SHAPS COMMITTEE MEETING

Transcription

1 SHAPS COMMITTEE MEETING Minutes of a meeting held on Thursday 30 March 2017 Double Tree, Cambridge Street, Glasgow, G2 3HN All Pensions Committee members were invited to attend. Present: In Attendance: Apologies Ken Tudhope (Chair), Bill Darroch, Christopher Forrest, Colin Gibson, Duncan McNaught, Margaret Bradley, Ron Watson, Sally Inkster, Tom Jessop Adam Gregory (from 17/022 to 17/035 inclusive), Andy O Regan, Karen Parry, Mike Furbank, Susan Wardlaw None Conflicts of Interest: Other than those declared on the Register of Conflicts of Interest, TPT recorded a conflict under minute 17/031. STRATEGY & TRAINING SESSIONS 29 MARCH 2017 Training - Investment A Gregory delivered this session which focussed on: interest rate risk and hedging, Swaption theories and strategies and how TPT envisages using swaptions for SHAPS. Strategy Session SHAPS membership projections A O Regan presented this session. Strategy Sesssion The principles behind strategy setting for SHAPS A O Regan presented this session. Training Pensions Protection Fund A O Regan presented this session. Training Guaranteed Minimum Pensions A O Regan presented this session. Strategy Session Multi Employer Scheme Governance Review K Parry presented this session setting out the Trustee s proposal for the future governance structure of all multi-employer scheme with Pensions Committee representation. 1

2 COMMITTEE MEETING 30 MARCH /022 DECISIONS BETWEEN MEETINGS S Wardlaw s report was received and the Committee, in its Trustee capacity, noted the following decisions: 17/022.1 In its Trustee capacity, the Committee approved the minutes (and extract) of the meeting held on 8 December 2016 as a true record of the meeting. The recommendation was approved as follows: For Against Did not vote The vote recorded as did not vote was due to a retirement from the Committee effective immediately following the December meeting. 17/022.2 In its Employer Representative capacity, the Committee approved the SHAPS rebrand across the Scheme s suite of literature. The recommendation was approved as follows: For Against Did not vote The votes recorded as did not vote were due Committee members being unavailable to respond within the deadline. 17/023 MATTERS ARISING S Wardlaw s report was received and the Committee, in its Trustee capacity, noted the content of the report. Minute 16/091.2: the Committee agreed to allocate time at the September meeting to consider the passive management of the equity holding. Minute 16/100: A O Regan updated the Committee on progress with the Employer Portal project. It was anticipated that this will be available for testing late Minute 17/005: A Gregory confirmed that the Trustee had approved the SHAPS derisking plan and this was now in place. Minute 17/007: S Wardlaw confirmed that a communication had been issued to the employer. Minute 17/006: The Committee noted the benefits of holding a joint session with the Trustee and other Pensions Committees. A future event will be considered once the new MES governance was in place. 17/024 REVIEW RISK REGISTER & NOTE KEY RISKS ARISING FROM THE PAPERS S Wardlaw s report was received and the Committee, in its Trustee capacity, discussed and agreed the following changes to the Register: 2

