Find out how the Alliance’s Isle of Wight Council pension fund was transformed by Cllr Chris Jarman
Some of the points raised by Cllr Jarman in this article have been challenged by Cllr Andrew Garratt, we are awaiting a detailed response from Cllr Jarman. Ed
In the 11 months since the Alliance Group has been in power at County Hall, the Isle of Wight Council pension fund has gone from a debt of £32m to a surplus of £22.9m, says Cllr Chris Jarman of the Alliance Group.
There is no question that the tens of thousands of islanders who depend on, or will depend on, the payments from the IWC pension fund in their retirement will be pleased to hear this.
In conversation with the responsible city council
News from OnTheWight Simon Perry recently managed to sneak an hour into the busy diary of Cllr Jarman, the Isle of Wight Council (IWC) cabinet member in charge of IWC finances, to find out more.
He told us how this massive reversal came about thanks to a number of factors that are discussed below.
Cllr Jarman first explained the structures of the pension fund:
“The pension fund is set up so that part of the money goes into a common fund called the Access Group.
“This is basically a collaboration between local authorities pooling funds, some of which are managed by agents we appoint and choose.
“Within that, they need to be given guidance on what kind of things to invest in.”
Jarman: You have to have a certain willingness to take risks
Cllr Jarman continued on the importance of risk taking. He said,
“We have to look at the risk tolerance that we take within the pension fund.
“If you just invested in absolutely guaranteed instruments, investments, bonds and the like – basically deposit accounts – you would be lucky to get 0.01 percent. When inflation is significantly higher, the real value of your capital will go down and down and down.
“So you have to have a certain risk tolerance in the market. Invest extensively in stocks and shares, equities and similar instruments to be able to offer you a level of return that overcomes inflationary pressures and over time begins to increase the real value of the fund.”
Jarman: A balance that needs to be played
Don’t worry, the Isle of Wight Council will not start investing in Bitcoin. Cllr Jarman was keenly aware of how many people will be relying on the pension fund for their retirement.
“You don’t want to have a very high risk appetite that would be seen as a bit reckless, especially with pension funds, so putting all your money in Bitcoin may not be a popular approach.
“There’s always a balance to be struck with these things, and at the end of the day you have to remember that the livelihoods of thousands of retired people are at stake.
Lots of people who are retired, lots of people who have deferred pensions, and lots of people who are still earning and paying into their pensions. They are all dependent on the decision this fund makes.”
He explained that not only were those affected who previously or still worked directly for the community, but also family members were included in the program, such as staff who worked in the ports, museums and schools.
Jarman: Your decisions affect the livelihoods of tens of thousands of people
Cllr Jarman added:
“At the end of the day, it’s their future, their livelihood and the quality of their retirement that influence your decisions. It’s tens of thousands of people, and any one of them probably doesn’t look closely at their retirement portfolio.
“They just rely on you to make the right decisions to give them a good retirement. So there’s a lot of responsibility in that, and so you have to balance this issue between no risk, no reward, high risk, maybe high reward, and somewhere in the middle is a good way forward.”
What happened to the funds last year?
Next, Simon asked what the pension fund looked like when Alliance Group took power at County Hall in May 2021 and what it looks like now.
Clr Jarman explained:
“When we entered we were in a position where the fund charge – which is basically the amount in the fund compared to our future liability – had fallen by £32million. Not a great situation.”
What is the real impact of a deficit?
Simon asked what impact that would have on the real world. Did this mean that the Council had to borrow money from other bodies to pay pensions?
Cllr Jarman replied:
“If this were a long-term, sustainable problem, you would have to look at the level of contributions to the system. There would be a series of markers that would give the starting signal. They would have to increase the contribution rates over a longer period of time.
“It’s more like at the national level, if the government doesn’t have enough money to pay pensions, they would have to raise income taxes, for example, and that’s not a good situation.”
Being in abundance means a certain level of comfort
Luckily for those who rely on the pension fund, the picture is very different right now, as Cllr Jarman explained:
“The situation we are in now is we are almost £23million in surplus.
“It’s a much better and healthier position.”
He went on to explain that the pension fund has a surplus, meaning there’s greater potential to be more selective about what’s being done with the money. Add to,
“You can have a slightly higher risk appetite, but the important thing is that it gives you some level of reassurance that this isn’t a fund that has 95 percent of what it needs, it’s a fund that has 103 percent has percent of what it needs.”
At an all time high
Cllr Jarman said he doesn’t think the pension fund has ever been higher than it is right now – “It’s at an all-time high,” he said.
Although things are moving in the right direction, “this is not the time to relax,” he said.
How did these changes come about?
It’s great to hear that the pension fund is turning from deficit to surplus, but what has changed for this to happen?
Cllr Jarman explained that this was not only due to a change in the Council’s risk appetite, but also to many different things,
“Part of that is the way the investors have been handling the money and part of that is the guidelines and recommendations [by the council]. Part of this has to do with access pooling. Part of that has to do with the general recovery in stock markets and part with demographics. It’s a lot of different themes and I don’t think you can’t put your finger in the air and say, ‘Ah, that’s why it changed’.
“What you can say is that there is a whole range of things that are all fortunately moving in the right direction, helped by changes that are occurring in terms of Covid recovery. Changes in stock markets in general. Although all of these things go pretty up and down, in general we’ve been tracking very successfully. We have targets with our investors that are above the overall tracking index for the markets.”
Building a relationship with fund managers
He added that the advice is focused on a risk profile that gives it a return that is “greater than the market”.
“So the goal is ‘Market Plus’, which requires a higher level of risk, it requires a different appetite from the people who run these funds on a day-to-day basis.
“We need to get to know these companies and have a relationship and trust with them and be able to give them direction.”
The Pension Fund Committee
The fund management company participates in the pension committee, which holds around six meetings per year.
They explain where they are in the portfolio and how they manage that portfolio, and the council can then decide what to do about it.
Jarman: It’s very important to understand the details
Cllr Jarman added:
“I think it is very important to ensure that we have a very robust tax administration process and procedure. It’s very important to understand the details and it’s also important to have a very good team of people who can implement it.
“I spend very little time worrying about decisions made by previous governments. I’ve been much more focused on what we’re doing about it now and the decisions we’re making going forward, those are the ones that affect island businesses and islanders.”
What impact will this news have on the island’s economy?
Simon’s final question was what impact the pension fund, now in a healthy position, will have on the island’s economy.
Perhaps a boost for the Isle of Wight’s economy, Cllr Jarman said:
“I think there are different levels, one of which is that people who are pension fund beneficiaries today will hear this information and will take some comfort from it.
“Those on deferred pensions will be much more comfortable with what the future holds for them. That comfort, one would hope, would perhaps manifest itself in a more relaxed outlook on life in general – which is good for all our stress levels – but perhaps also in their willingness to spend money on the local economy.”
More confidence from the islanders in what is going on
For those still paying into the system, Cllr Jarman said it could bring a little smile, more comfort and perhaps more confidence in the pension fund and its future management.
“All of this means, to some extent, less stress, more comfort and more confidence from the islanders in what’s going on.”
There’s more to come
Registration for the News OnTheWight Newsletter if you haven’t already – because there’s more to come from our time speaking with Cllr Jarman on issues affecting all islanders.
Mar 25, 2022 9:02 am – Added editor’s note