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Update on the Triennial Actuarial Valuation (Part B)

Minutes:

Councillor Ward left the meeting for another meeting at 11:15am.

 

The Head of Pensions and Treasury described how a meeting had been held with the other scheme employers with only eight attending. They had received a similar presentation from the Scheme Actuary and had the opportunity of an individual meeting to discuss specifics. The lack of engagement from academy trusts was noted. Rather it was those with a smaller number of employees that attended (because they were more likely to be subject to variations). The employer meeting was described as being positive and had gone well which was ascribed to a decline in the contribution rates and demonstrated some peace of mind. It was noted that the Council was the largest employer accounting for 85% of the Fund. All employers were being consulted on the Funding Strategy Statement with the outcome of this exercise to be shared with the Committee at its meeting on 17 March 2020 for its approval.

 

The Scheme Actuary recommended a cautious approach to setting the new rate of contributions; that it was better to nudge these in the right direction and not to overreact to short term events. It was therefore being recommended to keep the contribution level the same for one year with reductions over the subsequent two years. This was described as a risk adverse strategy which would achieve the objective of protecting the Fund.

 

In response to a Member question, the Head of Pensions and Treasury reported that how the Property Asset Transfer was to be accounted for was still under discussion. However, it was also stressed that given the size of the Fund (£1.4 billion) the Property Asset Transfer was not of key consideration to performance. It was explained that the recognition of Property Asset Transfer would be a statement of facts in the accounts based on the guidance that existed and would not be subject to decision by the Committee.

 

The Scheme Actuary confirmed that the Fund could still achieve its target without the 2.5% return being assumed from the Property Asset Transfer because of the size of the Fund.

 

Equally, it was explained that a drop in contributions would not have a material impact on the fund. Members discussed and sought clarification on the split between the contributions made to the Fund by the Council and employees.

 

The Independent Chair of the Pension Board left the meeting at 11:48am.

 

There was further discussion on the merits of maintaining contributions at the current level, decreasing them and when a decrease might be implemented.

 

The Scheme Actuary reminded Members of the need to set the contribution level and that this would be reconsidered in three years after the next valuation. Therefore, this decision in terms of pension funding was seen as short term and incremental movement in the right direction. It was noted by the Chair that a reduction in contributions would be to the benefit of Council Tax payers. It was noted that employee contributions were set statutorily.

 

There was discussion of whether this approach to contributions could be described as being in line with the approach being taken by other local authority funds and especially those that were being seen to do well (with 100% funding). However, it was noted that information on other funds was not available on which to make a judgement. A Member questioned if a reduction in contributions was the right approach as the Fund was not 100% funded. The Scheme Actuary provided reassurance stating that the size of the Fund was sufficient to sustain a small reduction. The Head of Pensions and Treasury cautioned against making the automatic assumption that the target should be 100% funded when in effect the Fund was always planning for 80 years in the future. It was noted that in 2018/19 the Council’s contribution was £29.6 million with £12.7 million paid by employees.

 

Members noted their desire for prudence and that it was reasonable to make a reduction in contribution rates against the backdrop of the financial pressures on the Council.

 

The Head of Pensions and Treasury confirmed that the Committee would be asked to agree the Investment Strategy at its next meeting.

 

RESOLVED: The Committee AGREED to note the report and AGREED the following recommendations:

      i.        Noted the progress towards concluding the triennial actuarial valuation and the whole fund results; and

    ii.        Approved the draft Funding Strategy Statement.