Risk management

Risks 

Controls in place 

Climate change and Responsible Investment – Funds are facing increasing pressure on divestment and to take action to address climate risks in the portfolio. 

Climate risk assessment carried out. Robust Responsible Investment policies, engagement and collaboration. Published TCFD Report, Climate Risk Reports. Fund became a signatory to the 2020 Stewardship Code, Net Zero target set. Development of products that meet partner fund requirements.

Regulatory Risk – Climate and Responsible Investment. 

Responsible Investment integrated into the investment process. Monitoring of developments, responding to consultations when issued. Appointment of new Pension Investment & Responsible Investment manager post.

Cyber attack resulting in loss of data due to insufficient resilience/BCP arrangements being in place

Robust IT arrangements in place, which are regularly tested. Fund Cyber Security Policy created. Business Impact Analysis and Service Recovery Plan (BIA-SRP) arrangements up to date and appropriately tested. Resilience plans in place and approved. Similar arrangements at third party suppliers are reviewed and tested.

Loss or inappropriate disclosure of personal data leading to fines and reputational loss. 

ICT security used such as data encryption, secure email and document management software with strict security profiles. Secure working environments.  Information protection L1 training undertaken by all staff annually and Level 2 by 2 members of staff.  Secure working environment in place. Memorandum of understanding now in place with employers. Consent for members now on website. Privacy notices added to all relevant correspondence. Fund now has its own Cyber Security Policy and training has been provided to Officers, Committee and Board members. 

The insolvency of an employer places additional liabilities on the fund and ultimately the remaining employers 

Admission agreements in place at time of transfer of service (no delay). Assessment for the requirement of a bond completed at date of entry and subsequent valuations. Shorter deficit recovery periods. Funding Strategy Statement, assessed and updated as part of each valuation. Annual Employer covenant check for high risk employers. Employer events policy in place which provided information on process for changes to employer rates, employers exiting the Fund. 

Failure of pension fund investment managers to meet expected returns resulting in increased costs to the council and other employers. 

Rigorous selection processes established. Rigorous and continual investment manager monitoring arrangements. Diversification of managers and asset classes. External expert advice. Trained and experienced staff. Reporting and monitoring arrangements. Investment Strategy Statement and Funding Strategy Statement published. Compliance with LGPS regulations. Clear and relevant investment mandates. Audit of investment managers.

Aon/Officers reviewed the structure of the pension fund to improve efficiency and investment returns in April 2023. Investment Strategy Review following the results of the Actuarial Valuation in November 2022 to be presented to Committee in June 2023. Equity protection strategy remains in place for approx. 30% of Equity portfolio following investment strategy review.

Liquidity risk in government bond markets due to higher interest rates and tighter monetary policy. Potential for Quantitative Tightening by Bank of England to further reduce liquidity from Bond markets.

Monitoring of investment performance relative to the estimated growth in liabilities on an annual basis. Bond investments restructured as part of June 2023 Strategic Asset Allocation

Vulnerable to loss of or over-reliance of key staff due to long term sickness or staff turnover resulting in reduction of service to scheme employers.

Procedures notes provided and reviewed annually. Team structure review completed, and new staff have been recruited to assist with areas of work that are high volume. Training Policy updated and training log capturing training requirements is being maintained. 1:1 and Appraisals capture training requirements

Team members are being trained to support the Helpdesk for periods of unexpected absence and when bulk communications are sent out to members, which can generate an increase in queries received. 

Failure to deliver cost savings originally estimated within the cost savings model.

Work undertaken with third party to create meaningful analysis. Continued focus on value for money in making spending decisions. On-going monitoring of actual and forecasted cost savings. Collaborative and partnership working on delivery of investment strategy to reduce investment expenses.

Investments in LGPS Central not delivering the required investment return which could result in the need for increased employer contributions. 

Investment performance regularly reported and monitored by the Pension Committee and action taken to report any concerns via the Joint Committee and Shareholders Forum. 

Insufficient range of asset classes or investment styles being available through the investment pool. 

Investment performance will be regularly reported and monitored by the Pension Committee and action taken to report concerns via the Joint Committee and Shareholders Forum. Greater expertise will exist within LGPS Central to manage and monitor under-performing managers and take action more frequently than existing governance structure allows at the Shropshire County Pension Fund.

