Joint Pensions Committee - Thursday 11 September 2025, 7:15pm - Wandsworth Council Webcasting

Joint Pensions Committee
Thursday, 11th September 2025 at 7:15pm 

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  1. Webcast Finished

Good evening.
Welcome to this meeting of the Wandsworth and Richmond Joint Pension Committee.
My name is Councillor Marshall.
Members of the committee, I'll now call your names.
Please switch on your microphones to confirm your attendance.
Councillor Caddy.
Good evening.
Councillor Craigy.
Good evening.
Councillor Crookeday has sent apologies, but we understand that Councillor Fries will be
substituting for her but she's let me know that she's stuck on a train so we'll be with her shortly
Councillor Dickardem has sent apologies. Councillor Gasser. Good evening.
Councillor Ireland has said to say that she's going to be a little bit late
and Councillor Pridham. Good evening. Does that leave Councillor Sarah?
Thank you.
Good evening.
We have a number of officers present who will introduce themselves when they address the
committee.
So, Python 1, the minutes.
Are there any objections to confirming the previous minutes of the 10th of June, 2025?

1 Minutes - 10 June 2025

Thank you very much.
Those are noted and approved.

2 Disclosable Pecuniary Interests

Disclosable pecuniary interests.
Are there any declarations of pecuniary, other registrable, non -registrable interests?
There are none.
Thank you.