3 17/024.1 Risk 1 (Long term sustainability of TPT): K Parry provided an update on the business strategy. The Committee discussed the likelihood and impact of the risk to SHAPS in the short and longer term, and agreed to reduce the likelihood to 1. 17/024.2 Risk 5 (Lack of flexibility in dealing with the deficit): This Risk will be updated to reflect the actions by TPT and the Committee to manage this risk. 17/024.3 Risk 9 (housing development among employers, leading to a weakening of the covenant): The Committee agreed that the risk rating should remain unchanged. Whilst the government subsidy levels may no longer be a concern, the Committee noted that organisations developing new housing stock continue to pose a potential risk. 17/024.4 Risk 14 (funding progress is not as strong as anticipated) and Risk 20 (poor investment performance/management). S Wardlaw apologised that the details of Risk 20 had been omitted from the Register in error. The Committee agreed to consider whether to merge these risks at the June meeting. 17/024.5 Potential risks associated to Scottish Independence were discussed. M Furbank commented that the most challenging pensions aspects in the 2014 referendum were EU legislation. Until Brexit and the Repeal Bill are finalised, it would be difficult to fully document the potential risk to the Scheme. It was agreed to add a general political risk. 17/025 SECRETARY S REPORT S Wardlaw s report was received and the Committee, in its Trustee capacity, agreed to defer completion of Committee s annual development assessment questionnaire until the June meeting. It was also noted that the Committee Development Assessment review had been deferred until the governance review was completed, therefore the specific expense allowance allocated for the 2016/17 financial year would not be required. 17/026 APPEAL PANEL REPORT S Wardlaw presented the Appeal Panel s report. The Committee, in its Trustee capacity, noted the decision of the Panel D McNaught stated that the Panel s main concern was in respect of the delay in responding to the member. The Panel members were comforted that action had been taken to address the points raised by the Panel. 17/027 ANNUAL REVIEW OF ACTUARIAL FACTORS M Furbank s report was received and the Committee in its Trustee capacity, noted the review of factors carried out by the Trustee Board and its delegates, the Funding and Investment Strategy Review Group (FISRG). It noted that FISRG approved changes to Late Retirement factors and other less-frequently applied factors in order to maintain cost neutrality, and that no changes were applied to the Early Retirement Factors. 17/027.1 The Committee approved the proposed changes to the Pension Credit Uplift Factors. 3

4 17/027.2 The Committee noted the Trustee Board decision to increase commutation factors across all TPT schemes by 15% as a step to ensure the rates presented fairer value (although not cost neutral); and that as a result of the freedom and choice changes of 2015, the Trustee resolved that a trivial commutation payment would be equal to the transfer value available to a qualifying member. Officers agreed to confirm the impact of this change on the valuation. 17/028 REVIEW OF MULTI-EMPLOYER SCHEME GOVERNANCE K Parry s report was received and the Committee, in both its Trustee and Employer Representative capacities noted the content and the discussions at the session on 29 March. 17/028.1 In response to questions raised, K Parry acknowledged the limited time given to the Committee members to properly consider the aspects and implications of the proposal and that an extension to the proposed timetable may be considered. She confirmed that the Pensions Regulator s (tpr) feedback (on potential conflicts within the current structure) did not require action within a set deadline. 17/028.2 In respect of the Trustee s proposals, the Committee stated that no definitive approach had been agreed and that member and employer consultation would be carried out to feed into the Committee s considerations. The timetable must allow the employers Boards time to fully consider and respond to the consultation. The employer communication will be issued prior to the April Employer Forums; copies will be available at the events and time allocated to discuss the proposal at the forum. After meeting note: It was subsequently agreed to defer to issuing of the employer communication until after the Forums. 17/028.3 The Committee reiterated the importance of a clear communication, detailing TPT s preferred and alternative options, the rationale and impact on the employers and members. The communication will be reviewed by the Communications Sub Committee and issued from the Scheme Secretary on behalf of the Committee; the Scheme Secretary will collate the consultation feedback. No minimum quantitative measure would be set when considering consultation responses. 17/029 COMMITTEE CASUAL VACANCY S Wardlaw s report was received and the Committee, in its Trustee capacity, agreed to defer any consideration to fill the existing vacancy until the MES Governance Review concluded. 17/030 INVESTMENT A Gregory s report was received and the Committee, in its Employer Representative capacity, noted the content. 17/030.1 Liability Hedging (including swaptions): A Gregory highlighted the Actuary s confirmation that the synthetic equity proposal did not produce material variations in JLTs modelling and accordingly no change to the assumption set was required. The synthetic equity facility is expected to be in place during May

