Dec 10, 2024
Statement from West Midlands Pension Fund
We wish to reassure our members, employers and stakeholders of the following:
- Employers participating in the Fund pay the appropriate amount of contributions to meet the costs of pensions benefits promised to their employees.
- Employer contributions are set in line with legislation, supported by our professional advisers and in consultation with all of our employers.
- Our investment costs are broadly the same as those for LGPS funds of a comparable size.
- We fully disclose our investment costs in a transparent way and in line with industry best practice.
Prior to publication, we were not made aware of the report written by Professor Clancy nor have we been asked to comment upon, or verify, its contents. The primary purpose of the West Midlands Pension Fund (“the Fund”) is to collect contributions (member and employer) and invest assets to generate returns to meet the benefit promises (liabilities) participating employers have made to Scheme members.
As a Fund, we are fully compliant with the LGPS Regulations and the standards and expectations set by the Ministry of Housing, Communities and Local Government (MHCLG). The Fund takes a robust and transparent approach to ensuring its fiduciary duties and the provision of pension benefits to all its members in a cost-effective manner.
Setting of employer contributions
With over 850 participating Scheme employers, including the seven local authorities within the West Midlands Region, the contribution requirements for employers are set every three years in line with the statutory actuarial valuation. This involves consultation with all participating employers.
The Fund’s funding strategy is set in consultation with its employers and based on the professional advice received from its appointed actuary, risk and covenant advisers. In line with best practice and statutory guidance, individual employer circumstances are considered in the setting and review of contribution rates. Therefore, it is not reasonable to expect all employers to have the same contribution rate and we cannot comment on the differences in approach for other funds or the reasons for that approach. Nonetheless, there can be many reasons for a different level of contributions related to the history and profile of that employer, which could date back over many decades.
The figures published in financial accounts reflect an assessment for accounting purposes, based on prescribed international accounting standards. Assumptions (including discount rates) set for these are determined by the relevant employer and reviewed by their external auditors for reasonableness.
The Fund is scrutinised and compared to other funds nationally as part of the Government Actuary Department’s “Section 13” review. The latest review, undertaken based upon the 31 March 2022 valuations, confirmed the Fund’s funding plan as being appropriate with a positive indicator of long-term cost efficiency.
Employer engagement
The Fund remains in active dialogue with Birmingham City Council, and other participating employers, around the evolving funding position, economic environment and outlook for the next triennial actuarial valuation (due 31 March 2025).
Investment Strategy
The Fund’s investment strategy is driven by its investment beliefs, cashflow and return requirements balanced against risk. The Fund has in place a diversified investment portfolio and investment strategy based on the mix of requirements for growth, income and stabilising assets values relative to future liability payments.
The Fund’s benchmark is predicated upon the appropriate balance between generating a satisfactory long-term return on investments whilst taking account of market volatility and risk and the nature of the Fund’s liabilities.
Investment Costs
The article seeks to draw comparisons between funds’ investment management fees, however like-for-like comparison requires a more in-depth review to account for the different ways these fees are reported.
Over the last decade, the Fund has continued to independently benchmark its investment fees and value added in return across a global industry peer group and compares favourably with a low-cost relative to asset value. This analysis indicates very similar investment fees between the Fund and comparative funds of a similar size and nature. The Fund’s costs are transparently shared through its Annual Report.
The Fund is an advocate of the LGPS Scheme Advisory Board “Code of Transparency Initiative” (CTI) which was launched in 2017 to cover investment management fees and costs. The Fund has, and continues to, lead within the pensions and LGPS sector in investigating and reporting a fully transparent picture on investment management fees. The Fund’s reporting fully complies with best practice for the industry and the LGPS and reflects the CTI initiatives now widely adopted across the sector. The Fund’s investment costs are monitored in line with the initiative as part of our governance arrangements.
Notes to editors
The West Midlands Pension Fund provides Local Government Pension Scheme services to over 340,000 members and more than 850 employers across the West Midlands region. It is the second largest LGPS Fund in England and Wales with over £21 billion of assets. Over £7.3billion of these are invested in the UK in a wide range of assets including infrastructure projects, private equity and property.
Employers include the seven Local Authorities: Birmingham City Council, Coventry City Council, Dudley Metropolitan Borough Council, Sandwell Metropolitan Borough Council, Solihull Metropolitan Borough Council, Walsall Council and the City of Wolverhampton Council (who are also the Administering Authority), together with the West Midlands Combined Authority for the seven Constituent Authorities.
The Fund’s Funding Strategy Statement (FSS) 1sets out the approach to the setting of employer contributions from 1 April 2023 to 31 March 2026. In finalising the FSS, all participating employers were consulted. More recently, the Fund published an employer Briefing Note2 with commentary on the LGPS surplus environment and its 2024 Annual Report and Accounts3.
The Government Actuary Depart (GAD) undertakes a review of LGPS fund valuations under section 13 of the Public Service Pensions Act 20134. The GAD report considers funds’ progress against compliance, consistency, solvency and long-term cost efficiency. The Fund performs well against these tests, with no ‘flags’ confirmed by GAD for the 31 March 2022 valuation.
The Fund uses a leading international benchmark provider, CEM, to undertake comparisons for the Fund of both investment and administration costs against LGPS funds, as well as a global peer group. CEM provide benchmarking to the world’s leading asset owners with participating assets over $13trillion.
The analysis provided to the Fund compares it against two universes:
- LGPS: 33 funds with total assets of £264billion representing over 2/3rds of LGPS assets
- Global Peer group: 24 global asset owners including public and private pension with assets of between £9.6 and £30.3 billion (median £18billion) against the Fund’s £21billion
The analysis not only looks at investment and administration costs. but also considers value add.
Earlier in the year, the Fund was recognised for its strong governance and investment strategy achieving awards in both categories in the Local Authority Pension Fund Investment Awards 2024. In 2023 the Fund won the Investment Innovation Award for its collaboration with the West Midlands Combined Authority to support growth and innovation among new companies and technologies within the region via the new West Midlands Co-Investment Fund.
The Fund has achieved signatory status to the UK Stewardship Code (2020) for the last four years, and has attained accreditations for Pension Administration from PASA, holds Investors in People (GOLD), Customer service excellence and annually undertakes independent benchmarking to inform continuous improvement.
The Fund set up, and is part of, the LGPS Central pool, which is Financial Conduct Authority (FCA) regulated and has been established since 2018 to create opportunity for greater efficiency and access to wider investment opportunities through increased scale, capacity and expertise