3 Pension Fund External Audit Report 2024/25 (Paper No 25/296)

And so we start with the items of business.
Item 3, pension fund external audit report 2024 -2025.
I'm going to ask the Director of Finance, Paul Gelotti, to introduce this.
Okay, thank you, Chair.
It will be a very brief introduction because we've got Ben Lazarus from EY who no doubt
will talk you through the work that they've undertaken.
As you probably know and aware, the process is that the accounts in relation to the pension
fund will come here.
Coral Baxter and her team are the ones who help and produce all of that and everything
else.
But ultimately, these will be a subset of the main set of accounts that will end up
getting approved via audit committee.
But they come here in the first element because you're best placed to challenge, to scrutinise,
and to ask the more pertinent questions from our external ZY.
But I hope you will see from, if you've had a chance to properly review this and got into
the detail, that this is a positive outcome for the fund and based on the work that the
team have undertaken.
But I'm not probably the best place to answer the queries on these ones.
It will either be Coral or it will be Ben.
So I'm sure Ben will probably take you through the process to give you that reassurance that
the work my team has done is effective and efficient and what you see before them is
a true and accurate reflection of the position of the fund as is.
So I'll probably pass you over to Ben who will probably give you a much more detailed
introduction.
Paul, I hope you can all hear me okay. Sorry I can't be there in person.
Actually, I mean, I can go into as much detail as people want, but I think that there's a few core messages I'd want to get across.
First, thanks to the management team who, as ever, have facilitated a smooth and proper audit process.
So I think it's important to say that we were in a really good place from track.
we were where it expected to be at this point in time.
All procedures are complete as far as they can be at the moment.
So you might note in my report, there's a couple of areas where it said because of the point in time
we shared the report, you know, internal quality review pieces ongoing over the summer, et cetera.
But, you know, there's nothing that's coming out of those sort of caveats in the report that I need to bring to your attention this evening.
So I think that's positive. There are, as ever, you know,
usual procedures that will run up to the date of actually putting pen to paper on the accounts.
And because of the linkage through to the council's accounts and when that signs,
I have to keep those procedures up to date. So things like cut off work,
bringing going concern assessment up to date, et cetera, et cetera, just needs to be kept up
to date. But Coral and I will work through that in a sensible way. And I don't anticipate that
causing us any issues.
As ever, our work is kind of focused,
probably most on those what we call level three assets.
So there's assets that are hardest to value without
an easily observable kind of
market data point to sort of agree them to.
But again, as ever,
we've been able to conclude that
the internal methodology used to value those assets
and the consultations that you've done with
appropriate third parties are appropriate,
our experts essentially agree with your experts to within a reasonable and certainly well within
a materiality threshold. There is one order difference I'd call it within there which is
pretty small in the scheme of your materiality it was just marginally over our reporting threshold.
I wouldn't get too heads up on that it's about a sort of timing difference about the point in time
of the valuation and the point in time you pulled the accounts together. We wouldn't expect you to
adjust for that really given the size of it but again it's just one that we have to bring to your
attention because I committed to you
to bring to your attention anything over.
I think it's about one and a half million.
So it's just, it's just above that value.
Otherwise, I mean, happy to go into
detail around any of the sort of broader landscape.
But again, I would just reiterate for the pension fund,
we absolutely anticipate issuing
an unqualified order opinion,
which is a clean order opinion.
So yes, there are sort of wider kind of
sector landscape around what's
happening to get to a clean opinion
on the council audit, but I'll talk about that at the council audit committee in due course.
But actually for the pension fund, I'd like you to really focus on it's a clean audit.
It's going to be an unqualified audit opinion. I've got to do those conclusion procedures because
your accounts are part of the overall council accounts. I've got to sort of wait until that
point in time to be able to sign them. And therefore there's some things I have to pull
up to date to that date. But you know, it's a really strong set of accounts and we've not
been able to find anything that I really need to bring to your attention so have
to take questions on that.
Caddy. Well firstly I think perhaps we should as a committee say thank you very
much to the team because it sounds like they've done a really great job so you
know I don't particularly have any questions on the accounts. The one
question I did have was on page 11 of the report and it said that an objection
was received by the auditor on the last day of the inspection. I wondered if you
had some further information on that. Yeah, thanks for that, Councillor Cuddy.
So, if I just sort of step back, so there are various things we have to do,
legally have to do, when we get an objection. So the first thing that we do
is, is the objection valid? I .e. is it from somebody who is able to object to the
account, a local elector, and has it been received within the appropriate timeframe?
i .e. the inspection period which is set for the accounts.
Part one of that validity cheque was quite easy.
And yes, it's been received by a local elector,
so that's fine.
Part two actually has taken quite a bit of consultation
because it came in on the last day of the inspection period
