Over 2022 we worked with our pool partner LGPS Central to develop investment products that provide the Fund with access to new investments at attractive costs via an efficient governance structure.
Across our pooled and direct investments we’ve committed over £1bn to private market strategies including investments in:
- A substantial Grade A local office building, improving the quality of our direct property portfolio whilst providing scope to further improve the building’s ESG credentials in the future
- £400m across a range of infrastructure opportunities including mandates specifically focused on providing renewable energy and energy transition assets
- £100m commitment as a cornerstone investor to launch a private debt strategy with a focus on clean energy generation, storage and distribution, transport and social infrastructure
Having recently completed our review of the investment strategy, attention over the next few years will shift on to implementation of the new strategic target allocation. Recent events have highlighted the need for resilience across the investment strategy and an increased need for an integrated approach to risk management which should be assessed through various lenses. A key focus area of the strategy review was increasing the diversification of underlying risk exposures and sources of expected return which we believe will reduce risk.
Implementation of the investment strategy will be centred around our broader climate and net zero goals and our ambition to be leaders in the active stewardship of our assets. We continue to believe it is critical to integrate responsible investment and Environmental, Social and Governance (ESG) factors across all aspects of the portfolio to achieve better investment outcomes and ultimately deliver value for our members. Where appropriate we will look to rationalise our portfolio to have meaningful allocations creating opportunity for greater influence over outcomes to positively drive change.
Over the last year we have enhanced our reporting in relation to climate-related risks which included new climate scenario modelling. A key focus area over the next few years will be developing our internal reporting, oversight and data framework across our investment portfolio. This will enable us to do more meaningful analysis and reporting across all our assets and improve the quality of decision-making as well as meet the expected increase in climate related disclosure requirements.
We will work with investment partners, including LGPS Central Limited, to enhance the quality and coverage of data across our portfolio so that we can monitor progress of our climate strategy and net zero ambitions.
The Fund upholds a commitment to engage, consult and involve our customers as we seek to put them at the heart of everything we do. This commitment is embodied by our Customer Engagement Strategy, with the Fund seeking to ensure we drive continuous improvement and develop working practices, systems and processes, which are informed and prioritised according to the needs of our customers.
As a public service pension scheme, the West Midlands Pension Fund is focussed on delivering value to our customers and stakeholders.
Our Corporate Plan has been developed in the context of the long-term trends in the pensions landscape, recognising that the landscape continues to evolve and that we must adapt to the challenges that face us to protect and enhance outcomes for our customers. A good example of this are the economic challenges that are driving inflation and heightening cost of living pressures. Over recent times the Fund has promoted greater awareness of LGPS member benefits and improved retirement planning.
Engagement with pensions and planning for the future will help our members achieve the standard of living they hope for in retirement. Carefully thought-out guidance and tailored literature simplifies complexity, making it easier to understand the decisions that need to be made and the steps to take. Over the next five years, we will continue to review and challenge the way we engage with our members, to continue to help them plan their financial futures. We will ensure that people can access the right guidance at the right time, through different channels, at different life-stages and when they have complex decisions to make.
Digital, data and technology will drive and enable change. The development of pensions dashboards will drive an increased focus on administration and investment in technology in the market, and at the same time, we will continue to look for new methods and initiatives to engage with our customers, improving outreach and catering for differing needs.
Employers are also coping with ongoing financial pressures, and this strain is particularly acute in certain sectors of our employer-base, with many facing budgetary and resourcing challenges as a result. We aim to continue to support our participating employers to comply with their LGPS duties and to protect the solvency and security of the Fund. At the same time, we acknowledge that pension provision is an element of our employers’ overall business, and yet in some cases represents a significant item on their balance sheet – as such, we will seek to engage and work with our employers proactively on the management of risk with annual funding and covenant reviews.
We will partner with our employers through a framework of tailored guidance and policies, designed to ensure they have the access to the information they require. Complementing this approach, we will continue to review, enhance and expand our successful employer coaching programme, which enables new and existing employers to inform their own performance and maximise efficiency in delivering their own responsibilities to the Fund.
The new pension administration system will launch over 2023 and provides a critical interface for employers in fulfilling their duties. As with prior development and change programmes we will engage proactively with our employers to enhance understanding, provide on-hand support, and ensure the new toolkit delivers efficiencies and enhanced user experience.
We also recognise the value to our customers from our engagement with a wide range of partner organisations, be it other LGPS funds, service providers or industry bodies. We will continue to engage early to inform debate and look to ensure best practice is achieved through collaboration and sharing of experience, ideas and innovation.
