Agenda item

The Investment Manager presented the report. She drew attention to the comments from the Pension Board in Appendix 3.

The Fund’s Actuary, Paul Middleman, drew attention to the three objectives that the Funding Strategy Statement had to meet, as set out in paragraph 1.3 of the covering report:

a)  ensure that the benefits paid out in future will be reasonably met;

b)  that the amount paid in annually covers the cost of the pension benefit accrued;

c)  that current pension debt is not deferred for future generations to fund.

He also drew attention to the outstanding regulatory/legal matters that will need to be included in the FSS (paragraph 4.4), which if not resolved before 31 March 2020 would have to be managed within the FSS, and to his responses to comments received during the consultation (paragraph 5.3).

Responding to a question from a Member, Mr Middleman said that the FSS was not an appropriate document in which to discuss in detail climate change or responsible investment. The purpose of the FSS was to plan future funding with an appropriate level of prudence in the light of known risks. Climate change was one of the risks that might affect the level of returns, and expectations about future real returns were factored into the FSS.

A Member asked whether there was any advice from Government on what was reasonable for a deficit recovery period (DRP) for an employer. Mr Middleman said there was not. The DRP was one of the factors taken into account in developing the Funding Strategy, and so had to be seen as reasonable in that context. The funding plan has to ensure that the debt is not transferred to future taxpayers, but equally that not too much of a burden is put on current taxpayers. The Head of Business, Finance and Pensions said that the Pensions Regulator had recently issued a report on a number of funds and one of the concerns expressed was the lack of covenant assessments by some funds. Avon does a great deal of work on this, which facilitates the calculation of contributions and DRPs to maintain the balance between affordability and sustainability. He expected that the Pensions Regulator would issue guidance to encourage funds to do more in this area.

A Member asked about the potential impact of the McCloud decision on employers and on the administrative costs of the Fund. Mr Middleman said that a reasonable cost estimate would be calculated and each employer test the impact on them on the basis of that cost. There might then be scope for tapering contributions for individual employers. He agreed that there could be a significant impact on the administrative costs of the Fund, if there were complicated arrangements for backdated pension payments.

RESOLVED:

1. to note the feedback responses received, and the proposed amendments to the FSS;

2. to approve the FSS as set out in Appendix 1, subject to the insertion of information which can only be included when the actuarial valuation is complete;

3. to delegate the refinement and finalisation of the draft FSS to Fund Officers with the assistance of the Fund Actuary.