London Borough of Barking & Dagenham Pensions Committee Induction Training Overview

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The London Borough of Barking & Dagenham's Pensions Committee Induction Training provides an in-depth look at the Local Government Pension Scheme (LGPS) in England and Wales. It covers the scheme's nature, governance roles, responsibilities of committee members, and the importance of training. The LGPS is a defined benefit pension scheme with significant assets and members, operating under specific regulations to ensure pension benefits are managed effectively.

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London Borough of Barking & Dagenham Pensions Committee Induction Training John Raisin Independent Advisor 15 June 2022 John Raisin Financial Services Limited Strategic and Operational Support for Pension Funds and their Stakeholders Jrfspensions.com

Contents Overview and nature of the Local Government Pension Scheme (LGPS) The London Borough of Barking and Dagenham Fund some data and overview Governance Roles in the LGPS under the Public Service Pensions Act 2013 Roles and Responsibilities of the London Borough of Barking and Dagenham Pensions Committee Officers, Actuary, Investment Consultant, Independent Advisor, Investment Managers, London Collective Investment Vehicle (London CIV) The Importance of Training for Pensions Committee Members

Overview and nature of the LGPS (1) The Local Government Pension Scheme in England and Wales (LGPS) is one of the largest Defined Benefit (DB) pension schemes in the world and the largest in England and Wales. 6.1 million individual members (31 March 2021) 18,947 Employers (31 March 2021) 337 billion of Assets (31 March 2021) 98% overall Funding Level (31 March 2019) 85 separate Administering Authorities across England and Wales who each operate a LGPS Fund including the London Borough of Barking and Dagenham Primary responsibility of an Administering Authority is to operate their Fund in accordance with Legislation and the LGPS Regulations and in particular to invest Fund assets and pay pension benefits

Overview and nature of the LGPS (2) The LGPS is a Funded Scheme A Scheme with 3 sources of Income Employees Contributions, Employers Contributions, Investments The LGPS invests contributions made by Employers and individual employees in financial assets with the aim of covering liabilities. Investment returns are used to partially cover the pension payments due. In contrast the other major Public Service Pension Schemes are all Unfunded schemes with no investments The Civil Service, NHS, Teachers, Armed Forces, Police, Firefighters and Judges Pension Schemes contributions made by Employers, individual employees and the Government who cover deficits. There are no assets held to cover liabilities and to help pay pension benefits in the future. are all 100% funded from

Overview and nature of the LGPS (3) A Pension Scheme primarily for Employees - working in local government service - providing services on behalf of local government - of bodies with a community of interest with an Employer Eligibility for membership defined by the LGPS Regulations 2013 - Scheduled Body, Designating Body, Admission Body A Defined Benefit Pension Scheme the value of the pension is in effect guaranteed length of service and salary are its primary determinants. Investment returns do not affect Benefits payable An Average Salary Scheme (since April 2014) A Final Salary Scheme (until March 2014) Accrual Rate 1/49 (since April 2014), 1/60 (April 2008 to March 2014), 1/80 plus 3/80 Lump Sum (until March 2008)

The Barking and Dagenham Fund some data and overview (1) 19,449 individual Members (31 March 2022) with 14,958 relating to Barking and Dagenham and 4,491 to other Employers 19,449 individual Members comprise 6291 Actives, 6611 Deferred, 6191 Pensioners, 356 Others 52 separate Employers (31 March 2022) including London Borough of Barking and Dagenham; Academy Schools; University of East London; Companies/contractors delivering local authority services on behalf of the Council 90% Funded (31 March 2019, most recent full Actuarial Valuation) Approximately 1.3 billion investment Assets (31 March 2022) Or put another way investment assets of 1,340,650,000

The Barking and Dagenham Fund some data and overview (2) Investment Assets as at 31 March 2022 approximately 1.3bn Invested across a diverse range of assets including Equities, Credit, Property, Infrastructure, Diversified Growth The primary aim of the Funds investments is to meet the Liabilities of the Fund (that is the pension entitlements of the individual scheme members) The Government has explicitly stated that LGPS Funds should make the pursuit of a financial return their predominant concern (LGPS Statutory Guidance on Preparing and Maintaining an Investment Strategy Statement , July 2017) However the Government has also stated (in the July 2027 Statutory Guidance) that the law is generally clear that schemes should consider any factors that are financially material to the performance of investments, including social, environmental and governance factors

The Barking and Dagenham Fund some data and overview (3) Pensions Investment and Accounting Team All investments are managed externally by Investment Managers The performance of the Investment Managers is monitored on an ongoing basis by the Fund Officers and reported Quarterly to the Pensions Committee In house Investment and Accounting Team is responsible for completing all accounting for the Fund, including day to day management of the Pension Fund s cashflow, benefit payments and investment transactions The Pension Fund is required to prepare a standalone set of Accounts each year

