Meeting documents

Pension Fund Committee
Friday, 26 November 2004

PF261104-19

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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

  1. 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.

  2. 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.

    3. Draft Regulations

  3. 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:

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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.

    9. RECOMMENDATION

  9. 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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