Agenda item

Report of the City Treasurer.

5.1       Peter Carpenter (Interim Tri-Borough Director of Treasury and Pensions) introduced the item and advised that the final valuation report, the Funding Strategy Statement and the Investment Strategy Statement would be presented to the Pension Fund Committee at the 21 March 2017 meeting.

5.2       Graeme Muir (Barnett Waddingham) from the Fund’s Actuary then gave a presentation updating Members on the 2016 triennial valuation. He began by explaining the purpose of valuations and advised that the 2016 triennial valuation would be subject to Local Government Pension Scheme (LGPS) Regulations, which included the need to certify levels of employer contributions to secure the solvency of the Fund and the long term cost efficiency of the Scheme. The valuation should also have regard to the Funding Strategy Statement and it was recognised that different approaches were possible for different employer types. In respect of the Funding Strategy Statement, the Chartered Institute of Public Finance and Accountancy (CIPFA) had recently issued revised guidance reminding administering authorities that securing solvency and long term cost efficiency was a regulatory requirement whereas a constant as possible (primary) contribution rate remains only a desirable outcome. Graeme Muir stated the valuation would be subject to revised legislation, including “Section 13”, where an independent review carried out by the Government’s Actuary Department of the valuation and employer rates would be undertaken to check that they are appropriate and to require remedial action where the review identifies a problem.

5.3       Graeme Muir informed Members that the valuation was based on a number of assumptions, and the model used by the Actuary used assumptions assessed over a six months period spanning the valuation date, a technique known as ‘smoothing’, to give stability. Neutral assumptions that were neither deliberately optimistic nor pessimistic were used and where there was uncertainty, prudence would be introduced. Members noted the assumptions used in respect of inflation levels, salary increases, the discount rates including for gilts, bonds and equities. With regard to demographic assumptions, Graeme Muir advised that there had been a review of Fund mortality over the period of 2011 – 2015 and life expectancy after retirement, particularly for males, was anticipated to increase.

5.4       Graeme Muir advised that the 2016 valuation had identified that the overall funding level of the Fund was 80% and the deficit recovery period was 18 years as of March 2016, compared to 74% and 25 years respectively for the 2013 valuation. In order to achieve deficit reduction, pension contributions would increase and there would also be additional cash injections of £10m per annum for 2017, 2018 and 2019 respectively. In terms of standardised funding levels, Graeme Muir advised that the Fund was fairly average compared to other funds according to an assessment undertaken by the Scheme Advisory Board.

5.5       During Members’ discussions, it was remarked that it would be desirable to be provided with presentations prior to meetings and this was noted by officers. Members stated that it would be helpful to receive information on other bodies that were part of the Fund, including details of their contributions, and it was noted that other bodies expected some of the Members to report back to them on the Fund. In response to a document providing details of contributions from participating organisations circulated by Peter Carpenter at the meeting, it was acknowledged that statutory bodies within the Fund had statutory duties, whilst it was queried why some admitted bodies were considered as high risk, especially as the Government would provide financial protection if academies got into difficulties. It was also asked if academies were still valued over a 7 year period. Members asked whether mortality rates varied between the public and private sectors and would increasing the retirement age have a significant impact on the Fund. It was also asked why the Homes and Communities Agency’s element of the Fund was considerably higher funded than the Council’s. In respect of prudence and sound investments, Members asked how the Council performed compared to other councils.

5.6       Members expressed an interest in receiving training specifically on the triennial valuation in future. A Member emphasised the importance of highlighting the positive aspects of the Fund and in communicating the outcomes of valuation to scheme members.  It was noted that the scheme members were guaranteed a pension, however it was important to manage the scheme effectively in order to ensure the same levels, otherwise this may impact on employees or services.

5.7       In reply to the issues raised by Members, Graeme Muir advised that academies were now classified as scheduled bodies and so their valuation period would be longer than 7 years. It was noted that life expectancy amongst public sector workers was generally higher than private sector workers and those with pensions in addition to state pensions tended to live longer. In respect of retirement age, Graeme Muir advised that those retiring later tended to die sooner. Increases in life expectancy had also slowed down more recently with a smaller increase in age anticipated. He stated that the Homes and Communities Agency’s funding levels of its fund were much higher than others because it held very large assets. Members noted that the Council achieved around a 7% return from its investments which was fairly average compared to other funds. Graeme Muir advised that Barnett Waddingham could provide training on the triennial valuation to Members. 

5.8       Peter Carpenter advised that the longer the repayment period for paying off the Fund’s deficit was, the more that would ultimately be paid off because of higher interest rates, which was why steps to reduce the repayment period were being taken.

5.9       RESOLVED:

            That the briefing on the triennial valuation results be noted.