Interview: Surrey’s Sheila Little on balancing S151 and LGPS roles
0Sheila Little is Section 151 officer of Surrey County Council and also sits on the investment committee of Surrey’s LGPS fund.
Room151: As an S151 officer, do you see local investment opportunities that your pension fund would find attractive?
Sheila Little: Wearing my S151 and LGPS hats obviously means that I’m required to look out for the both the council’s finances and the pension fund’s investments and what’s good for one isn’t necessarily always good for the other. Certainly in Surrey we have seen one or two opportunities come our way where people have enquired whether the pension fund might be willing to invest in a local project. But typically, these have been small projects, in pension fund terms, and for an investment of, say, £2m, the pension fund just doesn’t have an investment strategy which could warrant consideration of an opportunity that size.
The other side of the coin is that if the council wanted to invest in a local project, we would be able to do that through our own prudential borrowing, depending of course on exactly what it was. The cost of that borrowing is likely to be lower than the return the pension fund would need to justify making the investment. So, in my experience, I haven’t seen any opportunities yet which wouldn’t be cheaper for the council to do through its borrowing powers than via the pension fund. It’s also worth considering our fund’s asset allocation strategy and obligations to pensioners: we have an allocation to private equity, probably the most comparable asset class to the sort of investment we’re discussing, but we’ve chosen to invest both directly in limited partnerships and through funds of funds.
Also we have a fiduciary obligation to maximise returns for future and current pensioners. So if the pension fund wanted to invest in what may well be a worthy project locally, we would a) fall foul of our own carefully considered asset allocation strategy as it’s set out today, and b), potentially fall foul of our obligation to the scheme’s members. So some ideas may well be great for Surrey but not so good for the pension fund, and vice versa.
R151: Do you think that fiduciary duty is too narrow? Arguably many of the pensioners live in Surrey and it’s in their interest to see their county flourish as well as their pension pot grow.
SL: It’s absolutely a grey area but the statute requires that we maximise returns for pensioners and I struggle to see how legislation would be written to reflect what you’ve suggested. Another interesting area is tobacco and alcohol investments. Since April of this year (owing to changes in funding), we, the council, have to be more conscious of our role and responsibilities in the public health arena and I know we, and other councils, have sat down and questioned our approach to certain pension investments. But we keep coming back to the fund’s fiduciary duty. And where do you draw the line? The Church of England, for example, recently tried to take more ethical positions with its investments but later found it was indirectly invested in a pay-day lender. So you may not wish to invest in tobacco but do you stop investment in haulage companies that move the tobacco around or the companies that make the packaging for cigarettes? Where and how would you draw the line?
R151: Sticking with changes in legislation where do you stand on the proposed LGPS fund mergers?
SL: We’re open to it. Of course it’s easy to say that because we all do roughly the same thing then it must be straightforward to merge and there will surely be economies of scale. I’m not sure it’s that clear cut but the government seems pretty intent on making this happen so we’d rather be involved and do something voluntarily than be told, ‘right, this is what’s happening’. So we’re being proactive with one or two other authorities and exploring what can be done. The first issue to overcome is around sovereignty. If there’s no willingness to talk about it then you might as well not start talking. Secondly, you get into ‘how do the funds compare?’, and inevitably they’re going to be very, very different. We‘ve found in our conversations with other authorities that there isn’t necessarily very much overlap with existing funding levels, strategies and approaches to managing the funds. That doesn’t mean though that we couldn’t move towards more commonality in the longer term. With the emergence of outsourced bodies in local authorities, and academies, for example, we’re already seeing organisations emerge which are driving separate investment and liability treatments within the same fund. So who’s to say we couldn’t cope with that within merged funds? We are already providing East Sussex County Council with pension administration services.
R151: Clearly your discussions with the other authorities are at an early stage but what would a merged fund look like?
SL: That’s right, discussions are on-going and it’s too early to say, but I would envisage that instead of the three pension fund committees currently at the table, there would be one – made up of representatives of the original pension fund committees. From there we would have a single governance framework but within that we might well have different strands, including different investment strategies catering for the different liability and risk profiles contained within the new entity. It’s in the governance where I think there are gains to be made and that’s where we’ve been doing a lot of work lately. From May of this year, post-election, we created a new pension fund board which formalised and modernised the governance framework in anticipation of the changing requirement for fully constituted committees.
R151: What sort of changes have you made?
SL: I think the main thing is we’ve brought together the liability and investment sides of the fund so that they’re seen as a whole. Members not directly involved with the fund will sometimes congratulate us for our performance on the investment side without fully appreciating what’s happening with the liabilities. Our governance strategy is underpinned by looking at the two sides in relationship to one another. An important part of that has been ramping up training for members.
R151: What are you expecting from the 2013 valuations?
SL: We’ve had our provisional results and they’re pretty much what we expected. There is going to be an increased cost to the county but it’s in the ballpark of what we anticipated in our Medium Term Financial Plan. So I would say it’s relatively good news insofar as it’s where we expected it to be. I don’t think everyone within the fund expected the deficit to have grown, however, and the extent of this has come of something of a surprise to some of the districts and boroughs whose contributions are going to be increasing. It’s been an anxious time because all of us as councils have been focussed on very tight budgeting and financial planning so any additional cost to the employer is not going to be welcome news. It’s also very complicated when you look at how pension fund liabilities are calculated and there’s an important job to be done in making accessible the reasons for the increased contributions to organisations in the fund who don’t have experience of financial markets and bond yields, etc. Phil Triggs, our pension fund manager, works closely with districts, boroughs, the police, the county and other members of the fund to keep them updated with what’s going on.
R151: Do you find conflicts of interest being S151 and working for the LGPS?
SL: Yes, there are conflicts. If you take past deficits, for example, most authorities are making contributions each year to pay those off and you have to determine how much you’re going to pay per year and for how many years. Clearly the council would like to pay the deficit back in manageable instalments and the pension fund would like to be as well funded as possible. This sort of thing happens quite a lot but you just have to be professional and do the right thing.