and we've had to consult as to whether or not it was in time.
Ultimately, we've landed on it was in time,
but I suppose there was some work done
to be able to get to that stage.
What then happens is I've got a sort of almost a series of criteria that I have to take the objection through to understand whether I accept it and do something about it or I reject it.
I don't think there's any sort of substance in what's being said.
The objection itself is around quality or detail of climate related disclosures either across the pension fund or the Joint Borough Council and pension fund accounts.
But it's pretty early days in our assessment of that, so I wouldn't want to kind of go
into too much more detail other than I will go through a very thorough criteria assessment
of whether that holds water, and I will keep committee and management up to date as we're
doing that.
I'd like to think we can get through that assessment process this month.
And just as a follow -up, will that delay the issuing of a clean audit report?
Would that impact the issuing of a clean audit report?
what's the sort of, I guess what's the follow up, what's the possible outcomes?
Yeah, so I mean, again without wanting to give too much away around early assessment,
because it's a bit hypothetical, but if I decide there's no substance to what's in the
objection or I don't think there's, you know, a reason for me to do anything about it, for
example issue a public interest report, you know, if I don't think that's required, no
no impact on audit opinion, no impact on when I report.
If, it's a big if, right?
But if I did think there was
significant substance to the objection
and felt like I did need to do more digging or did need
to question the organisation on how it's reported,
there is hypothetically a chance that it could cause an issue.
I'd say that one thing to note is
the specific balances that are being
objected to in the objection are, again,
and I'm not wishing to downplay the significance of them,
but they are significantly below
the pension fund materiality level.
So just on a quantitative level,
I can't see how that could cause an issue,
but of course, with any objection,
there are, as I say, a series of criteria
that we have to look at,
including the qualitative element,
the public interest element, the regularity element.
So I've got to go through those things, Councillor Cuddy.
So I've got to do that thoroughly and properly.
So I guess hypothetically it could but I want to be able to kind of do that
thoroughly this month to be able to kind of give you more detail on that and
ultimately because the council's audit sign -off doesn't happen so much later
well into the winter, I've got plenty of time to kind of to get that through
either way in time for the type of the sign -off that we're looking at. Thank you
that that's really helpful and just I guess for our information at some point
will we have the sort of detail of the objection
shared with us, irrespective, I guess,
of whether it is upheld or not, just for our information?
Paul or Coral may want to comment on that.
I mean, clearly, if I decided there was substance
to the objection and there was something
that needed to be reported or added to my reporting,
for example, because I suppose that's
one of the scenarios, right?
I might still say unqualified audit opinion,
no issue with that decision.
However, there's something I may want to add into
my reporting as I finalise my audit results report.
That's a scenario. If that were the case,
management would see that first and you would see that as
a committee before anything were in the public domain.
But again, I suppose there is a scenario where
I reject and I say there's not enough substance.
So then I suppose there's a management decision as to,
is that something that management would share if I've not
you know, decide if there's anything to do with it.
So I guess the answer is it depends.
And if there's something of substance, absolutely,
you would see that.
If I decide there's not, I guess that's then a management
decision as to whether that's something
that you would cover in the kind of course of your dialogue
with management.
I can answer.
I mean, I'll be honest with you.
It wouldn't be something I would actively seek to pass on.
Similarly, I don't pass on all Freedom of Information requests
or any types of queries and questions.
Because at this stage,
I'd put it in that sort of type of category.
Clearly if there was something that
an external individual thought there was some merit to,
then quite clearly you need to see that
to make sure that it is open and that.
But we get a load of inquiries, a load of queries,
and if I forwarded everything to you, you'd be bombarded.
So at this moment, we as a management team
don't think there's any merit to what's been put forward,
but it has been referred over for somebody else to look at.
Clearly if there is, it's right and proper that you see it.
If it's not, then I'd still put it into that particular sort of remit.
If people have got a burning desire to see it, they're more than welcome to.
That's fine, thank you.
Councillor Gasser.
Just on that, so would you at least tell us that it's been dismissed,
that we don't think there's a problem?
I feel like this might be something that might come up.
We've got an election coming up in May,
I think there might be people fishing for information.
I just wondered if we could know where we're up to.
I mean, absolutely, Councillor.
I think that's actually a really good suggestion that, you know,
I think the timetable at the end of this month is a credible and realistic one for me.
There are consultations I've got to do around this, both internally within my organisation,
but also with organisations like the PSAA, who essentially subcontract to EY,
this contract we've got with you.
So there's a little bit of I've got to
go through some hoops,
but I would say by the end of this month,
I would have a very clear steer on where it is
going and would be sharing that with management.
I think it's only right and proper that at least
