Pensions Annual Report
Pensions Annual Report 2019 - Size (2.58mb)
I am pleased to report another successful year in respect of Fund investment performance, despite the wider political backdrop and uncertainties influencing global markets, including potential trade war escalation. The Fund achieved an extremely positive return of 8.8% in 2018/19, with exceptional equity returns key to this outperformance. The RCT Fund maintained its ranking within the top quartile of local authority pension funds over the last 5 years, with the Fund value growing to £3.4bn at 31st March 2019.
This high level of growth has contributed to a significant increase in our funding level which is estimated to be around 98% at 31st March 2019. As mentioned last year, following review of our asset allocation strategy and in consideration of our then improved funding level, the Pension Committee concluded that we should further diversify the investment risk in the fund. The phased exercise to realign to our desired asset allocation commenced during 2018/19 financial year, and will continue to transition as appropriate opportunities are identified.
The Pension fund also recognises that climate change and carbon emission management is one of the risk factors for our pension fund investments and are committed to an orderly carbon transition and will work with its fund managers and investee companies to achieve that end, ensuring that company business models are aligned to a sustainable future. In this regard, active investment management is by its very nature exclusionary and the Fund demands that all its investment managers properly consider climate-related and other Environmental, Social and Governance (ESG) risks in decision making within their respective portfolios.
The Wales Pension Partnership (WPP) continues to evolve and by the end of the financial year had assets under management amounting to £3.9bn in the 2 Global High Alpha Equity Sub Funds. Further phases of asset transition in relation to UK and European Equities and Fixed Interest are now being advanced for 2019/20. The WPP governance frameworks and arrangements continue to develop with a Responsible Investment Strategy now in place and approved by the Joint Governance Committee (JGC). The JGC has also worked on defining its Beliefs and Communication Strategy and now has a dedicated website in place.
The next actuarial valuation of the Fund as at the 31st March 2019 is fully underway and nearing completion (at the time of writing). We have undertaken covenant reviews where necessary and agreed the underlying actuarial assumptions. Employers will be notified at the earliest opportunity of the emerging results and contribution rate implications (effective from 1st April 2020) in order to help support their respective budget setting processes.
The Government and the LGPS Scheme Advisory Board have paused their respective ‘cost cap’ processes for the scheme, due to a Court of Appeal case (McCloud). An estimate of the impact on Fund liabilities has been factored into the 2019 Valuation, albeit the conclusion of the actual remedy is likely to take some time to conclude.
It was pleasing to note the positive comments made by the Pension Regulator’s representative at last year’s Fund AGM. The Fund takes its corporate governance and data quality responsibilities extremely seriously, continuously explores opportunities to improve and has formal risk monitoring and management arrangements in place. The Pension Regulator has recently published its findings following a review of 10 ‘LGPS’ funds, and the RCT Fund will test its compliance against the ‘good practice’ recommendations contained therein.
The RCT Pension Fund is the largest LGPS Pension Fund operating within Wales, with overall membership exceeding 73,000, across a diverse range of Employers. The Fund’s Communication Forum made up of Employer and Trade Union representatives, continues to enable active engagement with stakeholder groups to help deliver and shape improvements, an example of this is the assistance afforded to promote the benefits of ‘Member Self Service’ across our scheme membership.
I hope that the information presented in this report is helpful; if you feel it could be improved in any way we would welcome your suggestions.
Barrie Davies, C.P.F.A.
Director of Finance and Digital Services (Section ‘151’ Officer)