Agenda item

Barry McKay, Barnett Waddingham the Pension Fund’s actuary provided an update of the results for the 2019 triennial actuarial valuation and outlined the following key points:

-       Active membership remained stable, however the deferred member numbers were up 10%. Therefore, the cash management and investment strategy needed to be considered going forward to find an alternative to fill the gap deficit.

-       The Fund’s funding level, as a whole had risen to 97% from the 88% level in 2016.

-       Good results were broadly due to the excellent investment returns over the period, increasing by 88m more than expected.

-       The Fund’s deficit had decreased from £114m to £35m

-       Each employers funding position and liabilities were calculated separately to set individual employer contribution rates.

-       The cost control management mechanism in public service pensions would normally be underway at this time, the Government Actuaries Department (GAD) had suspended the process, pending the outcome of the McCloud Supreme Court case.

-       It was noted that longevity rates had shown a slight decline in improvement since 2011.  Therefore, a small adjustment was made to the valuation of liabilities, reducing the total by approximately £54m.

-       The primary rate had increased as the cost of asset purchase was more expensive in comparison with three years ago.

-       The discount rate has been reduced in order to reflect a more prudent approach to future investment outcomes, following three years of significant investment returns.

-       There has also been a decrease in the secondary rate as a result of a better funding level.

-       Overall aiming for stability of the total level of contributions.

Councillor PJ Murphy asked what factors were considered when life expectancy was determined. In response Barry McKay explained that many different factors were considered when life expectancy was analysed, including every member in the fund. This meant that every employer had their own analysis carried out and the mortality rate was determined on the basis of each individual’s role, postcode and various other factors.

Council PJ Murphy asked whether the Council’s funding level had been frozen for the next three years. In response Barry McKay explained that it’s frozen from the point when the contributions were set. The overall funding level was currently 97% and would always be a moving target. The Council would ideally need to stay between 95-105% as this would keep the contributions within the investment strategy relatively stable. Additionally, other factors such as inflation can also affect the funding level.

Councillor PJ Murphy queried whether the Council was able to adjust its funding level if it chose to increase its contributions within the three-year period. Barry McKay explained that the regulations allowed the Council to pay more in and adjust the contribution rate. However, it was important to be prudent on certain factors. As this was an open-ended scheme the ideal situation, whilst looking for a long-term return in the market, was to ride out the volatility and keep contributions as stable as possible over the long term.

The Chair asked at what point should the Government Actuaries Department (GAD) be concerned in relation to funding levels for local authorities. Hitesh Jolapara, Strategic Director of Finance & Governance explained that

the GAD report on the 2016 LGPS triennial actuarial valuation outcome was somewhat critical of the LGPS and not reflective of the majority of Funds being in a strong position. Some of the tests were regarded by LGPS actuaries as being not fit for purpose. Upon receiving notable challenges from various actuarial firms, GAD revised their report reflecting the improved funding positions across the board. The Council received green flags across the board on the GAD’s various tests.  The initial results of 2019 triennial actuarial valuation demonstrated that the fund’s funding level as a whole had risen to 97% from 88% level in 2016, therefore this showed a greatly improved funding level and was now almost fully funded.

Michael Adam, Co-Opted Member asked what the average funding level across the LGPS was. In response Barry McKay noted that the average funding level should be approximately 100%, however a more complete analyse would be available by the end of March 2020.

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The Chair thanked Barry McKay for the presentation and for his contributions

made to the meeting.

RESOLVED:

THAT, the Pensions Fund Sub-committee noted the and commented on the initial actuarial results.