1. What is it and the role of UNISON activists
Colin Meech
LGPS Seminar Workshop
Cost Transparency
What is it and the role of UNISON activists

2. What is the workshop for?
1. To explain the key issues involved 2. To explain the Scheme Advisory Board process 3. To explain the powers that the Fund Boards have 4. To agree the participation of delegates in the process and to spread the knowledge through branches

3. UK Market: Cost transparency – increasingly in the news

4. Governance of the LGPS
Statutory schemes – which means that the EU, Parliament and Assemblies make the regulations
3 pension schemes (England/Wales, Northern Ireland and Scotland)
100 pension administration authorities – almost entirely local authorities – the pension fund is owned by the employers
100 pension boards – of which UNISON has at least 1 activist on each
2 Scheme Advisory Boards – UNISON holds vice chair and secretary in England/Wales and Scotland
This system is under pressure from DC auto enrolment

5. What are the assets (roughly)?
60% equities or shares – in UK and Global Stock Markets – if these are new shares they represent real investment – otherwise they a bought from a broker
15% gilts – these are government bonds repaid with interest – you lend UK and others money
10% property – commercial real estate – you buy real estate and obtain rental income
5% corporate bonds – issued by companies – this is real investment companies use this to invest
5% Private Equity/PFI infrastructure – schools/roads etc
5% cash and commodities – interest baring accounts and oil/gold even art

6. Headline figures for England and Wales
The total assets of the LGPS increased to £263bn (up 21.2%). (£42bn in Scotland)
These assets were invested in pooled investment vehicles via fund managers (52%), public equities (32%), bonds (7%), direct property (3%), as well as PFI, Private Equity and Hedge Funds (6%).
The LGPS gross return on investment over 2016/2017 was 19.5%. We do not know the Net return – which is return less all fees and transactions
Scheme income was lower than total scheme outgoings by £484m; this was excluding investment income.

7. What do pension funds do?
Pensioners are paid each month
Any money left over has to be invested
The pension fund uses fund managers to buy assets, like company shares
The investment returns go back to the pension fund and are used to pay pensions
Your pension contributions are paid into the fund
The easiest way to think about your pension fund is like this.
Someone administers the pension system and they
Collects contributions
Pays pensions
Hire investment managers
Invests surplus cash and buys assets – the returns on these investments go toward paying pensions

8. A pension fund is an economic unit dedicated to paying pensions
It has income – contributions and investment returns
It has costs – benefits, administration & investment costs
If there is less money coming in to meet the costs then cuts have to be made
The duty of those entrusted with your money – must act prudently and efficiently
If this does not happen then you may not get the benefits you were expecting
Or the employers cut jobs and services to meet the increasing costs
Therefore you must know your costs!

9. Dutch investment costs % of assets under management
Management fee
Transaction costs
Cost of asset management
2012
0.53%
0.13%
0.66%
2013
0.54%
0.10%
0.64%
2014
0.52%
0.09%
0.61%
2015
047%
0.08%
0.55%
2016
0.46%

10. A pension fund must be run with ruthless efficiency – but is it?
Any consumer purchase would need to know the explicit and implicit costs
Buy a fridge – upfront cost explicit
Implicit – delivery charge, running cost, interest on credit, change colour, change door
But pension funds only know their explicit costs
Administration fees, Expenses, Indemnity insurance, Actuarial fees, Legal fees, Audit fees
Investment Management Expenses:
Management fees, performance-related fees, investment consultancy fees, performance measurement fees

12. Pension Fund Total Cost of Production
LGPS Administration Authority
Administration costs
Executive costs
Benefit Administration and member communication
Advisory and control
Office Rent
Investment Management
Fixed management fees
Performance fees
Investment consultancy
Custodian
Performance measurement
Administration
Risk reporting
Investment committee expenses
Transaction Costs
Trading tax
Research fees
Brokerage fees
Bid offer spread

13. Code of Transparency
Signatories to the Code manage at least £180bn of LGPS funds; as at 31st March 2017, the LGPS held £260bn, therefore this represents around 70% of the Scheme.
£21b
£16b
£36b
£5b
£4b
£11b
£13b
£9b
£4b
£5b

14. SAB Code of Transparency
The move toward investment fee transparency and consistency is seen by the Board as an important factor in the LGPS being perceived as a value led and innovative scheme. 
Transparency is also a target for the revised CIPFA accounting standard issued for inclusion in the statutory annual report and accounts.
To assist LGPS funds in obtaining the data they require in order to report costs on a transparent basis the Board has developed a voluntary Code of Transparency for LGPS asset managers.
Data will be entered by asset managers and others – checked for accuracy – then entered into your annual reports
Analysed for costs and performance by asset class, asset manager, asset style. Etc
Public markets 2018 – Private Markets 2019

15. SAB Legislation
Scheme regulations for a scheme under section 1 which is a defined benefits scheme must provide for the establishment of a board with responsibility for providing advice to the responsible authority, at the authority’s request, on the desirability of changes to the scheme.
(2) the regulations may also provide for the board to provide advice (on request or otherwise) to the scheme managers or the scheme’s pension boards in relation to the effective and efficient administration and management of— (a) the scheme and any statutory pension scheme that is connected with it, or (b) any pension fund of the scheme and any connected scheme

16. The IDWG Templates – first developed by LGPS
IDWG Multi-asset Account Template
IDWG PE Account Template
IDWG PA Account Template
Old LGPS Template

17. Fund Board Legislation
Scheme regulations for a scheme under section 1 must provide for the establishment of a board with responsibility for assisting the scheme manager (or each scheme manager) in relation to the following matters.
(2) Those matters are— (a) securing compliance with the scheme regulations and other legislation relating to the governance and administration of the scheme and any statutory pension scheme that is connected with it; (b) securing compliance with requirements imposed in relation to the scheme and any connected scheme by the Pensions Regulator; (c) such other matters as the scheme regulations may specify.
(3) In making the regulations the responsible authority must have regard to the desirability of securing the effective and efficient governance and administration of the scheme and any connected scheme.

18. UNISON Board Members and Branches
Each fund is responsible for its investment strategy
Request cost transparency to be standing item on your fund board agenda
Check every asset manager, custodian bank, investment consultant hired by your fund etc has signed code. Check that your pool has signed the code
Write and ask for full disclosure of costs at present
Write and ask for full performance measure of each asset class
Write and ask what your fund will do if these are showing poor performance
What else are you prepared to do?