Agenda item

To receive an update on any changes to pensions administration to assist Councillors in reviewing the draft Statement of Accounts for the City of Westminster Pension Fund. 

5.1       Phil Triggs (Tri-Borough Director of Treasury & Pensions) presented the annual update on pensions investment and administration, together with the internal control processes that were in place.  The report also provided an update on the performance of the Pension Fund’s investments, strategic asset allocation, investment manager arrangements and funding position to 31 March 2019.

5.2       The Committee noted that the fund had marginally underperformed the benchmark net of fees by 0.1% over the year to December 2018; and that the estimated funding level as at 31 December 2018 had been 94.5%. The funding position remained currently stable, subject to market volatility. The total value of the Fund as at 31 March 2019 was £1,403m; with an asset allocation of 9% within property; 1% in infrastructure; 69% invested in equities; and 21% in fixed income. There had been changes in asset allocation during the year, with one fund manager being phased out and two additional fund managers being appointed.

5.3       Kevin Humpherson (Manager, Deloitte Pensions Consultancy) reported that although there had been significant levels of volatility in the UK market over the past year, performance had improved in January onwards this year. Global equity markets had been very similar to the UK; and property investments had returned 6% over the 12 month period, which had been strong but less than seen over recent years.

5.4       The Committee expressed concern over the operation and performance of the London Collective Investment Vehicle (CIV), which currently held 70% of the City Council’s total portfolio making Westminster the CIV’s biggest investor. Under the scheme, local authorities were moving away from investing their own funds and were instead investing via a small number of pools around the country that still deferred to individual local authorities for their asset allocation and investment strategy. The Committee noted that the City Council’s funds were still managed by the fund managers that had been selected by the City Council’s Pension Fund Committee, and that the portfolios had switched to the CIV.  As the overarching investment body, the CIV had managed to negotiate much lower fees, which had resulted in substantial savings and a positive benefit to Westminster’s Pension Fund overall.

5.5       The Committee discussed the influence the City Council could have on the CIV in view of its currently being the largest investor. The Tri-Borough Director of Treasury & Pensions confirmed that the London CIV was owned by all 32 London Boroughs, and that Westminster was well represented in the governance process with Councillor Cox being one of 8 elected Members on the Shareholder Committee; and Gerald Almeroth (Executive Director of Finance & Resources) being one of four London Treasurers.

5.6       Members highlighted the risk of the City Council being in a system where it had to invest with one organisation which had no competitive pressure or competition that could compel it to operate efficiently. Although the CIV had initially been dysfunctional, the arrangements had been reviewed by local authorities and a new structure put in place over the last year. A new permanent Chief Executive had also been appointed. The CIV would continue to grow over time as funds were transferred from all London boroughs, and it was intended that the vast majority of local authority pension investments would be made through the CIV.

5.7       The Committee considered that the possibility of the CIV gaining the statutory right to select investment managers on behalf of local authorities represented a serious risk. The Tri-Borough Director confirmed that the position was under review, and that the City Council had submitted concerns as part of a consultation exercise on whether the pooling process should be mandatory. The result of the process would be known later in the year.

5 .8      RESOLVED: That the annual update on pensions investment, administration and internal control processes be noted