Agenda item

Report of the Chamberlain.

The Committee considered a report of the Chamberlain which provided the preliminary results of the triennial actuarial valuation of the Local Government Pension Fund as at 31 March 2016, which had been undertaken by the Fund’s Actuary, Barnett Waddingham. The report informed the Committee that the Pension Fund deficit had increased from £128m as at March 2013 to £150m as at March 2016 and recommended an increase in the employers’ contribution rate to the Fund, from 17.5% to 21%.

The Chamberlain and a Member, who had worked with the Chamberlain throughout the actuarial valuation, explained that the main reason for the increased deficit was a change in the financial assumptions which had been used. The Member explained that the deficit would be in the region of £90m if the financial assumptions used in the previous triennial valuation had been used for this valuation. However, the Government Actuarial Department (GAD) had required that Pension Funds used more prudent assumptions, based on GAD’s expectation for returns on pooled investment vehicles. This assumption had the impact of creating roughly £60m in additional liabilities for the Pension Fund.

A Member commented that the Corporation’s Pension Fund held almost all of its assets in equities, with no exposure to property, which was unusual for a Pensions Fund. He queried whether this had caused the actuarial assumptions to affect the Corporation’s Pension Fund more heavily than other organisations’ Pensions Funds. The Chamberlain confirmed that this was the case.

The Member commented that the Committee could suggest to the Financial Investment Board that it should to invest some of the Pension Fund assets into property to reduce the risk of a similar issue arising in future. The Chamberlain explained that investing some portion of the Pension Fund in property was an issue which Financial Investment Board was currently considering. The Chamberlain explained that the Financial Investment Board was seeking to invest a proportion of the Pensions Fund in a property fund, rather than in specific properties, to ensure appropriate diversity of risk. However, it had not been possible to allow the Pensions Fund to invest in the Corporation’s investment properties, due to conflicts of interest.

A Member asked whether it would be possible or advisable to make a lump sum contribution to the Pension Fund to reduce the contribution rate. The Chamberlain explained that this would be possible but, if such a contribution was made at this point, it would be after the valuation event and, therefore, GAD would not consider the contribution to have any impact on the deficit or funding level for the Pension Fund. If such a contribution was made, without an adjustment to the employer contribution rate, it would have no impact on the rating of the Pension Fund. A Member commented that, if such a contribution was being considered, to have any effect on the deficit or funding level of the Fund, it would need to be made before the next valuation event (31 March 2019).

A Member asked that the Committee be provided with the cost of receiving the actuarial report which accompanied the report of the Chamberlain. The Chamberlain explained that this information could be provided to the Committee following the meeting.

RESOLVED – That the Committee agrees that:

a)    The Pension Fund deficit recovery period is set at 17 years from 2017/18 and:

b)    The employers’ overall contribution rate be increased from 17.5% to 21% for the financial years 2017/18, 2018/19 and 2019/20.