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. Public TCFD report. Climate strategy and climate stewardship plan in place. Signatory to the UK Stewardship Code. Work commenced to become signatory to the new Stewardship Code. 

Regulatory risk – Climate and responsible investment. 

Responsible investment integrated into the investment process. Monitoring of developments, responding to consultations when issued. 

Cyber attack resulting in loss of data leading to fines by the Information Commissioner’s Office (ICO) and reputational damage. 

Cyber security currently undertaken by Shropshire Council ICT. Separate cyber security policy being developed for the fund. 

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

ICT security used such as data encryption, secure mail and document management software with strict security profiles. Secure working environment. Protecting information training undertaken by all staff annually. 

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

Admission agreements, employer covenant check across fund employers, some bonds in place. Shorter deficit recovery periods for some employers. Funding strategy statement approved by Pension Committee. 

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

Rigorous selection process established. Rigorous and continual investment manager monitoring arrangements. Diversification of managers. External expert advice. Reporting and monitoring arrangements. Investment strategy statement and funding strategy statement published. Clear and relevant mandates. Audit of investment managers. 

COVID – 19 impact 

Possible impacts on a number of areas including IT Infrastructure, third party suppliers, employee health and wellbeing, control framework and productivity, impact on financial markets. 

COVID 19 – Staff all working from home, potential loss of internet at home putting at risk the payments of member benefits and processing retirement, transfers, death payments etc. 

Can book a hot desk at Shirehall. 

Savings from pooling are not realised as fully or as quickly as planned for due to market factors or inaccurate assumptions in LGPS Central’s business plan. 

Research is being undertaken to ensure predictive savings are realistic. Plan for reviewing progress against the business plan has been agreed with the board. Prudent assumptions have been used when estimating fee reductions and transition timescales. Financial model is continually updated. 

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 workstream set up to create sub-funds to implement participating funds’ investment strategies. Participating fund data gathered and analysed in detail at Officer Practitioner Advisory Forum meetings. Product development plan agreed by the partner funds and LGPS Central. 

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. Investment strategy statement. Regular review of investment strategy with Aon. 

Failure to meet good governance standards. 

Compliance against Myners Principles considered on an annual basis as part of the review and updating of the investment strategy statement. The fund has produced a governance compliance statement. Audit of governance arrangements. 

Continued decrease in UK government bond yields resulting in future reduction in returns from government bonds, increase in the value placed on liabilities through the reduction in the discount rate and deterioration in funding position which results in an increase in employer contribution rates. 

Monitoring of investment performance relative to the estimated growth in liabilities on an annual basis. Some investment in bonds (and similar investments) helps to mitigate this risk. Implemented liability driven investment (LDI) strategy in order to further hedge liabilities against changes in interest rates and inflation. Change in methodology agreed with actuary to calculate liability values rather than using gilt yields. Equity protection strategy implemented. 

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. Monitoring of investment performance in relation to the estimated growth in liabilities. Some investment in index-linked bonds (and other inflation linked investments) and LDI helps to mitigate this risk. Triennial strategic asset allocation review considers appropriateness of assets. Mortality assumptions are set with some allowance for future increases in life expectancy as part of the valuation process which the fund actuary monitors. LDI manager appointed to further hedge liabilities against changes in inflation rates. Equity protection strategy in place. 

Incorrect information/benefits provided to members of the scheme. 

Benefits calculations are checked. All supporting calculations are provided to the member. Team training, employer training. 

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

Employer training/guidance on website. Employer newsletter. Contributions check and balance. Adhere to internal governance compliance statement. Adhere to Pension Regulator’s code of practice. Breaches log monitoring. Engage with employers to ensure contributions received on time. 

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

Employer training. Administration strategy statement. Team training. Introduction of i-Connect has resulted in improvement of data. Employers trained on the Pension Regulator’s code. Breaches log records any issues which are reported to Pension Committee and Pension 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 Scheme Administrator. Quarterly report to the Pension Committee on administration. Embedding of Pension Board and 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 a breaches log which is reported to the Pension Committee, Pension Board and Scheme 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 experienced trained staff mitigates the risks to the council. 

Failure of support systems: ERP, CIVICA Icon, which will result in incorrect data collection, payment of benefits and incorrect accounting. 

Key systems reviews, contractual arrangements, systems administration and IT support.