Agenda item

Report of the Executive Director Corporate Services

This report to the Pension Committee presented the results of an exercise to estimate the Fund’s maturity (the balance between benefits paid and contributions received). When payments exceed receipts the Fund is considered to be mature. The Pension Committee noted the contents of the report.

Consideration was given to a report of the Executive Director Corporate Services.

The Interim Director of Finance summarised this report which presented the results of an exercise to estimate the Fund’s maturity (the balance between benefits paid and contributions received). It was explained that when payments exceed receipts the Fund was considered to be mature.

The Fund’s actuary, Hymans Robertson, periodically undertakes analysis of the receipts and payments in the Fund to identify maturity. The November 2016 report showed that the Fund was expected to be slightly cash flow negative in the earlier years with cash flow varying between outflows up to £12m in the period up to 2025. After this time the gap became increasingly larger between contributions and benefits paid and showed how the Fund was predicted to become mature and increase its maturity. After 2034 net cash outflow increased significantly (c£40-50m) as payments from deficit repayment contributions stopped after the 17.5 year recovery period.

The modelling this time took account of the 2019 valuation liability data and so gave the very latest information on cash flow and maturity. The Fund was not yet cash flow negative (or mature) and would remain broadly cash flow neutral until 2028. This was good news as it meant that the Fund did not have to redeem investments to fund benefit expenditure. After 2034 the results showed that the deficit contributions ceased and so the cash flow gap increased and was significant thereafter between contributions received and benefits paid.

With regard to a timeline when strategic decisions would need to be made to address this issue, it was noted that as part of the Investment Strategy review, the investment consultant looked at this and considered what proportion of the assets the Fund would need to keep liquid or not tie up in long term structures like private equity or property where cash was committed and could not be withdrawn. Cash could, however, be called back from passive investments and often be done quickly, for instance in a week.

It was noted that the Council’s staffing headcount had been declining for a long time, and Members asked if the longer term impacts on liabilities had been factored in. The Interim Director of Finance informed the Board that whilst employees in the Council had been reducing, they still made up 86% of the Fund. Furthermore, active membership had been increasing since March 2018 due to auto enrolment. In March 2016 it was just below 5000, in 2018 it was 5200 and now it had reached 5800. The Council was also considering insourcing some procurement services which could increase active members as well. With more members came more contributions and the average age would be lowered. From the maturity side it was good but it did mean more liabilities, but these would be moved further into the future due to the younger age of members. It was, therefore, important to monitor the situation.

Some Members expressed surprise that 9000 members had deferred their pensions, although they noted that the pensions they would be receiving were very low, averaging £2600 and assumed that they had only worked at Camden for a few years. It was recognised that people were reluctant to switch pensions from a local government pension scheme (LGPS) to a private sector scheme as there were more benefits in a LGPS. They were also likely to have to seek financial advice if switching to a non-final salary scheme which could incur a cost.

The Pension Board noted that the Pension Committee had noted the contents of the report.

RESOLVED –

THAT the contents of the report be noted.