Underpinning our approach will be valuable feedback received from our customers, whether ad-hoc or through scheduled forums we will deliver on an annual cycle, to gain up to date insight to the services we are delivering and to aid continual improvement.
Our ambitions for operational resilience are:
- To develop a robust operational capability focused on value for money, organisational agility improved customer experience delivered by a highly engaged and effective workforce.
- Going beyond cyber and technology resilience, ensuring we have capabilities, processes and controls supporting full end to end business critical activities, focused on meeting our customer requirements and enabling an efficient response to regulatory changes.
- To remain a trusted leader, with embedded resilience for both internal operations, routine deliverables and customer service.
Plans for 2023/24 - Finance & Operations
Our ambition to improve and enhance operational resilience in the Fund continues into 2023/24 with signifiant projects underway to enhance pension administration and benefit operations capabilities and the Fund’s finance functions. 2023/24 will see the transition to the new pension administration system, the culmination of 15 months of planning and implementation work which will maintain and enhance operational resilience in an increasingly demanding pensions environment.
The implementation of the new pension administration system will provide the Fund and its customers with visible and reportable efficiencies and create capacity to respond to rising customer numbers and expectation. The system brings with it improved online portals for our employers and members, with enhanced levels of security and increased ability to self-serve. The transition to the new system will build the foundations to develop robust operational capability focussed on value for money, organisational agility and improved customer experience, through increased automation and improved casework management.
In addition, our Finance function is continuing the transformation program which started in 2022 to update, enhance and develop its controls and processes. To date this has led to development of fund accounting capabilities and enhancing internal controls through review of process and accountabilities across interdependent teams. The next phase, during 2023/24, is to review the use of technology to support financial processes, including linking in with the introduction of the new pension administration system, and developing internal reporting to both ensure resilience but also increase scrutiny to ensure continued achievement of best value.
Both projects play important roles in the achievement of our other goals, supporting the areas of Governance and Risk, and People and Customers.
Benefits for Members and Employers
It is easy to see how activities to improve operational resilience benefit the day-to-day work of the Fund however these projects are rooted in ensuring the delivery of benefits to members and employers.
The Pension Administration System will improve the flow of information to employers and members through new online portals and improve the review of information received by the Fund, reducing the time taken to resolve queries. This enhanced automation will increase capacity for proactively responding to changes in regulatory requirements affecting our members and employers.
Similarly, improvements in finance operations will result in more capacity for supporting the Pension Services and Operations teams to deliver to our customers and will also support in improving the management of fund assets for the ongoing sustainability of the Fund.
The West Midlands Pension Fund seeks to deliver better outcomes for members, employers, stakeholders and our people by producing solid, sustainable services and priorities which are resilient to challenges and flexible to the changing environment in which we operate.
It is now more important than ever to have the best possible understanding of the world around us and that we review, prioritise, scrutinise and adapt effectively.
The Fund’s risk management framework supports us in doing this with ongoing review and challenge through an effective assurance program. This has been reviewed over 2022 and will continue to be developed over 2023.
Our aim is to ensure that:
- Implications for risk are highlighted at the right levels within the fund
- We share best practices to establish a common understanding of risks across all levels within the organisation
- Actions and controls are closely monitored to ensure mitigation of risks
The Fund has a continuing obligation to ensure that it remains resourced and well equipped to carry out its statutory duties. Compliance oversight identifies the effectiveness of the Fund’s risk management and service delivery arrangements, including through the assurances sought of its third parties, making recommendations as required for appropriate remedial action to support ongoing fitness and propriety.
A monitoring programme is in place to cover the main areas within the Fund, including contract management arrangements for third party suppliers with Business Continuity plans having been reviewed and updated over 2022 to reflect our changing working environment and evolution. Both business continuity and cyber resilience strategies will continue to be reviewed and developed over 2023 as Fund operations develop and arrangements are tested for ongoing improvement.
The Compliance Team carries out a monitoring programme, providing formal reporting to the Executive Director of Pensions, Senior Management and Governing Bodies on a quarterly basis.
The monitoring programme is intended to be flexible, so that it may easily be amended in the light of experience, operational/systems change, or new regulatory requirements. The Fund also monitors LGPS Central Ltd and external fund managers to satisfy itself that they are performing suitable compliance monitoring and that they remain ft and proper persons with the FCA to manage the Fund’s investments.
We aim to provide a progressive and transparent assurance programme to retain the confidence of our customers and stakeholders in our resilience and ability to adapt to change and learned experience.