through the Joint Pensions Committee Chair,
I would have a conversation as to where I think it's going,
because it's only right if I think it's
going somewhere and he'd tell you.
If it's not, I think I can say,
I'm doing some final consultation,
but I don't think it's going anywhere, just hypothetically.
So I think by the end of this month, you should ask me,
or I should proactively tell you where I think it's going to land,
even if I've got a caveat, because I think it's right,
you know whether it's accept or reject, and what happens next,
we can then discuss.
But yes, in short, yes, I can tell you the sort of binary answer
we get to by the end of this month.
Lovely, thank you.
So just to confirm, then, though,
our next step would be to have a discussion with me
if it seemed that this was in any way a material issue
that we might want to be at least kept informed of
so that I can report back to the committee if necessary
that we've achieved the right balance between
taking complaints from the public seriously
and screening out potentially less serious complaints
if I've got it right.
Is that correct?
I think that would be a sensible way forward if that worked for you as a committee and
for management because I certainly wouldn't say we need to convene another committee just
to discuss this one matter. I think doing it through you, Chair, and then you can kind
of make a call as to how that's shared with the rest of committee members would be a sensible
and a typical way we would deal with something like this. But I guess it's for you as a committee
to be comfortable with too.
Can I just ask committee members quickly for feedback on that?
Are you happy for me to be a point of liaison on this one?
And obviously in consultation with Mr. Gilotti.
And if there are concerns, then I'll bring those to you.
Thank you.
Are there any more questions?
Councillor Sari.
Thank you, Chair.
I just had a simple procedural question.
When we were hearing earlier on about the hard to value level 3 assets, can we get some
background as to the criteria and process used in valuing them?
I mean, I can answer the way we audit them.
I don't know, Coral may want to add something on how they're actually initially valued because
But let me do a bit of talking and Coral,
please jump in if there's anything you'd like to add.
So the assets across
your balance sheet are essentially
split into three different categories.
Level one being the most observable and therefore there's
a third party quoted investment that we can easily confirm to,
almost like a bank statement,
almost like an investment statement.
The other end of that is what might be a private equity
investment or an investment in an organisation or something else that just doesn't have that level
of easy kind of quoted ability to tick to. Ultimately, Councillor, I've got a specialist
team that I would bring in at that point that would look at your third party valuation of that
and go and talk to us about the methodology that's been employed to do that and the assumptions that
you've used to kind of get to what you think is a reasonable and credible valuation of that.
As I say, my specialist team have got the right credibility, expertise to be able to then kind of both sense cheque the reasonable method,
the methodology, kick the tyres on the assumptions to go all those reasonable assumptions that align to the organisation, the sector,
the economic landscape gate we're looking at.
We'll also cheque things like that.
Are they suitably disclosed in
line with the requirements of the standards,
but also if there's
any sort of particular sensitivity around them,
or volatility, should you disclose something like that.
And we will do a sort of sensitivity analysis to go,
how much would one of those assumptions have to be
wrong to create a material issue?
Right? So there's a whole host and a suite of
procedures that my specialists
do to be able to kind of get comfortable within a reasonable window of a level three valuation.
So that's a very quick whistle stop of how they go about it. They obviously report back to me,
I can kind of sense cheque with them and ultimately I make the decision. But I guess on this one,
it's been a reasonably easy decision for me as the audit partner because A, there's been nothing in
the underlying methodologies that have been used by the organisation that's particularly out of
ordinary or racy or different from what we'd expect to see.
And the assumptions have all been really kind of not,
I don't want to sort of downplay it in the standard,
but they've been as we'd expect them to be,
you know, not overly optimistic,
not overly conservative, et cetera,
sort of a good reflection of the organisation and
the particular landscape that those investments sit in.
So that's a very quick whistle stop
to without going into any more technical detail.
but I don't know if management wants to add anything around the valuation on their side
before we audit it with our specialists.
No, I mean, there are ways with Tier 3, it's like, well, if you think about your property,
if you go and get two people to come and value your property, you're going to come up with
different views.
Clearly, we've got, you know, highly qualified individuals who are responsible companies
who are doing everything for us.
No doubt EY will argue the same.
Personally, no one knows exactly what the price is really worth until you sell it.
So it's a little bit of a moot point in my view.
No more questions.
If I could just move to the three recommendations on this agenda item.
Firstly, we're asked to note the draught audit results report and agree the materiality and
performance levels on page 6 and detailed in paragraph 2 of this report.
Are those agreed?
Thank you.
Approve the published statement of the pension funds accounts for the financial year ending
March 25 attached as appendix B, et cetera, et cetera.
And authorise me, the chair, to sign the pension fund accounts letter for representation once
the outstanding audit work is completed.
Everyone happy with that?
Thank you very much.
So if we could note the minutes for information.