Inappropriate Investment Strategy. 

Funding Strategy Statement published following consultation with scheme employers outlining how the Fund plans to meet its liabilities. External expert advice.  Trained and experienced staff. Three yearly Actuarial Valuation taking place 2025 and Investment Strategy Statement will be reviewed and updated accordingly. Regular review of investment strategy with Aon.

Economic recession impacting on investment returns.

Diversified Investment Strategy to spread risk across a number of different markets through the asset allocation. Regular reviews of the Investment Strategy with Independent advisors. Full Investment Strategy review undertaken in June 2023, with full transition plan in place.

Pay and price inflation significantly higher than anticipated and pensioners in receipt of pensions for longer resulting in an increase in the fund’s liabilities, deterioration in funding position and increase in employer contribution rates. 

Actuarial valuation process focuses on real returns on assets, net of pay and price increases. Monitoring of investment performance relative to the estimated growth in liabilities. Some investment in index-linked bonds (and other inflation linked investments) helps mitigate this risk. Triennial strategic asset allocation review considers the appropriateness of assets. Mortality assumptions are set with some allowance for future increases in life expectancy as part of the valuation process. Fund Actuary monitors.

Inflation rates continually monitored due to cost-of-living crisis and War in Ukraine. Inflation expected to stay higher for longer which will impact on future investment returns.

Incorrect information/benefits provided to members of the scheme. 

Benefit calculations are checked. All supporting calculations are provided to the member. Team training. Employer training. Review of letters/statements. Identify employer training required following receipt of year end returns. Employers providing data on a monthly basis. Mortality screening and address checking introduced.

Late payment of contributions by fund employers leading to the pension fund having to report to the Pension Regulator (TPR) and possibly be fined. 

Payments are recorded and reconciled monthly. Late receipt of I-Connect return or payment is recorded on Breaches Log and reported to both Pension Committee and Board.

Failure of employers to provide accurate data leading to incorrect benefit statement/payments or fund valuations. 

Employer training. Administration Strategy Statement. Team training. Internal controls including contribution collection audits and positive action by Pension team. i-Connect implemented for all employer’s data collected monthly. Employers trained on TPR Code. Employer training to cover errors picked up on yearend returns. Breaches recording, monitoring and reporting to Committee and Board.

Policies or strategies of the administering authority adversely impacting on the work of the Pension Administration Team for the Shropshire County Pension Fund. 

Segregation of duties, delegated decision making to Pension Committee and Head of Pensions. Quarterly report to the Pension Committee and Pension Board for Breaches recorded. Embedding process for amber and red breaches Pension Regulator Code and Scheme Advisory Board. 

Failure to identify and report breaches of law, in accordance with the requirements of the Pensions Regulator leading to reputational damage and potential fines. 

Breaches Policy in place together with log which is reported to Committee, Board and Fund Administrator. Training undertaken by key staff. 

Non-compliance with the law around LGPS benefit administration leading to fines by the Pensions Regulator. 

The use of a good LGPS administration software solution, together with a record of staff training mitigates the risks to the fund. The fund is part of a consortium for the current system CLASS, which keeps the cost of development down by funding coming from a pooled resource. Also, full use was made of TPRs and LGAs educational resources. Access to training for staff and Board and Committee members to ensure continued professional development.

Failure of support systems: Business World, CIVICA Pay360 which will result in incorrect data collection, payment of benefits and incorrect accounting.

Key systems are reviewed, support provided by Council ICT and systems teams.

Regulatory change occurs which impacts either LGPS Central or Partner Funds. Government changing stance on pooling such that the model no longer meets requirements.

Regulatory intelligence & working collaboratively with Partner Funds & Pool project. Lobbying through Government working groups. Responding to consultations on legislative change. Collaborating with partner pools to share best practice.

Key persons for either LGPS Central or Partner Funds either choose to leave or unable to fulfil their responsibilities.

Succession planning taking place with LGPSC and with PFs. Exit/handover plans. Different notice periods for key roles. Use of temporary resources. Governance structures - collective decision-making process.