Report of Director of Finance
Members received the report which set out the results of the review of the Pension register for the committee’s consideration and comments.
The following were highlighted:
• A new risk arising from the fund becoming cash negative from April as a result of the combined impacts of the reduction in employer contribution rates and the expected rise in pensions payable due to inflation.
• The emergence of other red risks as a result of the state of the economy and the impact of these risks on asset valuation.
• These risks had to be tolerated but processes had been put in place to mitigate the worst impacts and these processes would be under regular review.
Members commented as follows:
A Member questioned how the Council could outweigh the deficiencies listed in paragraph six of the report on page 30 of the agenda.
An officer explained that this could be done by understanding how to raise cash within the council’s investment strategy. Majority of the investments were highly liquid and had daily or weekly dealing arrangements. This made it easy to access cash from the investment if needed. Firstly, cash could be managed through the strategy by rebalancing as was done recently.
Secondly, within the London CIV there are options around the shared classes, currently the Council was in accumulating share classes, so dividends and interests were reinvested. This could be switched to redistributing share class though with this method, the returns would no longer be compounded.
Thirdly, the Council could overtime have investments designed to produce regular income. The renewable infrastructure should do this.
A Member asked if officers had any idea of the quantum of the deficit.
An officer explained that he could do a quick calculation, but Hyman Robertson had been asked to perform a forward looking scientific cashflow projection leading into the medium term to feed into the review of the investment strategy commenced in the first quarter of the year and the aim was to work with colleagues to develop an appropriate strategy to mitigate the risk.
An independent adviser commented that the pooling information on Risk 9 as stated, in Appendix 2, page 39 of the agenda, should be updated to reflect recent changes such as:
• the committee no longer meets the managers once a year
• the officers no longer meet the managers twice a year,
• the London CIV now monitors the managers, and
• the committee now monitors the London CIV.
The adviser suggested that he would forward the relevant information to the officer and clerk after the meeting.
An independent adviser suggested that if agreed by Members, he felt it would be beneficial for officers to seek the minimum distribution units needed regarding Risk 13 as stated in Appendix 2 on page 40 of the agenda and continue to provide the engine growth by accumulation units.
An officer responded that to his understanding the Council could opt for either distributing or non-distributing units. The best way of applying what the adviser had suggested was to make specific cash drawdowns as needed and not go into distribution. The Chair, Councillor David Ashton cautioned about making the risk register too prescriptive.
An independent adviser questioned about the likely impact of McCloud.
An officer explained that impact of Macleod had been assessed and factored into the triennial valuation for the 2022 and hence into the contribution strategy. So, the Council was already aligned for the impact. The specific impact on the LBH fund meant that inevitably some people may get additional pensions.
An independent adviser asked what action would be prudent for the Council pending such a judgement.
The representative from Hyman Robertson explained that, funds, about two percent of the liabilities had been set aside to cover the risk. It was a tiny impact and an administration nightmare.
RESOLVED: That the updated risk register be noted.