MINUTES OF PENSION CONSULTATIVE FORUM MEETING, 28 JULY

2010, HQ, CHESTER

PRESENT:

Councillor Peter Mason Chairman (Cheshire East Council)

Stephan Van Arendsen Cheshire Pension Fund
Heidi Catherall Cheshire Pension Fund
Mark Futter Cheshire Pension Fund
Ian Colvin Cheshire Pension Fund

Paul Bradshaw Cheshire East Council

Derek Hughes Cheshire Probation
Bill Dodd Halton Borough Council
Su Bramley Chester and District Housing Trust
Olga Kokkinis Unison (Member Rep)
Matt Guest Warrington Borough Council

Apologies

Nick Jones Cheshire Pension Fund

Nicola Pierce Cheshire West and Chester Council
Joanne Jones Cheshire Police Authority
Liz Lunn Cheshire Police Authority
Lisa Quinn Chester East Council
Darren Griffiths Cheshire Fire and Rescue
Vanessa Coates Cheshire Shared Services (ESC)
Eddie Austin University of Chester (Colleges)
John Feeney Unison (Member Rep)
Welcome and introduction

Councillor Peter Mason, Chairman of the Forum as well as Chairman of the

Pension Fund Committee, formally welcomed the Forum members and set
out the format for the meeting.

1. Minutes & Actions from Previous Meeting

Mark Futter went through the minutes of the December meeting. Two items
discussed at the last meeting were on the agenda for today as they are
standing agenda items;

 Report and Update from the Pension Fund Committee – Stephan Van
Arendsen to provide an update
 Pension Administration Report – Ian Colvin to provide an update

Another issue discussed at the last meeting was the Abatement Policy. Sue
Smith had published the Policy in January. Mark requested that any
comments on the policy be received in the next week so it can be published
soon after. A copy of the policy in enclosed within the pack.

Action: All comments to be made regarding the Abatement Policy by Friday

6th August.

2. Report and Update from the Pension Fund Committee

Stephan Van Arendsen updated the Forum on the key issues from the
previous Pension Fund Committee meetings that had taken place since the
last Forum meeting. The key points were;

From the February 2010 meeting;

 The Committee were informed about the interim valuation work that
had been carried out since the last meeting in December. The
Pensions team had continued to work with Hymans on the approach
that will be undertaken to stabilise contribution rates for the main tax
raising bodies. This has subsequently been discussed with all relevant
employers. .

 Performance had been strong to the end of December 2009 due to the
recovery in the markets with the fund achieving a return on its
investments of 3.6%, against a benchmark of 3%.

 Whilst most equities and equity type products had recovered following
the downturn in the market, the recovery in the Property market is less
visible. Property accounts for 10% of the assets in the Pension Fund.
Asset values of Property had decreased and not yet recovered and the
Committee discussed what was being done by Rockspring to
readdress the balance.
Councillor Peter Mason reiterated that performance by Managers had
generally been good over the period with eleven out of the thirteen exceeding
their benchmark up to May 2010.

 A copy of the audit plan had been presented to the Committee. This
addressed two specific issues:
o It had been identified that the Pension fund should have a
separate bank account from the Administering Authority for
Treasury Management activities, in order to ensure that the
Fund receives all interest it is due. A separate bank account
was introduced in 2009.
o The second issue was confirming how we value assets in the
fund and confirm if they exist, for instance non-quoted assets, in
relation to private equity and secured loans. We also need to
ensure that we reflect the fair value of these assets in the
accounts

From the 14 May 2010 meeting

The Committee discussed the approach that would be followed in undertaking
an investment strategy review for the fund. This review would focus on
determining the liabilities of the fund and then ensuring the asset allocation
allows the fund to meet its financial targets.

Stephan outlined that the Fund is different in 2009 than it was in 2007 as the
main employers such as Cheshire West and Chester, Cheshire East, Halton
and Warrington, had all undergone staff reduction processes. Given that
these organisations account for 80% of the Fund this has a significant impact.

 The Committee were informed that as part of the strategy review there
will be a need to undertake a fundamental review of the investments
that are held, a review of current mandates, objectives of the fund,
financial targets and what level of risk will be required in the asset
allocation to achieve the required return.

 In order to facilitate this review, the Committee agreed that external

support would be required to assist Members and Officers in this
process. At present investment advice to the fund is provided by
Hymans Robertson, however, it was decided that investment advice
would be split into the following work packages and an appropriate
procurement process would be followed for each:

o Strategic Advice for the Investment Strategy Review

o Manager Selection
o Manager Monitoring
o Governance

Councillor Peter Mason informed the Forum members that the current fund
value is £2.53bn, which approximates to 70% funding. This is a typical
funding level when compared to other Pension Funds. This illustrates how
the fund has changed since the last valuation in 2007 as the value of assets
was lower then but it equated to an 85% funding level. This demonstrates the
rise in value of the liabilities that exist.

 The Forum discussed whether the 100% funding requirement was still
required. Stephan Van Arendsen informed the Forum that there was a
national consultation in 2009 to consider this issue, however, due to
the general election any issues arising from this have not been
implemented or progressed further.

It was suggested that this may be revisited as part of the Hutton review which
is taking place at the moment.

The other main report on the Committee agenda focussed on the admitted
body review that had been undertaken. This was required due to a number of
agreements that are in place dating back some years and not being updated
for the changing nature of the LGPS. Following the review the admission
agreement for both TAB’s and CAB’s have been revised and approved by the
Committee as has the admission policy. This review is covered separately on
today’s agenda.