4 Pension Fund Accounts and Annual Report 2024/25 (Paper No 25/297)

And item four, pension fund accounts and annual report.
Mr. Gelotti.
Thank you.
So this particular paper in front of you, as it says,
is the annual report.
So in essence most of what you see here you've already seen before because it's a consolidation of information that carried through from the previous year.
So it would have come through various different committees.
Now actually it's got the accounting again which we're just talking about just a second ago.
But it's where everything is put together in one place so that someone can pick it up and read and review it.
And we have to publish it by the 1st of December which is why it comes here for approval before.
So I'm not going to go into much of the detail and I'll open to questions.
The only thing I would say is what is probably different and new to what you wouldn't necessarily
see is information on the work that Martin Dorstin is the gentleman down the end on the
Administration, because that isn't something that would regularly come here, because the
local pensions board would normally be the ones who are charged with challenging and
reviewing and scrutinising that.
But you will see the data in there from page 165 of the PAC
onwards, which is the work that his team has undertaken.
And just a couple of points just to highlight.
And when we're looking at the value for money,
we think we've got 40 -odd thousand scheme members.
We've talked in the past about there
being significant increases in the workload
that they're needing to do because of regulatory changes.
And the price that it costs to run the fund for each scheme
member is that is 31 pound 51 pence what you think I think it's you know it's a
really good value for money and if you look at reality you know across London
and certainly you know we are at the lower end of the scale and they're taking
all of the additional types of work that we're looking to do last year was just
over it was 30 pound 79 so it's not a significant extra yet we're regulatory

