Agenda item

The Pension Fund is required to obtain a triennial actuarial valuation as at 31^st March 2013 and a certificate of employer contribution rates for the period 2014/15 to 2016/17.  The Fund Actuary, Alison Hamilton of Barnett Waddingham, has prepared the initial results of this valuation and these are set out in Appendix 1.

Jonathan Hunt, Tri-Borough Director of Treasury and Pensions, introduced the report, which set out the findings of the triannual actuarial valuation of the Pension Fund. He said that the valuation was based on the 31^st March 2013, though the actuary made changes where material information emerged after that date. He said that the Committee had had two informal meetings with the actuary during the process.

He outlined the key assumptions used by the actuary, particularly their use of an Economic Discount Rate, rather than a Gilt Based Discount Rate. He explained the factors considered in devising the Economic Discount Rate, as it related to gilts and to equities, the formula used to weigh them, and the increased stability of contribution this offered the Council.

Councillor Ivimy asked how a change to the make-up of the fund might affect the actuary’s view of the level of funding. Mr. Hunt said that the actuary had based the discount rate on the asset allocation on page 14, and he would supply the Committee with an answer as to how a change in allocation would affect the weighted averages used in devising the discount rate.

Mr Hunt then set out the membership breakdown of the fund, noting that only 26% of members were still contributing, with the rest either deferred or retirees. In response to a question from Councillor Murphy, Mr. Hunt confirmed that the majority of deferred members no longer worked in local government, or had ceased to pay into their pension.

Mr Hunt set out the changes to the LGPS from 2014, including the introduction of the 50/50 scheme. He then gave the ongoing costs of the scheme to the employers, which would be 14.2% of members’ salaries owed as an employer contribution, with the deficit recovery element taking the total to 22.3%. He noted that the Council now expressed the deficit recovery element as a cash scheme. He said that this would lead to a £500,000 annual reduction in contributions by the Council over a 3-year period, and a 22 year recovery period. Mr. Hunt noted that, while the Council held discussions with the actuary, the regulations around pension provision bound the employer to implement her judgement.

Councillor Murphy asked what the impact of retaining contribution levels at their previous rate would be on the recovery period. Mr. Hunt said that the sum involved was small in relation to the fund as a whole, but he would provide an exact answer.

Councillor Iggulden said that the performance of the Fund during the period since the last valuation reflected credit on those managing funds on behalf of the fund, and the Committee’s advisers. He said that some acknowledgement of the Committee’s thanks should be sent to them as a result.

The Chairman agreed with Councillor Iggulden’s suggestion, and said that the strong performance of the fund meant that only an evolutionary change to asset allocation was necessary.

Councillor Cartwright asked about the Government consultation to merge funds. Mr. Hunt said that the Government was consulting on three options, which included a single scheme, a single investment scheme and 5 to 10 schemes.

Eugenie White said that she was concerned at the diminution of the “trustee” role, particularly as the reform could see local government pension schemes becoming primary investors in infrastructure. She noted that larger funds had produced increased benefits in the Netherlands, but that without comparable investment strategies, the comparison might not hold.

The Chairman said that there were infrastructure funds that could be invested in by funds, and that collective vehicles were being established; as such, he did not believe that assets need to be pooled. However, it was the case that fund managers had benefited from fragmentation and been able to charge different and higher fees to different councils.

RESOLVED THAT

The initial results of the 2013 actuarial valuation of the Pension Fund be noted.

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Jonathan Hunt, Tri-Borough Director of Treasury and Pensions, introduced the report, which set out the Fund’s performance in the quarter to 30th September 2013. He noted, in light of the fund valuation, that Majedie, MFS, and Ruffer had comfortably outperformed their benchmark over the valuation period, while Barings and Goldman Sachs had marginally outperformed theirs. He added that the Legal and General mandate was linked to the fund’s liabilities, and negative performance may not be entirely disappointing.

Councillor Iggulden asked whether managers with a similar mandate to Goldman Sachs had delivered better performance. Mr Hunt said that he would supply the Committee with comparator data.

Councillor Ivimy asked why the Legal and General mandate was in place. Eugenie White said that the mandate, which had been proposed by P-Solve, was designed to mitigate interest rate risk. She said that rising interest rates might make for stronger performance. The Chairman said that a review of Matching Fund strategy was necessary.

Councillor Ivimy asked about the level of risk in the Majedie portfolio. Mr Hunt said that the risk was not excessive, but that Majedie had held a number of stocks which had performed well, and had been operating under a revised mandate since July 2012 which allowed them to invest in a small proportion of overseas equities.

RESOLVED THAT

The report be noted.</AI5>

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