Award winner: Essex pension chief on scrutiny and objectives

Essex Pension Fund recently became the Defined Benefit Pension Scheme of the Year. The man in charge, Kevin MacDonald, reveals how the award was won.

LGPS Funds have a long history of measuring investment performance. This has not however, always been accompanied by similar measurement of non-investment performance.

To address this, the Essex Pension Fund has sought to promote the use of a scorecard for its s101 committee to scrutinise. What was initially considered management information has become a cornerstone of how the officers interact with Cllrs and other representatives at a time when new governance arrangements commence.

Like a number of LGPS Funds, the Essex Pension Fund had for many years successfully functioned under the auspices of one body. In this case the Investment Steering Committee (ISC) was responsible not only for setting and reviewing investment strategy but also “non-investment” tasks such as determining the funding strategy and liaising with the Fund Actuary over triennial valuations and interim reviews.

Given the changing landscape, it was decided in 2008 that the Essex Pension Strategy Board (EPSB) be established. This became the s101 committee (as defined by the 1972 Local Government Act) and has overarching responsibility for the Essex Pension Fund. A new separate body – the Essex Pension Advisory Board (EPAB) – was established in February this year to fulfil the requirements of the PSPA 2013 re: Local Pension Boards.

Once established, the EPSB considered the Fund’s objectives. Although the investment strategy had always been allied to outperformance targets for specific mandates, objectives for wider Fund activity had not been formalised. Through workshops and away days with the input of officers and advisers, the EPSB agreed a twenty objectives across the following five categories: Governance, Investment, Funding, Administration and Communications.

With the objectives agreed, officers working with advisers and the Governance Team at Hymans Robertson, were then asked by the EPB to identify barriers to achievement and consider how progress could be measured. The outcomes were:

• over eighty risks that were scored both before and after mitigating actions. These now form the basis of the Fund’s risk register; and

• around seventy individual progress measurements to be included within a scorecard.

The objectives are kept under review and every year a business plan is agreed to highlight key actions. Included as recurring items on the EPSB’s agenda are:

1. a quarterly business plan update;
2. notification of risks with a changing score along with any new risks; and
3. a “traffic light” scorecard report on progress against the objectives.

In practice this means that once set, each objective is assessed and progress evidenced. The table below gives an indication of how this approach works in practice.

From time to time, the EPSB conducts a deep dive into a particular area to ensure that the objectives remain relevant and that the risks to those objectives are identified, understood and mitigated where appropriate.

As a consequence of adopting this process, the quarterly scorecard has become the key document supporting the scrutiny function. It consists of a summary “dashboard” (see picture) which highlights how many of the individual measurements are considered to have green, amber or red status. This is supported by a page for each objective.

Most of the measurements are updated either quarterly or annually. A small number reflect the triennial valuation. In addition to those highlighted in the table above, other scorecard measures include:

• administration cost per member compared to the CIPFA benchmarking average;
• scheme member and employer survey results;
• the receipt of compliments and complaints;
• both internal and external audit outcomes;
• investment returns at a high level (detailed scrutiny remains with ISC);
• the timely publication of EPB and ISC agenda papers;
• detailed performance against administration processing targets;
• the timely completion of monthly investment accounting reconciliations and
• the timely receipt of contribution income from employers

The scorecard allows the reader to both appreciate the full range of activities undertaken by the Fund (along with its officers and advisers) and gain understanding of what is and is not working. This is of particular value when new Members are introduced to the EPSB.

Evidential in nature, the scorecard captures progress (fast or slow), demonstrates transparency and prompts enquiry.

Kevin MacDonald is head of the Essex Pension Fund at Essex County Council