Agenda item

Report of the Director of Finance.

The Committee received a presentation from Gemma Sefton, the Actuary, Hymans Robertson LLP, in relation to the progress on the triennial valuation to date and, in particular, on the initial results and the next steps.

Gemma Sefton referred to her presentation slides on ‘The London Borough of Harrow Pension Fund - 2016 Valuation - Initial Whole Fund Results’ and provided a 2016 Progress Report by recapping on the steps taken to date,  valuation results and the next steps.  She made the following key points:

·                     the Fund had taken more time to review due to various changes  but nevertheless was ahead of most of Hyman’s other LGPS clients;

·                     there had been an upturn in the job market which had helped the funding level through the split of active/deferred/pensioner members

·                     the funding level had risen and the deficit had fallen in cash terms. The deficit at the last valuation was £234m compared to £228m at the currentl valuation;

·                     risk factors needed to be appreciated and she drew attention to the presentation slide on page 9 ‘Why has the funding position changed?’. 

·                     the ‘Membership Experience’, presentation slide at page 10, showed that pay growth and pension increased over the last three years were lower than had been assumed in 2013 with the key driver being lower than expected inflation.  The number of ill-health retirements were fewer than expected, 31 instead of 95;

·                     the changes in mortality rates assumed had previously been discussed and covering the mortality assumption in a training session was recommended;

·                     the ‘Experience since 2013’ presentation slides showed that falling yields in government bonds had increased liabilities but that asset growth had been stronger than expected;

·                     the ‘Outlook for Financial Markets’ showed a heightened uncertainty and increased sterling volatility but many of such concerns pre-dated Brexit;

·                     further work on the employers’ contribution rates was underway and would be presented at the next meeting of the Committee with suggested changes to the existing strategy and contributions;

·                     there were lower expectations for growth and the uncertain outlook was not only due to the prospective Brexit negotiations and any further changes to the Bank of England’s policy.  The forecast was that investors would need to take more risks to generate the same returns.  In response to a suggestion that the assumptions might not be sufficiently conservative, Colin Robertson, Independent Adviser, was of the view that the assumptions being made could be considered too prudent and that higher returning asset classes would contribute to the Fund return and he presented a more positive outlook.  A Member was of the view that funding, liability and making necessary adjustments would be key to a positive outlook.  Gemma Sefton stated that the key was to understand the funding including its drivers;

·                     a full asset liability test needed to be carried out for employers and whether full funding was achievable by a range of contribution rates needed to be assessed.  Potential contribution strategies would be set out, including long term funding objectives.  All Councils would want to make stable contributions over a period of years to allow them to budget for future years.  Contributions were not considered to be the only lever, the movement in assets and liabilities would also have an impact on the Fund.  Gemma Sefton added that she would forward a range of possible outcomes to allow the Committee to make a judgement on the contributions.  The paper from HM Treasury circulated to Members previously provided some background;

·                     there was a discussion of discount rates used for determining contributions vis a vis the discount used in the valuation. Colin Robertson stressed the importance of considering the assets relative to the liabilities. These topics, together with others related to the valuation would be covered in the training session prior to the next Pension Fund Committee meeting.

During her presentation, Gemma Sefton responded to questions.  She summarised the remaining presentation slides.  The Director of Finance / Section 151 Officer informed Members that the Council contributed £5m a year towards the deficit reduction and any recommendations for additional contributions would require further discussions.

RESOLVED:  That the presentation be received and noted.