Issue - meetings

Report of the Director of Finance

The Committee received a confidential report of the Director of Finance and Assurance which provided a summary of the initial ‘whole fund’ results from the 2022 valuation and set out a proposed contribution strategy for the London Borough of Harrow for the period 1 April 2023 to 31 March 2026.

Members received a presentation from Hymans Robertson LLP on the actuarial valuation at 31 March 2022.  The presentation included:

·                 Data and assumptions – financial and demographic

·                 Headline results

·                 Funding strategy and stress testing

The Hymans representative stated that he had contacted the Section 151 officer with regard to the valuation.  The cost of living crisis could result in an increase in the numbers taking deferred pensions or moving to a 50-50 scheme.  The Covid pandemic had not affected the fund significantly, although it had resulted in some deaths which had occurred earlier than might otherwise have been expected.  The diversification of the fund’s investments provided resilience.

An Independent Adviser reported that ten year gilt yields which were at 1.6% on 31 March were now up by a factor of between two and three.  He suggested that the results of the valuation should be assessed using current financial market levels.  He thought it might also be helpful to consider the 6% return cited and the historical returns used in real (after deducting inflation) terms. In addition, some numerical assurance would be helpful regarding the TCFD consultation on the three climate risk scenarios.  The Hymans representative stated that sample cases could be prepared once all scheme member data had been received.  He further reported that rising interest rates would provide higher than expected returns.  Liabilities had shrunk faster than assets but not to the extent that there was a need to revisit the entire valuation.  The Independent Adviser agreed, adding that his suggestions were aimed at providing reassurance.

In response to questions, the Committee was informed:

·                 regarding the discount rates, the Committee was informed that new market data would be reviewed and monthly updates prepared;

·                 there were two types of updated valuation: using annual rebalancing and a formal valuation every three years;

·                 the Pension Fund Committee had previously agreed that the valuation should aim to deliver at least a 70% probability of being 100% funded in 20 years time. If this was achieved even when each of the various ‘stress’ tests were applied then the actuary would sign off the valuation report;

·                 most pension funds were looking at derisking and starting to purchase more liquid assets. Most were considering a small reduction in employer contributions;

·                 a funding update to 31 September would be produced.

The Chair stated that if agreement was given to proceed the situation could be reviewed if there was negative feedback.  He thanked the Hymans representative for the presentation.

RESOLVED:  That the report be noted and the contribution strategy be approved.