The Barking and Dagenham Fund some data and overview (4) Pensions Administration Team Responsible for interpreting and applying the LGPS Regulations, to ensure scheme members benefits are administered correctly LGPS Pensions Administration Regulations are very complex Maintaining scheme member data which is held inhouse high quality record keeping is essential Pension Administration activities include Liaising with Employers, Registering new members to the scheme, Processing retirements, Paying pension benefits when due (monthly pensions, lump sums, death grants etc.),Transferring in or out pension benefits from other schemes, Keeping records of annual member contributions, Providing Annual Benefit Statements to all members

Governance Roles in the LGPS under the Public Service Pensions Act 2013 (1) Public Service Pensions Act 2013. Act passed by Parliament in response to the Final Report of the Independent Public Service Pensions Commission (March 2011). This is now the principal Act relating to the major public sector Pension Schemes The Public Service Pensions Act 2013 Sets out 4 distinct Governance roles in each Scheme. For LGPS: Responsible Authority = Department for Levelling Up, Housing and Communities (DLUHC) Scheme Advisory Board = National advisory body Scheme Manager = Administering Authority (Barking and Dagenham) = Pensions Committee : Has decision making function Pension Board = Local body comprising Representatives : Has assisting role not decision making functions Employer and Employee Also Pensions Regulator has a role in LGPS Governance and Administration (but not Investment) from April 2015

Governance Roles in the LGPS under the Public Service Pensions Act 2013 (2) - The Responsible Authority Determines the Scheme Regulations(Section 2 Public Service Pensions Act 2013) For LGPS it is the Secretary of State = DLUHC (Schedule 2 Public Services Pensions Act 2013) DLUHC role includes issuing Regulations covering detail of the structures/roles of Scheme Advisory Board, Administering Authorities and Local Pension Boards Secretary of State for Levelling Up, Housing and Communities: Rt Hon Michael Gove MP from September 2021 Minister of State including responsibility for the LGPS: Kemi Badenoch MP from September 2021

Governance Roles in the LGPS under the Public Service Pensions Act 2013 (3) - The Scheme Advisory Board A national board (Section 7 Public Service Pensions Act 2013 and Regulations 110 to 113 of the LGPS Regulations 2013) Role is to: (1) Provide advice to the DLUHC relating to changes in the LGPS (2) Provide advice to Administering Authorities & Pension Boards To consist of a Chair and 2 to 12 Members representing both Scheme Employers and individual members The Board has made a major impact

Governance Roles in the LGPS under the Public Service Pensions Act 2013 (4) - The Scheme Advisory Board (continued) Activity since 2016 has included Engaged with FCA re Investment by LGPS Funds in the light of MiFID II & provision of MiFID II resources Issued and updated Code of (Investment) Transparency Statements and activity relating to Investment Pooling Engagement with The Pensions Regulator Resources re Age Discrimination in LGPS (McCloud) Resources re Public Sector Exit Payments (Exit Cap) Good Governance in the LGPS project

Governance Roles in the LGPS under the Public Service Pensions Act 2013 (5) -The Scheme Manager The Scheme Manager is responsible for managing or administering the Scheme (Section 4 Public Service Pensions Act 2013) and therefore has the decision making function In the LGPS Scheme Managers are known as administering authorities (Regulation 53 of the LGPS Regulations 2013) The Administering Authority for the Barking and Dagenham LGPS Scheme is the London Borough of Barking and Dagenham Council Normally the Administering Authority responsibilities to a Pensions Committee (or equivalent) which exercises the decision making function in respect of the Pension Fund function For Barking and Dagenham this is the Pensions Committee which under the Council s Constitution (December 2021) exercises all the powers and duties of the Council in relation to the London Borough of Barking and Dagenham Pension Fund This therefore includes all of Governance, Investment & Pensions Administration matters Will consider the Scheme Manager role further in this Training Session in the Section on the Role and Responsibilities of the Pensions Committee ie the Full Council delegates its

Governance Roles in the LGPS under the Public Service Pensions Act 2013 (6) -The Local Pension Board Overall role is assisting the Administering Authority (Section 5 Public Service Pensions Act 2013 and Regulation 106 of the LGPS Regulations 2013 (As amended)) The voting membership of the Local Pension Board (which must not be less than 4 in total) must consist of an equal number of Employer and Employee representatives. Barking and Dagenham Pension Board consists of up to 6 members Does not have any decision making function - which is the role of the Pensions Committee Board meets twice a year and considers reports relating to the Pension Fund. It may express opinions and views. The Pensions Committee has To consider any recommendations made or views expressed by the Pension Board

