Agenda item

A number of changes to the regulations were made in September 2020 following the Governments partial response to a consultation which commenced in 2018.  The Fund responded to this consultation at the time.  For the Fund to implement these changes it must have a policy set out in its Funding Strategy Statement (FSS).

The Group Manager for Funding, Investment & Risk introduced this report to the Committee. She informed them that a number of changes to the regulations were made in September 2020 following the Governments partial response to a consultation which commenced in 2018. The Fund responded to this consultation at the time.

She stated that for the Fund to implement these changes it must have a policy set out in its Funding Strategy Statement (FSS).

She explained that although the supporting statutory guidance and the further guide from the Scheme Advisory Board (SAB) is yet to be published, the Actuary has drafted the policies for the Committee to approve the key principles embedded in each policy.

She added that any amendments required once the statutory guidance and guide is published in 1Q21 will be agreed by Officers in consultation with the Actuary. She said that if there are any substantive changes in the principles, the policy will be brought back to Committee for further consideration.

She said that there will be a short consultation with employers once the draft policies have been finalised.

Pauline Gordon asked how long the payment periods were planned to be, do they fit the recovery plan or are they shorter.

Paul Middleman, Mercer replied that it depends on what is being considered. He added that if exit payments were to be spread, it shouldn’t over longer than a five-year period, subject to consultation. He said that in terms of a deferred debt agreement this is a specific individual agreement which will depend on circumstances. He added if there was an employer they had concerns about we would want a short period to close down the debt and if no concerns were identified it could be over a longer period and could become a rolling period. He stated that all risks would be assessed and that sensible decisions will be taken on behalf of the Fund.

Richard Orton commented that any arrangements made with employers should not weaken the fund.

Paul Middleman replied that the default position will remain that employers will have to pay their debt. He added that robust arrangements will be in place to provide assurance and to monitor to make sure that changes are factored in.

Councillor Paul May asked whether a risk assessment should be attached to the report.

Paul Middleman replied that the policy itself is structured to deal with risk. He added that feedback was expected from employers during the consultation but that he did not envisage a great deal of changes to the policy.

Shirley Marsh-Hughes asked what the parameters would be on contribution changes and would there be assumptions made on the last valuation.

Paul Middleman replied that it would effectively be consistent with the assumptions on the last valuation made. He added that there will be two ways in which we will look at changes in contributions. Firstly, if an employer’s structure changes, their liabilities change and this would be considered a macro level and follow due process and not look at assumptions. Secondly, if the issue related to covenant there would be limiters in place and the rate wouldn’t be changed if liabilities had changed by less than 5% and this would then be looked at the next valuation.

The Head of Business Finance & Pensions commented to assure the Committee that the Fund would get a bit more flexibility if the policies are approved, but stated that the Fund can’t enter into debt arrangements without the agreement of the Section 151 officer. He added that a thorough risk review would take place before any such decisions are made.

William Liew asked if many employers were knocking at the door currently to exit the Fund.

The Group Manager for Funding, Investment & Risk replied that none were knocking at the door, but that she was aware of a small number of employers with low employee numbers who were looking at their options.

William Liew asked if employers would incur charges for exiting the Fund.

The Group Manager for Funding, Investment & Risk replied that it states within the policy that they will incur a charge.

The Committee RESOLVED to;

i) Approves:

a) The draft policy for Deferred Debt Agreements subject to the publication of statutory guidance and SAB guide

b) The draft policy for Flexibility in Contribution Rates subject to the publication of statutory guidance and SAB guide

ii) Delegates amending the draft policies following publication of the guidance, as necessary, to Officers having taken advice from the Scheme Actuary.