuss their strategy and future work programme before the Chair  ...  view the full minutes text for item 17.

18.

Exclusion of the Press and Public

To resolve that the public and press be asked to leave the meeting during discussion of the remaining items of business because exempt information as defined in Paragraph 3 of Part I of Schedule 12A of the Local Government Act 1972 is likely to be made known.

 

Please note that members of the public and press must leave the meeting at this point.

Minutes:

 

 

 

 

 

The Chair moved the exclusion of press and public. This was seconded by Steve Williams and agreed.

 

Resolved:

 

That the public and press be asked to leave the meeting during discussion of the remaining items of business because exempt information as defined in Paragraph 3 of Part I of Schedule 12A of the Local Government Act 1972 is likely to be made known.

19.

CIV - Governance Issues and Associated Risks - Lorelei Watson, Head of Treasury, Pensions and Capital

Minutes:

Reference the report by Lorelei Watson, Head of Treasury, Pensions and Capital – Agenda Item 6.

 

Lorelei Watson, Head of Treasury, Pensions and Capital, introduced the report which set out the governance structure of the Collective Investment Vehicle (CIV), its impact and associated risks.

 

The following points were discussed: -

 

·       The progress of investment in the CIV was an important area for the Board to consider as there were potentially major implications for the Pension Fund.

·       It was recognised that this was an area of potentially significant change.

·       The Fund had not as yet placed any investments on the CIV although there were proposals in the pipeline to move some investments to a new active manager to improve performance. So the Fund might have investment on the CIV next year. Further direction from Government on pooling was awaited. This impacted on progressing the move to a new fund as there would be costs incurred through a procurement process which might then be unnecessary if investment was moved to the CIV. The Board noted this potentially affected performance but also that external pressures meant the Pension Fund had reasons to delay, pending further clarification from the Secretary of State and clarification of the Secretary of State’s statutory powers.

·       There would be review of the asset allocation of the Pension Fund in March in the light of the Actuarial Valuation. It was noted that it would be possible to move funds to the CIV in three months if the Pension Fund Panel so determined. This was quicker than the full procurement process.

·       There would not be the same direct contact with the Fund Managers once investment was on the CIV. There would be voting guidelines agreed but the CIV would vote for the Fund.

·       The Fund retained the decisions for asset allocation for its investment and would consider investment on the CIV in line with its Investment Strategy and performance objectives.

·       Savings through use of the CIV were not as high as projected when the cost of the CIV was taken into account.

 

Resolved:

 

That the Board noted the report.

20.

Monitoring of Risk Register of the London Borough of Hounslow Pension Fund and 2 Appendices - Lorelei Watson, Head of Treasury, Pensions and Capital

Minutes:

Reference the report by Lorelei Watson, Head of Treasury, Pensions and Capital – Agenda Item 7.

 

Lorelei Watson, Head of Treasury, Pensions and Capital, introduced the report. The Risk Register had been considered by the Pension Fund Panel in September and there were no new risks. There were no risks classified as ‘Red’ but there were some ‘Amber’ funding risks. Low risk was assessed at 40-60% likelihood whereas significant risk has a high probability at 60-80% likelihood.

 

The Board considered whether systemic risk had been underestimated, given the implications of a ‘hard’ ‘Brexit’ and international risks via a possible combination of crises in Europe, the US and the Middle East and Asia. The Chair proposed asking the Chair of the Pension Fund Panel whether the Panel considered that the level was correct, having considered all relevant factors.

 

The Chair of the Pension Fund Panel, Councillor Mukesh Malhotra, joined the meeting at this point at 3.00 p.m.

 

The Chair asked Councillor Malhotra for his views on the level accorded to systemic risk in the light of a volatile world situation. Councillor Malhotra advised that the Fund Managers in presenting the outlook for 2017 had identified the same top five things which could impact on the Fund, including low interest rates, elections leading to extreme policies, the US Presidency and Brexit. In considering whether the risk level should be increased, Councillor Malhotra felt the need to look at all circumstances. The Risk Register was considered regularly by the Panel and he felt that the risk strategy took a reasonable position. It was noted that the Panel could review the current risk level at its March meeting.

 

Resolved:

 

1.     That the Board noted the monitoring of the Risk Register.

2.     That the Board noted that the Panel could discuss the level of systemic risk at its next meeting.

 

 

21.

Analysis of Cashflow and Appendix 1 - Lorelei Watson, Head of Treasury, Pensions and Capital

Minutes:

Reference the report by Lorelei Watson, Head of Treasury, Pensions and Capital – Agenda Item 8.

 

Lorelei Watson, Head of Treasury, Pensions and Capital, introduced the report which considered the projected cash flow of the Pension Fund and the options for dealing with a cashflow negative position arising mainly from redundancies and outsourcing and longevity of pensioners. The Chair had asked for the Board to consider this matter in order to understand the challenges and the change in the use of the funds.

 

The preferred solution identified via the Actuaries and independent investment consultants to ensure sufficient investment income was to tender for a dedicated income fund which would generate growth. Fidelity was appointed for this purpose. They were able to switch between assets based on the economic cycle. There would be the option of putting more to the Fidelity fund if the cashflow position worsened, but the Board were informed that the Actuaries had modelled four options over a 20 year period so had looked at the longer term.