Governance Roles in the LGPS under the Public Service Pensions Act 2013 (7) The Pensions Regulator and the LGPS DLUHC has the primary responsibility for LGPS However under the Public Service Pensions Act 2013 the Pensions Regulator (TPR) has an important role in Governance Administration of the LGPS but not in Investment Schedule 4 of the PSPA 2013 requires TPR to issue a Codes of Practice in respect of certain specified matters Therefore TPR, issued in 2015, Code of Practice No 14 Governance and administration of public service pension schemes Code No 14 to be incorporated into new Single Code of Practice probably in 2022 Since 2015 The Pensions Regulator (TPR) has since indicated an increasing interest, attention, and focus on the LGPS For example TPR has a clear focus on record keeping and data quality, also on cyber security &

Roles and Responsibilities of the London Borough of Barking and Dagenham Pensions Committee (1) The Council has delegated all the powers and duties as a Scheme Manager/Administering Authority to the Pensions Committee whose role therefore includes but is not limited to: To approve all policy statements required or prepared under the LGPS Regulations Appointing the Fund Actuary, Advisors and External Managers Determining Investment Strategy Monitoring and reviewing Investment Manager s performance Receiving the Actuarial Valuations of the Fund Agreeing the Admission of Employers to the Pension Fund Benefits Administration including communication and engagement with Employers and individual scheme members Receiving the Pension Fund Annual Report Consider recommendations or views of the Pensions Board

Roles and Responsibilities of the London Borough of Barking and Dagenham Pensions Committee (2) To approve all policy statements required or prepared under the LGPS Regulations: Governance (Compliance) Statement Funding Strategy Statement Investment Strategy Statement Communications Policy Pension Fund Annual Report Administration Strategy (optional) The Pensions Committee membership consists of: Voting Members Seven Councillors Non-Voting The Committee may appoint representatives of interested parties (Trade Unions, Admitted Bodies, pensioners etc.).

Officers, Actuary, Investment Consultant, Independent Advisor, Investment Managers, London Collective Investment Vehicle (1) The Fund Officers are the principal advisors to the Fund leading the provision of strategic advice to the Pension Fund Committee, the preparation of the major Fund policies and documents and the actual operation of the Fund The Pension Fund is required to have a Fund Actuary ( Regulations 62 and 64 of the LGPS Regulations 2013) The Actuary must undertake an Actuarial Valuation of the Fund every three years (Regulation 62) the next Valuation will be as at 31 March 2022 and the Actuary must complete his report by March 2023. This values Liabilities and Assets and results in the setting of Employer Contribution rates Other more limited Valuations are undertaken by the Actuary in respect of New Employers, Exiting Employers, Bulk Transfers and for Accounting purposes The Actuary to the Barking and Dagenham Fund is Barnett Waddingham

Officers, Actuary, Investment Consultant, Independent Advisor, Investment Managers, London Collective Investment Vehicle (2) The Investment Consultant (Hymans Robertson) provides strategic and specialist investment advice to the Committee & Fund Officers and gives proper advice in respect of investment under the LGPS Investment Regulations 2016 The Independent Advisor (John Raisin Financial Services Ltd) provides support and constructive challenge in respect of Governance and Investment issues Investment (Asset) Managers (e.g. Baillie Gifford, BlackRock, Aberdn Asset Management, Insight ) invest and manage the Funds assets on a day to day basis

Officers, Actuary, Investment Consultant, Independent Advisor, Investment Managers, London Collective Investment Vehicle (3) Barking and Dagenham (like all London Boroughs) is a member (and part owner) of the London Collective Investment Vehicle (London CIV) The London CIV is owned by the London Boroughs/ City of London but operates at arms length with its own Board of Directors and is regulated by the Financial Conduct Authority Going forward the London CIV will (increasingly) select and monitor Investment Managers The CIVs sole role is to implement (your) Investment Strategy The setting of Investment Strategy which academic studies clearly demonstrate is the primary driver of investment returns (not its implementation) remains the responsibility of the Pensions Committee No other LGPS functions whatsoever except the implementation of Investment Strategy (as agreed with the Pensions Committee) transfer to the London CIV

The Importance of Training for Pensions Committee Members CIPFA have set out clear and detailed guidance in relation to Pensions Knowledge and Skills most recently in 2021 in the CIPFA Code of Practice on LGPS Knowledge and Skills, and the CIPFA Knowledge and Skills Framework for LGPS Committee Members and LGPS Officers In December 2021 the Pensions Committee adopted the CIPFA Code of Practice on LGPS Knowledge and Skills In March 2022 the Pensions Committee endorsed a Training Policy based on the CIPFA Knowledge and Skills Framework for LGPS Committee Members and LGPS Officers As a result of the implementation of MiFID II (Markets in Financial Instruments Directive) local and public authorities including LGPS Funds were reclassified as retail investors from 3rd January 2018. Consequently: LGPS Funds need to satisfy the criteria for Elective Professional Client status if they are to continue to be able to invest their funds effectively this requires, amongst other things, that Pensions Committee members have appropriate expertise, experience and knowledge of Investment matters (taking into account any assistance from authority officers and external advisers) and that there is also adherence to CIPFA Codes and Frameworks