Agenda item

Report of the Executive Director Corporate Services

This report presents the performance of the Pension Fund investment This report presents the initial whole fund results of the triennial valuation from the Pension Fund’s actuary (Hymans Robertson).

This report has an appendix, which contains information exempt within the meaning of Schedule 12A to the Local Government Act 1972 and is not for publication. The appendix has, therefore, been circulated to Committee Members only.

If the Committee wishes to discuss the contents of a closed exempt appendix it may pass the proposed resolution identified at the end of the agenda to exclude members of the public and the press from the proceedings for that discussion.

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

The Chair highlighted to members that there was a part II not for publication exempt appendix B to the report which contained commercially sensitive information and Hymans intellectual property. Hymans were happy to respond to questions in the public part of the meeting but did not want to share how the calculations were arrived at publicly.

The Head of Treasury Management and Barry Dodds, from Hyman Robertson, the Pension Fund’s actuary presented and summarised the main points in the Actuary’s report which was attached at Appendix A.

It was noted that:

·       Every three years the Fund’s assets and liabilities must be valued by a qualified actuary as set out in the regulations which govern the Local Government Pension Scheme (LGPS). The last valuation was undertaken in 2019 by Hymans.

·       The primary purpose of the valuation was to determine whether the Pension Fund had sufficient assets to meet its long-term pension liabilities.

·       The report built on the discussion at the July Committee setting out work reviewing the appropriateness of the discount rate used (4.4%), salary increases (3.2%) the CPI inflation (2.7%) and life expectancy. These assumptions build on thinking from previous valuations and gave consistency whilst being prudent and realistic.

·       The Pensions Shared service was responsible for preparing and submitting good quality data and the actuary for testing the veracity of this data and confirming the data was of a good standard and fit for the purposes of the valuation.

·       The first results that come out of the valuation were the initial results for the whole fund. This included looking at the assets at one point in time (31^st March 2022) and comparing this to the amount of money required to be paid out over the coming decades considering all the assumptions highlighted above and the investment return assumption. (Highlighted on page 75 of the agenda).

·       The Fund had used 4.4% as the discount rate which had a 70% chance of being achieved.

·       The funding level had increased from 103% to 113%. Over this triennial valuation period the Fund’s investment return had been 31% rather than the forecast return of 14.2%.

·       Liabilities had increased since the last triennial valuation by £128m to £1.741bn. However, the assets had also increased by £316m to £1.973bn, which meant that the surplus had increased from £43m in 2019 to £233m as of 31 March 2022. The increase in surplus had been largely driven by strong investment performance since 31 March 2019.This indicated that the Fund was in a significantly better position than in 2019.

·       The impact of changes in future expectations on the funding position was that investment returns would be slightly lower. This would increase liabilities and result in a higher pay out of benefits. Some of the impacts included higher inflation in the short term and a longer life expectancy.

·       The individual employer funding levels were highlighted in the graph on page 79 of the agenda. The actuary was required to certify the appropriate contribution rates each employer in the Fund must make over the next three years and this involved setting rates for all employers in the Fund (not just the Council) whose employees participated in the Fund whether these were community admission bodies (typically charities) or transferee admission bodies (typically contractors whose employees were entitled to public sector pensions) using the Local Government Pension Scheme (LGPS) regulations to determine benefits.

·       Once a set of final contribution rates had been agreed for all employers Hymans would issue a final valuation report with the official rates and adjustments certificate detailing individual employers’ contributions. This was to be issued by 31 March 2023.

In response to Committee members questions the Pension Funds Actuary Officer made the following comments

·       With regards to inflation assumptions, the £107m accounted for expected high inflation over the next 2 to 3 years, not just a few months. There was an expectation that inflation would go back down to 2% over the next 5 to 20- year period.

·       In relation to the McCloud remedy (relating to legal action taken by the Judiciary and Firefighters against age discrimination within their pension schemes), this had yet to be implemented by the Pension Funds, however an approximate allowance had been made for what the expected impact would be at individual member level within the fund. £2m was the estimate, it was not expected to have a massive impact on the fund overall although if it related to a small employer with a handful of members it could make a big difference to that employer.

·       With regards to the assumptions around longevity and other demographics the Pensions Actuary partnered with Club Vita who focussed on each individual fund and looked at specific data. Part of the impact on the fund would be analysis of the data in terms of life expectancy changes and expected future improvements. Part of the improvements would be covid related and on average the remaining members being in better health over a longer period.

The Chair commented that the figures were pleasing but noted however that given the performance over the last 6 months, the situation required continued monitoring.

RESOLVED –

THAT the report be adopted for the purposes of the 2022 triennial valuation.