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ITEM PF19
PENSION
FUND COMMITTEE – 26 NOVEMBER 2004
MANAGEMENT
AND INVESTMENT OF FUNDS (AMENDMENT) REGULATIONS 2005
Report by
the Head of Finance & Procurement
Introduction
- On 24 September
2004, the Office of the Deputy Prime Minister (ODPM) published draft
regulations to amend the current Local Government Pension Scheme (Management
and Investment of Funds) Regulations 1998. The ODPM invited comments
on these draft regulations, to be received no later than 3 December
2004.
- The Committee
is invited to consider the proposed draft regulations and endorse the
comments as set out in the report as a basis of a response to the ODPM.
Draft
Regulations
- The letter of
24 September covers changes in four areas, with an invitation to comment
about the need for further regulation in a fifth. The areas are as follows:
- Stocklending.
The draft regulations propose an increase in the discretionary limit
for stock lending from 25% of total stock to 35%. In taking advantage
of the higher limit, the administering authority is still bound by the
requirement to comply with the general provisions of the investment
regulations, covering risk, diversification, prudency etc. At present
this Authority lends well below the 25% limit, though the Authority
has not yet had a full year’s experience, and notes that lending is
often higher in the dividend season. Given that the new proposal is
for a discretionary power, it is recommended that the Authority responds
favourably to the increased flexibility offered by the draft regulation,
and is happy with the existing safeguards contained within the investment
regulations.
- Representation
Policy Statements. The initial proposal from the ODPM in this area
was to introduce regulations specifying the constitution of Pension
Fund committees. The ODPM has now stepped back from this approach. Instead
the draft regulations propose that all Administering Authorities should
publish within their Statement of Investment Principles (SIP), their
policy regarding representation and engagement of key stakeholders.
The revised SIP would need to be published by 3 October 2005. The ODPM
believes that increasing the transparency of the representation and
engagement policies, will encourage discussion, and ensure effective
representation policies can be taken forward. It is recommended that
the Authority responds to support the withdrawal of the proposals to
regulate the constitution and membership of Pension Committees, and
to accept the new requirement with regard to the content of the SIP,
as a matter of good practice.
- Communication
Policy Statements. The draft regulations require each administering
authority to prepare, publish and review a policy statement setting
out its communication strategy for the Fund as a whole. This is to include
the promotion of the LGPS amongst all employers (and potential employers)
and their employees. The first policy statement will be required by
1 April 2006. This Authority recognises the need for improved communications
around the LGPS and the implications of recent Government changes in
relation to the tax regime. It is therefore recommended that the Authority
supports the proposed draft regulation, though notes that there is likely
to be a cost involved in meeting the expectations set up in fulfilling
a meaningful communication policy.
- Miscellaneous
Amendments. There are three proposed technical changes to the regulations
to update references to fire authorities and conservation boards, and
to ensure continued compliance with European legislation on the appointment
of medical referees. It is suggested that the Authority makes no response
in this area.
- Corporate Governance
and activism. The ODPM letter invites comments as to whether there
are any legal barriers to pension funds in carrying out their corporate
governance and activism responsibilities, and asks for any proposals
to introduce new specific provisions to support administering authorities.
The officers are not currently aware of any difficulties in this area,
and would not expect to comment in the response to ODPM.
RECOMMENDATION
- The Committee
is RECOMMENDED to note the contents of this report, and to ask the Head
of Finance & Procurement to respond to the ODPM along the lines
contained within the body of the report.
SUE
SCANE
Head of Finance
& Procurement
Background
Papers: Letter from Robert Holloway, ODPM dated 24 September 2004.
Contact
Officer: Sean Collins, Assistant Head of Finance. (01865) 815411
November
2004
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