South Yorks breezes through Covid but warns of potential danger ahead

The seventh largest Local Government Pension Scheme fund by assets, with £8.2bn, released a report over the summer that describes how the fund’s employers made little use of easements introduced by the Pensions Regulator.

Having ridden out March’s volatility with funding soon returning to around 100 per cent, SYPA is now continuing work on a rebalancing project, reducing its exposure to equities.

George Graham, SYPA director, tells Pensions Expert: “We have continued to work on the rebalancing that is required from our investment strategy review in March.”

Other than two small employers, we have not had any requests for deferment

George Graham, SYPA

The March review requires equity risk to be reduced and allocated elsewhere, although Mr Graham admits that the fund’s use of equity protection when the volatility struck was something of a “fluke” before adding: “It was a sensible move to have it place when the local authority chose to put it in place.” 

He recalls: “We didn’t lose ground in terms of funding level. At the end of March it was horrible. At the end of June things were slightly better than 2019. It is now hovering around 100 per cent, which is where we want it to be.”

Property income could become a problem. “In the context of the fund, the tenants who are challenged are probably more numerous than the amounts they owe. We have tenants like Tesco and Morrisons who clearly are not suffering the problems of the smaller tenants,” Mr Graham says.

The fund also remains focused on climate change as a theme. “The amount of carbon being chucked out in the atmosphere will be less than it would otherwise have been. We need to be careful we don’t switch things back in the same way,” he adds.

Smooth transition to homeworking

Alongside investment losses, a cash squeeze for sponsors has meant that across the defined benefit universe, deficit repair contributions could have to rise by 75 per cent to meet current funding schedules.

The problem of employers in LGPS schemes failing to pay contributions is likely to become acute, with Tiffany Tsang, senior policy lead for LGPS and DB at the Pensions and Lifetime Savings Association, warning of an “emerging situation facing colleges and universities, charities, leisure centres, housing associations, and other community associations with historical ties to local authorities”.

But at SYPA, employers by and large have not so far struggled to afford their pension contributions due to the scheme.

“Other than two small employers, we have not had any requests for deferment,” notes Mr Graham, but he believes “there are some sectors where we are worried about the ways things may develop”. 

Like the whole of UK industry, the fund had to move to agile working overnight, but faced the added difficulty that some of its functions are still paper-based.

Mr Graham says: “We had to act very quickly to get those [functions] fully online and paperless, and it worked, things didn’t fall over. There has been no increase in complaints, which has surprised us.”

He says that some employers are not responding “as promptly as we might like them to” when asked for information needed to calculate benefits at retirement, but that these delays are understandable given the circumstances.

“We are still performing well in an industry context, but we are not hitting our own demanding standards to the degree that we wanted. For a period of time we were only able to take answerphone messages and call back, which was not ideal,” he says.

The scheme’s expenditure only rose by £88,000, with meetings migrated to virtual via Barnsley Council’s systems.

Spike in pensioner deaths

One of the starkest Covid-19 statistics was the spike in SYPA pensioner deaths during March and April compared with the same period last year. Active members saw a 266.7 per cent rise, from three deaths to 11, while pensioner deaths went up from 234 to 336, a rise of 43.6 per cent.

Mr Graham notes: “Dealing with death is not pleasant. Some of the questions we have to ask can be quite intrusive. The staff dealt with it extremely well.”

More trivially, wet signatures posed a problem. “There are always things that are irritating and annoying but we have overcome them. Lawyers have decided that signing DocuSign is not a bad thing.”

However, getting documents sealed was a particular challenge. On this historical anomaly, Mr Graham says: “You can’t do those electronically. Because of the nature of the process there are a very restricted number of people able to execute sealed documents. That creates issues.” 

He adds: “I don’t think we will ever go back to where we were before. For example, we have always had a lot of member face-to-face contact. Our members rate that very highly. If a member wants to meet us once Covid restrictions have gone away, that is fine. 

“We will never turn them away, but we can deal with more members face to face with new technologies, which have been well received and very popular.”

New normal here to stay

In the wider LGPS community, Douglas Green, partner at Hymans Robertson, says that administrators have had enormous success in riding out lockdown.

“The funds’ administration teams have been the real heroes of the LGPS during this pandemic,” he says. 

“As a result, they have ensured all members’ benefit payments — whether anticipated or excess — have continued to be made, and adapted processes such as the absence of physical death certificates.”

Penny Cogher, partner at Irwin Mitchell, says: “Greater agility and entrusting people to work from home is not likely to cease any time soon, with a second wave on the horizon this autumn/winter.

“What we have learned from lockdown this spring is likely to stand us all in good stead when the next wave hits.”