Agenda item

This item presents the Triennial Valuation Results for information and the Funding Strategy Statement for approval.

NOTE: The triennial valuation papers were added to the supplementary agenda on 27/02/2023

The final versions of the triennial valuation report and funding strategy statement were uploaded for reference on 28/04/2023

Sian Cogley (Pension Fund Manager) introduced the report presenting the draft Funding Strategy Statement (FSS) produced by the Fund’s actuary (Hymans Robertson), following the 2022 triennial Actuarial Valuation.

The purpose of the FSS was to establish a clear and transparent fund-specific strategy that would identify how employers’ pension liabilities were best met going forward and take a prudent, longer-term view of funding those liabilities.

The FSS incorporated the funding approach of the admitted and scheduled bodies, including admissions, new academies, bulk transfers and cessations. The strategy also took into consideration the impact which the McCloud case judgement might have on the pension liabilities. All of the Fund’s employers had now received their schedules of future contribution rates with only two queries received from two employers, which had been addressed and resolved.

Steven Scott, FFA (Fund Actuary, Hymans Robertson LLP) stated that the improvement in the funding position was driven by strong investment returns over the past three years. He reported that the Fund was in a very healthy position.

Michael Adam (Co-opted member) asked that, based on the updated funding level at the end of the year and the potential decrease in the inflation level, what were the predictions for the new financial year and the rates the Council would need to pay into the Pensions Fund. He added that if a reduction on the contribution rates was not possible at this time, this Committee should have a discussion about it in the near future.

Steven Scott replied that it was expected that the inflation level would fall. The Pension Fund funding level had improved significantly since the Valuation, largely because higher investment returns were expected in the future than the level assumed at the date of the 2022 Valuation. However, at the same time, the value of the assets had fallen over that period and there were lots of uncertainties in the investment markets over the coming years. They would not recommend any changes to contribution rates due to short-term changes as they were funding for the long-term. In addition, they followed the guidance from an advisory board stating that contribution rates were not expected to be reduced as a result of relatively small improvements in funding levels. However, if there was a clear justification in the future, the contributions could be reduced.

Councillor Adam Peter Lang noted that higher inflation had led to higher primary contributions, leading to an expected additional cost to the Council of £3.6m per annum and, as a result, the primary employer contribution rate had risen to 20.6%. He asked how that would be monitored going forward and how that would affect employee contributions.

Steven Scott replied that employee contribution rates were set by legislation from the Central Government and were based on a salary level basis. He added that changes in the inflation rate and in the level of interest rates that reflected on future investment returns were monitored on a quarterly basis.

In answer to a question from Councillor Florian Chevoppe-Verdier, Sian Cogley replied that the FSS had been shared with employers for comments over a period of one week, due to tight deadlines. However, going forward they would share with employers for comments over a longer period, ideally over one month.

The Chair asked for a report addressing the lessons learned on the process for answering queries raised by employers on Actuarial Valuation.

ACTION: Phil Triggs

Councillor Florian Chevoppe-Verdier stressed the importance to adopt consultation best practices to ensure employers had time to understand and engage with the Valuation contents and ways to respond to their queries swiftly.

In response to a question from Peter Parkin (Unison Representative) regarding the same lessons learned reappearing triennially and the steps taken to resolve the issues with the Valuation, Steven Scott replied that all their work relied on the accurate and timely information provided by employers. As this was a very complex process, they had developed a portal to enable pension funds to give them their data, which included valuations, to capture most of the possible queries that could arise. This data was monitored in a continuous process of improvement. The reality was that the LGPS was becoming increasingly more complex driven by external factors such as number of employers and regulations.

Councillor Adam Peter Lang suggested that it would be useful, whenever possible, to have an executive summary clearly and succinctly explaining the main points made in the report to assist members understanding and to facilitate discussions at the Committee.

ACTION: All report authors

Steven Scott replied that the main point to make to scheme Members was that extreme market volatility did not affect the benefits, as they were guaranteed. The only impact it had was on the cost of those benefits and their funding over the long-term.

RESOLVED

The Committee noted the Triennial Valuation Results and agreed the draft Funding Strategy Statement and to delegate the final approval to the Director of Treasury and Pensions in consultation with the Chair.