Agenda item

The Funding & Valuation Manager introduced the report to the Committee and highlighted the following areas.

·  The Local Government Pension Scheme (LGPS) Regulations require LGPS funds to have an actuarial valuation every three years. The 2025 valuation has a base date of 31 March 2025 with new employer contribution requirements becoming effective from 1 April 2026.

·  The report examines the final outcome of the valuation process for the whole fund and highlights the principal changes which have occurred since the 2022 valuation.

Jackie Peel referred to section 5.5 and asked for further information with regard to the Fund deficit and changes in demographic assumptions.

Paul Middleman, Mercer replied that in considering this he had looked at how the structure of the Fund’s assets and liabilities move together and by comparing these figures to the 2022 expectations at that discount rate, investment was coincidentally -£869m, and the change in the discount rate which is a combination of forward-looking inflation as well as return expectations.

He added that it was key to recognise that the valuation was not solely about a change in assumptions, it was also about providing sustainability of contributions. He said that there was also potential for dynamics to change quickly due to the ongoing conflict in Iran.

Councillor Fi Hance noted that the Funding Strategy Statement (FSS) listed a number of risks and their corresponding mitigations and a section related to climate change that states that the Actuary has found that the level of prudence in this regard is currently sufficient.

She asked what measures are taken into consideration for factors that are deemed unpredictable.

Paul Middleman replied that the wording in the FSS is a summary of detailed work that has been carried out over the past 40 years and explained that different temperature scenarios have been modelled as part of the process. He said that this could not be given as a 100% guarantee and that due allowance has been made following the studies that have been undertaken.

Councillor Hance asked if more detailed information could be shared with the Committee.

Councillor Joanna Wright asked for clarification of what levels are being measured and whether this included modelling of 1.5°C of global warming.

Paul Middleman replied that a range of temperatures have been considered and how those will affect the assets held. He added that Mercer does not have the inhouse expertise and therefore uses information supplied by Ortec. He said that he felt that further information could be shared with the Committee on a confidential basis.

Edmund Cannon asked if the Actuary could be more explicit as to whether shocks to assets are correlated or separate.

Paul Middleman replied that this depends on the risk being looked at and that some specifics will be independent. He added that climate is considered an asset and liability risk.

Shona Jemphrey commented that she was concerned that the Committee did not have enough information in the report to make a decision.

The Chair replied that the role of the Committee today was to note the report of the professional advisers. He explained that the 2025 Actuarial Valuation report must be signed off before 31 March 2026. He added that the Committee could receive a future briefing on Responsible Investing, Asset Holdings and Climate Assumptions.

The Chair asked if the views expressed by the Fund’s Actuary were broadly in line with those of other funds.

Paul Middleman replied that he does not have sight of other valuations until they are published, but said that he expected them to be broadly similar on the impact of contributions.

The Committee RESOLVED to:

i) Note the outcome of the 2025 actuarial valuation exercise.

ii) Delegate the finalisation of the Funding Strategy Statement to Officers.