5 Quarterly Investment Performance Report - 2025/26 Q1 (Paper No 25/298)

with all the work we've been talking about doing is being managed effectively

4 Pension Fund Accounts and Annual Report 2024/25 (Paper No 25/297)

And then how does that then reflect on outputs and outcomes?
Well, that's scheduled on page 185 in Appendix 2, and you'll see the performance of the
team is ranging between hitting 94 percent up to 100 percent of meeting all of their
target dates.
So, you know, you think of the constraints and the challenges that we're facing, and
you can see, you know, the level of performance we're doing for the value for money as well.
So I'll be quiet from now and I'll leave it up to questions, but I might throw them in
the direction of my two colleagues down the end if it is more relevant to do so.
So I just have a quick question.
The latter point you were referring to, the cost per member and the managing of it, is
this taking into account things like the Goodwin and McLeod issues where we had to do a cleansing
of the data, I guess, which was quite an extensive exercise.
Is that what you're referring to there?
It's broader than that, but it is linked to that.
So the work that, certainly in the current year, which isn't necessarily included in
the statement, the annual benefits statements that we're having to issue, which we did
for the end of August, you had to have two different levels of calculations.
And Martin, correct me if I'm wrong, I think there was only about 50 people that we did
not manage to actually have the two different tiers for.
When you think about how many stayments that we've done,
and I don't know of any other fund that's been able to achieve as high level as what we've been able to achieve.
And certainly when you think of how many members we've got, to only have literally 50 or so people that weren't able to meet that.
It just shows you the work.
Mic's keep switching off.
I think we'd agree that that's an impressive performance and thanks from the Committee
for that.

5 Quarterly Investment Performance Report - 2025/26 Q1 (Paper No 25/298)

If you would just inform any members of the public who may be watching that we are having
some technical issues.
Apologies for that.

