The pensions committee for the Tyne & Wear Pension Fund (TWPF), with assets worth £11.5 bn (€13.4bn), is discussing proposals to restructure its pensions service in addition to other investment changes.

The committee, which met this summer, launched a Pensions Service Plan for 2021-2024 in which it reviews its investment strategy, considering whether it can be implemented under the new investment pooling arrangements with Border to Coast Investment Partnership, of which the scheme is one of 11 partners.

A mini asset liability modelling exercise or “health check” is being undertaken at the end of 2020/21, the plan said. This will include some high-level modelling of the impact of climate change scenarios on the fund’s investment structure.

If this modelling results in any proposed changes, these will be implemented during 2021/22, it disclosed.

The merger of the Northumberland County Council Pension Fund (NCCPF) into the Tyne and Wear scheme on 3 June 2020 has also triggered some of these reviews and proposed changes, said Ian Bainbridge, head of pensions at the Tyne & Wear scheme, at the committee’s latest meeting.

The Tyne & Wear fund has moved approximately 28% of its assets into Border to Coast. In addition, commitments have started to be made to the private equity, infrastructure and private debt programmes operated by the pool.

Most, if not all, of the fund’s new commitments to these private market programmes will be through Border to Coast going forward, Bainbridge said.

In future years, further assets will transfer to Border to Coast. “It is forecast that by March 2023 approximately 60% of the fund’s assets will be under the management of Border to Coast,” the plan disclosed, adding that thereafter, the transfer of assets will slow down as the only new investments with the investment pool will be in private markets where new commitments will be made to replace those investments that are maturing.

The transfer of assets to Border to Coast will exclude all assets in passive indexed investment vehicles, the pensions service plan noted.

This is because these are specifically excluded from pooling arrangements due to the fact they are already pooled in very efficient low-cost structures.

In the long-term it is forecast that the Tyne & Wear fund will have approximately 24% of assets in passive indexed investments.

The committee has agreed an approach to implementing a tactical asset allocation mechanism and proposed an approach to increasing and diversifying the allocation to UK residential property.

One further change identified as part of the scheme’s 2019 modelling, which has not yet been implemented, was the introduction of a multi-asset credit mandate, which should be completed during 2021.

Funding strategy statement

Furthermore, the scheme has also issued a revised funding strategy statement (FSS) due to changes in legislation in addition to the merger with the Northumberland fund.

The legislation changes refer to the LGPS (Amendment No. 2) Regulations 2020 came into force on 23 September 2020, which gave administering authorities like Tyne & Wear new flexibilities in reviewing employer contribution rates in an inter-valuation period, and introducing flexibilities into an exit regime.

As such, a new section 23 has been inserted into the fund’s FSS regarding cost sharing arrangements following the merger with Northumberland’s fund.

There were also “tweaks to the exit valuation methodology” for when active members are transferring to a new employer, in addition to a policy on debt spreading and a policy on deferred debt arrangements, the reviewed FSS said.

“It must be noted that the proposed FSS is an update of the Tyne and Wear Pension Fund FSS from pre-merger. Northumberland County Council Pension Fund had its own FSS which set its funding strategy for the 2019 valuation,” said Bainbridge.

“At this review of the FSS, we are not seeking to consolidate the respective funding strategies of TWPF and NCCPF but are rather making the amendments [as] described,” he said.

The next valuation is due as at March 2022. Consideration will need to be given to the approach to be taken to the asset liability modelling, which will be undertaken at the same time.

He added: “It is intended to again review the FSS as part of the 2022 valuation when the funding strategy for the merged fund shall be set.”

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