5 The Committee agreed to the use of swaptions within the liability management toolkit, as a means of managing the risk of interest rates falling but retaining some benefit if interest rates do rise. The Committee thanked A Gregory for his session on 29 March. 17/030.2 Investment Performance: A Gregory drew attention to the investment return for the quarter of -0.2% which was kept low by a fall in the defensive assets (bonds/ldi) that track liability values. TPT s proxy for liabilities (which represent an average Scheme similar to SHAPS) had seen liabilities fall by 4.3% over the quarter which indicated that the funding level had improved (assets outperforming liabilities). The positive growth asset performance, particularly from equities, was largely offset by a drop in the value of bonds/ldi assets over the quarter. 17/030.3 The Committee noted the performance of the DC target date funds, in particular the performance since inception which was ahead of benchmark, by 4-6% p.a., across all retirement vintages. It also noted the information provided to assist measuring the manager s CPI based targets. In response to a question raised, A Gregory anticipated that should CPI(H) replace CPI, CPI(H) would apply to the benchmark. 17/030.4 Investment Committee Report: The Committee noted: the appointment of Invesco Perpetual (Absolute Return) to manage the funds previously managed by Standard Life (Absolute Return); the increase to currency hedging (from 50% to 70%) on equities and emerging market debt and 100% on all other alternatives; that a 50% protection equity collar strategy was now in place to narrow equity volatility; that consideration of the Fund of Hedge Fund strategy had been deferred; and that consideration will be given to restructuring the Inflation-linked growth fund. 17/031 BULK TRANSFER M Furbank s report was received and the Committee, in its Trustee capacity, noted the employer request to transfer of its liabilities outside of SHAPS. 17/031.1 The Committee considered the request and agreed, in principle, to permit the bulk transfer. The Bulk Transfer Working Party will consider any actions between meetings. 17/032 SCHEME S STRATEGIC AREAS FOR FURTHER CONSIDERATION Following the strategy session held on 29 March the Committee agreed to further consider the long term view of the Scheme in the lead up to the 2018 valuation; to continue to educate and enhance employer understanding of both the Scheme and employer risks, and the employers responsibilities to the Scheme over its lifespan; and not to consider a secondary funding target at this time. 17/033 FUNDING UPDATE M Furbank s report was received and the Committee, in its Trustee capacity, noted the content. M Furbank reminded the Committee that the 30 September 2016 Actuarial Report had been released in draft form whilst discussions in respect of two s75 debt payments were ongoing. He stated that the Report overstated the assets by c 2m however the Actuary had confirmed that the Report would not need to be restated and the Actuarial Report was accepted as the final position. After meeting note: TPT received confirmation on 31 March 2017 that the Actuary would not need to restate the 2016 funding update. 5

6 17/033.1 M Furbank commented that the 2016 funding level was in line with the Actuary s expectation however noted that the deficit position had worsened since the 2015 valuation position. He noted that had a valuation been carried out on 30 September 2016, the 2015 Recovery Plan would be extended by 1 year. The Committee noted that no action was required at this time. 17/033.2 A O Regan informed the Committee that new actuarial mortality improvement tables had been issued during the week (27 March 2017). The tables indicated a reduced life expectancy which would see a reduction of c.1.5-2% (c 15-20m) on the liabilities. This reduction in liabilities is not reflected in the 2016 Actuarial Report. The 2016 Actuarial Report noted that if a Recovery Plan was developed based on the position at 30 September 2016 then this would be around one year longer than the current Recovery Plan. However allowing for the updated life expectancy tables would mean a Recovery Plan of a few months longer than existing rather than one year. 17/033.3 M Furbank presented the template Integrated Risk Management (IRM) output and informed the Committee of further enhancements proposed by the in-house Scheme Actuary. The IRM output will be presented to the Committee for early consideration as part of the 2018 valuation process. 17/033.4 The Committee noted that no changes were proposed to the Financial Assessment methodology for the 2017 year. 17/034 SPECIFIC EXPENSES REPORT A O Regan presented this report and the Committee, in its Employer Representative capacity, noted the content. A O Regan drew attention to the total costs for the quarter, which were under budget by 7,703. He also noted the adjustment to budget in respect of the Committee Development review, which will be removed from the forecasting in the June 2017 report. 17/034.1 The Committee asked for an update on the recharged employer costs. 17/034.2 A O Regan provided an update on progress with the year end. TPT had received a clean audit report. The Audit and Risk Committee recommended the Annual Report & Financial Statements for approval by the Trustee Board at their meeting on 16 th March. TPT reviewed the Annual Report & Financial Statements content which reduced the Report from 99 to 60 pages. TPT will also produce a customer friendly Annual Review. 17/034.3 The Committee will receive the Scheme Accounts at the June meeting. After meeting note: As the next meeting has been rescheduled to 9 August, the Scheme Accounts will be circulated between meetings. 17/035 EMPLOYER ACCOUNTING APPROACH A O Regan s report was received and the Committee, in its Employer Representative capacity noted the content. He stated that if a methodology was determined by the Housing SORP Working Party which received auditor assurance all SHAPS employers would be required to account for SHAPS on the DB basis. TPT would manage resources to facilitate the provision of this information. Committee members discussed the potential employer challenge in respect of cost/benefit analysis and questioned the 6

