Agenda item

This paper introduces the initial results of the 2022 triennial actuarial valuation process for the London Borough of Hammersmith and Fulham Pension Fund, which are further discussed in Appendix 1.

Phil Triggs (Director of Treasury and Pensions) introduced the report which outlined the initial results of the 2022 triennial actuarial valuation process for the London Borough of Hammersmith and Fulham (LBHF) Pension Fund.  He said that in the period from 31 March 2019 to 31 March 2022, the Pension Fund had increased its overall funding level from 97% to 105%, the main drivers of which were the significant investment returns over a very well diversified portfolio. 

With reference to the initial results of the LBHF Pension Fund actuarial valuation at 31 March 2022 (Appendix 1, page 164), Steven Scott (Fund Actuary, Hymans Robertson LLP) highlighted the following: 

·       Major changes to the financial and demographic assumptions which included a slight reduction in the discount rate and an increase in pensioners’ longevity; 

·       Changes since the last valuation, in particular the actual vs expected investment returns of 30.4% vs 15.8%, and future expectations of increases in inflation (2.7% having had regard to the one year CPI spike) and in salary increase (3.7%); 

In reply to Councillor Adam Peter Lang’s concern about the rate of inflation, Steven Scott noted that the 10% CPI inflation level as of September 2022 and the expected 5% in the next year would be reflected in the next triennial valuation at 31 March 2025.  

Responding to Councillor Laura Janes’ question on the frequency of reviewing the valuation and its assumptions during a cycle, Steven Scott advised that it never happened in the past during the 3-year cycle, given it was a long-term pension scheme involving paid benefits for the next 100 years or so.  That said, he noted that some private sector schemes or some funds in the US might carry out a valuation more frequently partly due to challenge from the unions or to address fund members’ concern over the value of the liabilities. He agreed with Councillor Janes’ view that it was costly and time-consuming to do an interim valuation within the 3-year period. 

Councillor Florian Chevoppe-Verdier expressed concern about the state pension age as more people were choosing to work after the retirement age. Steven Scott noted previously there was an expectation that the state pension age would increase in line with the rising life expectancy whereby the benefits would be adjusted under the cost cap mechanism. However, there was less of an appetite for increase in state pension age over the last three years.  

Councillor Lang relayed scheme members’ concern about the decreasing asset values of the Fund over the past six weeks. In response, Steven Scott noted that the LBHF Pension Fund was a defined benefit (DB) scheme under which members were statutorily entitled to benefits linked to their salary earned over the entire period of services. He said that the letter issued to scheme members was to inform them about the fluctuations in the fund’s asset value which should have no impact on members’ entitled benefits.  

Kevin Humpherson (Deloitte) noted that the LBHF Pension Fund did not hold any leveraged government bonds. Marian George (Independent Advisor) observed that according to Deloitte’s Investment Performance Report, its values of asset in last September was more or less the same as that in June 2022.  

RESOLVED 

The Committee noted the initial 2022 Triennial Valuation.