 

Councillor Malhotra, Chair of the Pension Fund Panel, commented that after the decision had been made, he had attended a number of seminars where it became clear that this solution was mimicked by other organisations and recognised as appropriate by other fund managers, so he considered that the Hounslow Fund was leading the way in this area. The London CIV recognised it might need to do something similar.

 

Resolved:

 

That the Board noted the report.

 

22.

Review of the Hounslow Pension Fund Administration Contract - Hitesh Sharma, Strategic Pensions Manager

Minutes:

Reference the report by Hitesh Sharma, Strategic Pensions Manager – Agenda Item 9.

 

Hitesh Sharma, Strategic Pensions Manager, introduced the report which summarises Capita Employee Benefits’ performance as pension administrators for the period June to October 2016.

 

The Board noted that new reward and penalty criteria were being negotiated with the contractors and the Pension Fund Panel would consider an options paper in due course, in line with the general Council review of all costs. The Board were aware that there had been previous concerns about performance and of the action taken to address these. The Board understood that there were a number of factors to consider in respect of the service.

 

The Chair thanked Hitesh Sharma for his work on this matter.

 

Resolved:

 

That the Board noted the performance of Capita Employee Benefits, as pension administrators, for the period June to October 2016.

23.

Pension Fund Internal Audit and Appendix 1 - Hitesh Sharma, Strategic Pensions Manager

Minutes:

Reference the report by Hitesh Sharma, Strategic Pensions Manager – Agenda Item 10.

 

Hitesh Sharma, Strategic Pensions Manager, introduced the report which set out the findings and recommendations of the 2016/17 Pension Fund administration internal audit and included the Action Plan agreed to implement the two key recommendations, namely quarterly reconciliation between the Pension Fund account and Agresso (the general ledger system) and reconciliation between Hartlink (the pensions system) and iTrent (the payroll system).

 

The Board drew attention to targets not being met in some cases for processing pension requests. It was felt that in some circumstances this could be very detrimental and lead to adverse publicity. There was also an issue of delay concerning transfer of pensions to other funds. However, it was noted that any critical cases would be escalated and dealt with quickly. The Board noted that the examples given were consistent with the problems in performance previously experienced with Capita.

 

Resolved:

 

That the Board noted the findings and recommendations of the 2016/17 pension fund administration internal audit report.

 

 

24.

The Pension Regulator Guides and Resources and 3 Appendices - Hitesh Sharma, Strategic Pensions Manager

Minutes:

Reference the report by Hitesh Sharma, Strategic Pensions Manager – Agenda Item 11.

 

Hitesh Sharma, Strategic Pensions Manager, introduced the report which provided information on the guides and resources issued by the Pensions Regulator.

 

Councillor Mukesh Malhotra, Chair of the Pension Fund Panel, left the meeting at this point (3.45 p.m.) as he had another appointment. However, he invited Board members to forward any further questions via Lorelei Watson. The Chair thanked him for his contributions.

 

The Board noted the code of practice and the self- assessment tool and checklist to identify compliance against the code. They noted the intention for officers to complete the self-assessment tool by the end of January. It could then be shared with the Board.

 

The Chair asked Hitesh Sharma to talk through the self-assessment tool with him once it was completed, as its content would be relevant to supporting the Board’s annual report. It was noted that the checklist was also appropriate for the Board.

 

The Board noted that one area requiring consideration was the establishment of a data improvement plan. Following feedback after the Actuarial Valuation officers were working with the actuary concerning the quality of data as a basis for developing an improvement plan.

 

The Board also asked about compliance with Data Protection legislation and were informed that Capita met the requirements of the Act and held ISO 27001 in Data Protection and Information Security. Data for both Capita and iTrent was held in the UK. Board members asked whether there were any circumstances in which data would be moved to process more quickly through sub- contracting. Hitesh Sharma agreed to investigate but could see no reason why data would be transferred outside the UK.

Action: Hitesh Sharma

 

It was noted that Data Protection was included in the Risk Register and had been looked at by internal audit previously.

 

Resolved:

 

1.     That the Board noted the guides and resources available issued by the Pensions Regulator.

2.     That the self-assessment tool, once completed, would be shared with the Board and the Chair would have the opportunity to discuss its contents as they were relevant to the Board’s role.

 

25.

Any other business which the Chair agrees to accept on the grounds of urgency

Minutes:

There was no urgent business, other than a recap on the training undertaken by the Board as this was a requirement. The Chair had completed 2 of the 2 LAPFF modules. Steve Williams had completed all three. William Cassell had undertaken computer training in order to undertake the modules. Lorelei Watson would email him the details to log on.  

26.

Date of next meeting - Will be known when the Council Diary has been set for 2017/18

Minutes:

The Board understood that the new Council calendar for the next Municipal Year was currently being drafted. The dates of the meetings would follow the broad pattern of the present year, with the Board meeting in January and July.

 

Mr Cassell requested that for the July meeting the date should avoid Tuesdays, Wednesdays and Thursdays and the first and third Mondays of each month as he had other commitments on those days.