7 materiality of both bases on individual employer s accounts, the demand for the change in approach, and potential challenge from auditors. It was noted that the cost of producing this was outside of the costs of running a pension scheme and must be charged to the employers directly. A O Regan agreed to provide a quarterly update. 17/036 EMPLOYER FORUMS A O Regan presented this report and the Committee, in its Employer Representative capacity, noted the content. 17/036.1 A O Regan advised that similar delegate numbers had registered for the events as to those in 2016: 71 for Glasgow and 23 for Edinburgh. The following Committee members confirmed attendance at the event: Glasgow: Ron Watson, Tom Jessop and Margaret Bradley; Edinburgh: Duncan McNaught and Bill Darroch. Ken Tudhope will chair both sessions. 17/036.2 TPT agreed to review the forum topics and timing to allow time to present TPT s proposed governance structure. It was suggested that the following sessions could be reduced: DB investment, Review of the Normal Retirement Age, Financial Assessment. 17/036.3 A O Regan suggested that TPT contact SHAPS employers who have members on the Housing SORP Working Party prior to the forums, to request that they respond on behalf of the Working Party at the events. 17/037 ADMINISTRATION REPORT A O Regan presented this report and the Committee, in its Employer Representative capacity, noted the content. 17/037.1 A O Regan highlighted the administration performance of 99.5% over the year despite a 29% increase in case work; the increase from 10% to 14% of DB members registering for DB Online access; the low level of late payers over the quarter; and that TPT continues to monitor transfer out activity which had increased over the period. The Committee discussed potential funding implications and trustee concerns but noted that this was not a current consideration. 17/037.2 GMP rectification exercise: In response to a question raised, K Parry confirmed that the Trustee had considered whether a measure should apply where overpayments would be reclaimed. However the Trustee s final position was not to reclaim any overpayments. The Committee noted the low level of member contact to TPT s initial contact and that TPT anticipated that this may increase when April pension instalments were paid. 17/038 EMPLOYER SUPPORT GROUP A O Regan and S Wardlaw had met with Gordon Birrell on 28 March The topics discussed were: SHAPS membership numbers; employer accounting and an update on the ESG representatives meeting with the Scottish Housing Regulator. 17/039 SCHEME MANAGEMENT S Wardlaw s report was received and the Committee, in both its Trustee and Employer Representative capacities, noted the content. 7

8 17/040 TPT SENIOR MANAGEMENT UPDATE K Parry provided the following update: TPT s governance structure post implementation on 1 October 2016: The benefits of the new restructure are already being recognised, a review of TPT s reporting mechanisms was being carried out to reduce duplication. In response to a question raised, K Parry set out how TPT conflicts (Trustee and Business) are managed, she stated that the Trustee Board considers all trustee matters or has delegated powers to sub Committees (Investment, Funding and Audit) and the internal Funding and Investment Strategy Review Group. The Management Board has oversight of TPT as a business; DC Governance: TPT had submitted a Type 2 Master Trust Assurance Framework report to tpr and TPT continues to be an accredited Master Trust Assurance provider; and TPT has retained its Investors in People Gold standard. 17/041 KEY ITEMS TO REPORT TO THE TRUSTEE The following items are to be drawn to the Trustee s attention: Governance review discussion; Committee s review of the risk associated with TPT s business strategy; and Outcome of the bulk transfer request. 17/041.1 Officers agreed to review the Scheme s bulk transfer risk. 17/042 AOCB K Tudhope informed the Committee that this was M Furbank s final meeting before leaving TPT on 31 March The Committee thanked him for his support and commitment to SHAPS during his time at TPT. 8