Specific Meeting 21 May;

There was a specific additional Committee meeting in May to award the

contract for the provision of strategic investment advice. Three companies
originally tendered for the contract;

o Hymans Roberts
o Mercer Consulting
o Jardine Lloyd Thompson (JLT)

Hymans and Mercer were shortlisted, following an evaluation of their tender

submission and site visits by officers and were invited to attend the
Committee meeting and give a presentation that was followed by an extensive
question and answer session.

Following this process the Committee recommended that Hymans Robertson

be awarded the contract. Work has since been ongoing on this contract and
Hymans Robertson will feed back on progress to the Committee on 6th
August.

Following thus feedback Stephan welcomed any further comments on the

issues covered.

Su Bramley informed the Forum that Social Landlords has met to discuss the
FRS17 results. One issue raised was whether the assumptions in the results
can be challenged, such as the assumed 5% increase in pay.

Stephan Van Arendsen said that a number of employers had sought

additional information with regard to the assumptions in the FRS17 report and
whilst pay may be lower than assumed in the next two years it would not have
a major influence on the FRS17 deficit over a 20 year period. The bigger
issues to consider are the value of the liabilities through longevity and inflation
and the potential move between CPI and RPI.

There was a discussion about the new contribution rates from 2011.

Further to previous endorsement by the Committee, Officers and the actuary

held day long workshops and met with all Housing Trust and a selection of
other admitted bodies within the Fund

The objective of the workshops was to better understand the financial strength
of the organisation and what (if any) additional security the employers could
demonstrate or provide the Fund. This security would enable the actuary and
fund to adopt a risk based approach to setting the employer’s contribution.

During these meetings conversations had taken place around three primary
areas of security – a guarantor, a bond or security on some form of assets.

These organisations would investigate the opportunities open to them over

the summer and discussions would continue to firm up what additional
security these can provide to allow the actuary more flexibility in determining a
stable contribution rate.

3. Admission Policy and Agreement

Mark Futter updated the Forum on the work that had been undertaken on the
review of the admission agreements. The need for the review was brought
about to ensure compliance with current LGPS regulations, to understand the
impact of failure of an admitted body and ensuring suitable protection for the
Fund and link the results to the valuation and contribution rate strategy.

Most employers have a right to be in the scheme, therefore, they do not need
an agreement. However, there are two types of employers that do need
agreements and they are categorised as follows:

 TAB’s – these are companies that have taken over work outsourced by
a scheme employer
 CAB’s – that provide a public service on a not for profit basis and have
a community of interest with a Scheme Employer.

Following the review it was found that improvements were required to both the
TAB and CAB admission agreements and the admission policy in order to
reflect the new legislation of the LGPS. These were approved by the
Committee.

These new agreements clearly set out when cessation is triggered, as well as
the requirements that are with the employer to have an appropriate bond and
guarantor. All bonds are reviewed annually to ensure they remain
appropriate.
A copy of the new policy and agreement was contained in the pack.

Stephan confirmed that this work had a direct link with the valuation, in that it
was important for the fund to recognise the relevant financial strength and
security of employers when considering a risk based approach to future
contribution levels.

4. Valuation Update

Stephan Van Arendsen gave an update on the valuation process.

All the data had been provided to the Actuary and Cheshire were the first of
Hymans Robertson’s clients to provide the information. Stephan thanked
everyone for their contributions.

The timetable for the valuation is as follows:

Dates Actions
Jul/Aug Confirmation of data queries
2010
Mid Oct Initial results received from Actuary and officers prepare results
2010 for Committee
Nov 2010 Findings presented to Committee
Dec 2010 Finalise results and present at employer Forum
Jan 2011 Draft report produced
Feb 2011 Final results and sign off

It was highlighted that following the election an independent commission has

been established to review public sector pension provision and this is due to
report back in October. This, together with the change between CPI and RPI,
may influence the results of the valuation:

 The findings from the Hutton review being carried out in 2010
 The change from CPI to RPI

5. Admin Report

Ian Colvin presented the Forum with information on the performance of the
Pension Fund in terms of dealing with information requests and changes.

CIPFA set out seven measures that the Fund should follow and suggest that
we achieve 90% on each of them. Due to the increased workload following
LGR and other organisation restructure some of the measures had dipped
below the 90%. However, the majority were now over the 90% threshold
again, and work is continuing to improve the results over the next quarter now
that staffing vacancies had been filled.

A discussion took place about the production of information from employers to

the pension fund in order for them to deal with queries. Such information can
often be delayed and although these delays do not count against performance
of the admin function, they do represent a delay to the member.

Bill Dodd queries how Halton provided this information to the Pension Fund
and it was agreed that I an would follow this up.

Ian also mentioned the Annual report of Strathclyde Pension Fund which
includes measures of the accuracy and timeliness of information provided by
employers. Although this is not currently included in the Cheshire scheme it is
something we would like to include in the future.

Action

 Ian Colvin will confirm how Halton provide the information to the
Pension Fund
 Ian Colvin will put together a proposal for how the information should
be provided by employers and invite comments from the Forum

6. Date and venue of next meeting

The next meeting is scheduled for December 2010, actual date to be

confirmed.

Councillor Peter Mason closed the meeting and thanked all present for their
attendance and contribution.