Agenda item

This report sets out a revised structure to the FSS and a few technical or regulatory updates required since the May 2021 review. The main updates for the Committee’s attention are in relation to the funding assumptions, climate risk and the ‘McCloud’ judgement.

The Acting Head of Pensions and Treasury introduced the item and presented his report on the Triennial Valuation, stating that the purpose of the paper was to present the Funding Strategy Statement to the Committee and as part of the valuation process, this was to be reviewed every three years.  This was last reviewed in May 2021 following changes in legislation.

The format of the Funding Strategy Statement had changed, and the relevant policies were now attached to the statement.

The Acting Head of Pensions and Treasury informed the Committee that he wanted them to approve the draft Funding Strategy Statement before it was issued for consultation with employers. He also wanted the Committee to note the progress of the 2022 valuation and to note the initial whole fund results which were effective 31 March 2022.

The Acting Head of Pensions and Treasury invited the Fund’s Actuary from Hymans Robertson, Robert McInroy to address the Committee. Robert McInroy stated that the main changes to the funding strategy had been structural, to ensure that the strategy was more accessible, practical and user friendly. Robert McInroy informed the Committee that the funding assumptions had been updated to allow for emerging experience in market conditions as at the 31 March 2022. The second main change was the statutory requirement to document the allowance for climate risk in any funding plans. The final change was in respect of the treatment of the McCloud ruling.

Robert McInroy stated that the next step would be to go out and consult with the employers on the funding strategy statements, and then relay their comments to the committee in March for their approval of the Funding Strategy Statement.

In response to questions from members, officers informed the Committee:

·       That there was huge uncertainty which is why they undertook stress testing. This stress testing assessed various scenarios such as green initiatives which would see them make a move to more ‘green’ assets, this would present some disruption in the short-term and long term the physical risks such as flooding, fire would have less of an impact. Another scenario that was tested assessed the event that there was not much policy change, this would lead to less disruption in the short-medium term but in the longer term there may be more physical risks. 

·       That in terms of the increase in liabilities, the biggest factor was the fact that Members had accrued more benefits in the past three years. Rises in inflation had also led to the increase in liabilities, also as people are expected to live longer than they did in 2019 this has also increased the liabilities. In regard to the market volatility, his recommendation was to stick with the assumptions on market conditions made on the 31 March 2022.

·       That the funding plans were devised with a long-term view, yet he was mindful of the events in the market and if there was a long-term shift in the economic environment then they would look to act. If Members wanted more information on exchange rates, then they should speak to their investment consultant. In their discussions with employers, they were taking contribution rates into consideration, particularly with short term employers as they were more likely to be impacted by short term market movements.

·       That the assumptions in the report which formed part of the valuation stacked up and the modelling and scenario analysis highlighted the fact that they stand within the tolerance levels that were required.

·       That the average rate of return was a nominal expected return per annum. The agenda packs contained the balance sheet funding position at the 31 March 2022 and showed that on inflation there was a central assumption that was used to represent the balance sheet, to have a single set of assumptions a number needed to be decided upon which would contain a higher short-term inflation. Within the employer contribution plans, they were allowing for many different types of inflation over the short and long term, this is tested to capture the uncertainty in inflation. They had also tested the 10% drop in assets in order help inform the decision that was taken.  

RESOLVED:

·       The Committee approved the draft FSS (Appendix A) and ‘satellite’ policy documents on contribution reviews (Appendix B), academy funding (Appendix C), bulk transfers (Appendix D), cessations (Appendix E) and prepayments (Appendix F) to be issued to all participating employers for comment alongside their 2022 valuation results.

·       The Committee noted the progress made towards the 2022 valuation.

·       The Committee noted the initial whole Fund results effective 31 March 2022.