4 Pension Fund Accounts and Annual Report 2024/25 (Paper No 25/297)

Please don't shatter my genes, Councillor Craigie.
I'm going to ask if everyone is happy to approve this
for, ask questions, I beg your pardon.
Councillor Caddy and then Councillor Crociak.
Oh, Councillor Cropdake, sorry, Freeze, beg your pardon.
Councillor Freeze and then Councillor Caddy.
Thank you, Chair, and apologies for my late arrival tonight.
The strike trains were a little bit slower than I'd hoped.
I am substituting for Councillor Cropdake tonight, and one of the things that she asked me to follow up on was
regarding investment in companies that might be supplying arms to Israel.
I gather there has been discussion about this previously.
I understand this is only 1 percent of the whole investment fund.
However, I gather there was a suggestion to write to the Treasury and ask them about this.
I wondered if, A, that had been done, and, B, then looking at the report on page 159,
it says that a group came to the meeting in October and said that potential action for
and disinvestment and a report would come to future committee explaining these options.
Could you just follow up on that and see if that's going to be happening or is the bit
in here about being managed by regional pool, the stuff being available on site, is that
the response to this? Could I just get some clarity, please? Thanks.
I thought I would like Mr. Lottie to comment on that. Thank you.
At the last committee we brought the London Civ and they provided that update.
It wasn't in the format of a formal paper that they had it verbally and it also has
been explained to this committee that subsequent to that initial meeting we had the pension
service bill put in front of us.
That then further restricted the decisions that an individual fund can make because up
Up until that stage we were looking to have what was known as comply or explain.
Now we know that all of our investments must, not should, could, would, must be undertaken
by the pool by the 31st of March, 2026.
It would be irresponsible to make decisions that would not be able to be continued from
that date going forward.
So anything that we do must be in collaboration with our pool.
We are working with our pool.
The pool are liaising much broader than that and looking across the whole of the LGPS.
And the scheme advisory board, to whom all of the local government schemes seek guidance
and advice for, have already taken their legal opinion and that has also been presented to
this committee.
that outlines what we can legally do based on the KC opinion that we have received.
So therefore, in line with what we're doing, we are obviously liaising with the work within
the Secretary of State.
The Secretary of State is the one who is able to set the guidance and work on that particular
type of guidance.
Currently, any action that we can do is required to have a three -point test.
One would be that you seek appropriate advice.
B, that that price analyses that the impact of any such decision would not be significant.
And 3, that you have to have evidence that your members would support that.
That is not residents, that is not councillors.
That is the scheme members that need to be able to be liaised and doing everything else.
That is what the current regulations state, that the Secretary of State is responsible
for determining.
And if the Secretary of State is engaged, then they will look clearly to do that.
Now, I'm aware that both councils, Richmond and Wandsworth, are clearly concerned about
what is going on in that region, and would want to make sure that they are doing everything
possible in order to ensure that we act in a responsible manner with our investments.
But we have to work within those parameters, and therefore we are working with the 32 London
funds and with our local pool, together alongside with the scheme advisory board, to ensure
that anything that we do would be right for the fund both in terms of legal and
our ideal responsible investment based on the wishes of members and all
stakeholders which does include both sets of councils.
Thank you Mr. de Lothi. Councillor Caddy. Thank you chair. Mr. de Lothi you've sort of
preempted my comments really because I was going to say the administration KPIs
on page 91 look really excellent and I would suggest that the committee
congratulates the team on a really good performance. I was also going to ask how
the £31 .51 compared to other councils, I don't know if you've got any figures for
that but presumably other councils, rather than other councils, other pension
schemes produce these kind of figures in their annual reports. It would be
interesting to see where we sit. I think Martin correct me if I'm wrong, I think for
London it's about £50 is the average, isn't it, £48 or something like that?
I can't remember when we did it.
We're near the top in London.
London is a different model to say a county council who divide up the work differently and put more on the employer to work.
So London is compared to other London providers.
So again that's a fantastic performance.
On page 92, I just wondered where,
with the communications and engagement,
how those figures compared to, I guess,
either previous years or other sort of organisations,
because it's really hard to tell whether that's,
you know, those are good results or not.
And then on page 93,
the cons and engagement figures,
so engagement with online portals,
I wondered how those sort of numbers
compared to the kind of average,
Are those good numbers?
Are our online portals effective or not?
Easy to engage with?
So I think page 92 I'm looking at I think is looking more on with the online portal
which is a member self -service.
So I'm asking whether we want to talk about our sort of uptake and I mean historically
most people are on different journeys because I think it's very difficult to give a true
correlation with it because we don't know exactly who's undertaken those different elements
but Martin sits on a wider PAN group,
so I don't know whether or not you're able to comment on that.
I think the good thing about this,
and the reason why it's been introduced in this format,
is we'll be able to make those comparisons with,
this is the first year that everyone has to provide those,
not just that data, but all those admin KPIs,
so we'll be able to give a better picture after December
when all the pension fund annual reports are published,
and compare against our decent benchmarking.
Fantastic, thank you.
And then the final question was on page 93.
Why, on employer performance, why do only 50 % of employers
who submitted monthly data on time, why is it only 50 %?
I just wondered what that issue was.
And, I don't know whether, Martin, you want to answer that?
And I mean, obviously, not going too specific,
but I think a lot of it's because of the schools
and other areas and challenges and stuff.
I mean, I guess my big question was, as a council,
are we submitting our stuff?
Are we doing what we need to do?
And does it sort of hamper the scheme
if you don't get the data on time?
And what can we do to make people send you the data
on time?
Yes, we have an admin strategy which lays out
employer responsibilities and also introduces charges
if they don't produce information on time,
inaccurate information.
So it's a continual effort of providing education for employers and also if they don't comply,
recharging the cost of that extra work.
It doesn't mean extra work.
And also a delay in providing information to members if we don't have that information.
So it's something that we do publicise in our employer forums and address in our public
forums as well as individually with employers.
Excellent.
I mean, just to add to that, there had been a particular provider, an external third party
provider who worked along with a lot of schools who I think they in their own right were probably
contributed to a reasonable number of those issues, not just for this fund but obviously
as you'll probably recall, the pension shared service undertakes this provision for several
other funds as well and the similar sort of issues were occurring.
That provider is no longer in the market going forward,
so hopefully that will help boost.
And similarly to what Martin's alluded to
with regards to that admin strategy,
which has been in place for a few years,
hopefully now as that begins to bite more
and people realise that if they don't prioritise this
and meet, this isn't our deadlines,
this is the required deadlines from the TPR
where they're expected to deliver,
the extra costs that we have to incur
in order to facilitate that,
they will bear so using those tools one would hope that that this numbers will
improve excellent I guess my request would be if there's anything this
committee can do to to assist with the stick or a carrot then that's no so and
counsellor gasser yeah thank you just back to divestment the previous topic
We had a labour group meeting last week and my colleagues are very insistent that we explore
this again and we have to find some way of divesting from companies that supply arms
to Israel.
So we were hoping, planning to bring this up at the next meeting of the Pensions Committee,
whether in a motion or a discussion or what it might be.
I repeat what I've said before.
There's a difference between what happens in Treasury and what happens under the pension
and fund about what you can do and the role and responsibility to the stakeholders of
the fund and in relation to managing it in line with the investment regulations which
we are bound by and the legal opinion that's been brought to this committee before.
There was a mention of you we could consult members.
I'm not saying we should do that, but we should discuss doing that.
There is, I don't know, we are in a world where the London pool will be the ones who
are managing our funds and the Secretary of State is responsible for the guidelines for
which we receive.
Clearly we can manage within what the committee here wishes for us to do and going forward.
But as an officer all that we can do is advise what the regulations stipulate the requirements
are for people to undertake and carry out and do.
And it's difference between those for which may well be we directly own as a council and
that which is what of the pension fund is able to deliver upon and what they can do.
And clearly, responsive investment has many facets and there are many things that can
be done from doing nothing to going extreme.
Where it sits is obviously for the committee to engage with and to understand and carry out,
but it is something that needs to be in line with the regulations and also what is able to be delivered within the new pension scheme bill,
where 100 % of our investments need to be operated through the pool.
We're not able to do anything on our own back outside of the pool, so it is working collaboratively with them.
And if we've got strong views that's supported by the committee, then that's what needs to be worked with,
with the 32 funds to move towards in order to ensure that there is something within that pool
which we can invest in that sits alongside the views and the values that all of the stakeholders have.
Right, yes, that's what we want to explore. And I think it's a movement across London, it's not just us.
Lots of councils are exploring this.
So if all 32 are agreed and we explore,
then we might get somewhere.
Thank you.
Can I then ask whether we can approve
this report publication?
Thank you very much.
Item five is the quarterly investment performance report.

5 Quarterly Investment Performance Report - 2025/26 Q1 (Paper No 25/298)

So, again, this is the standard paper that comes to you each cycle.
You know, I mean, on, you know, the only thing really that changes in reality is when we're
looking at it is the underlying performances of individual funds.
This time, unfortunately, we haven't got the local authority average.
That's normally what we would get in order to say you can do some benchmarking and comparisons.
But for the last quarter, it's actually been a positive quarter for the fund.
We do have that relevant information from, you know, we have 4 .3 percent versus the average
of 3 .3, which is positive.
But later on down, you know, like we've said before when Tony was given his training
before and talking about things, underlying funds operate differently, and that's set
out in Appendix A where you can see some of the managers have done particularly well,
others less so.
So I'm not going to go on any more because like I said, this is a standard item which
you have seen many times, so I'll throw it open straight to questions either for me,
Coral or Tony.
I guess I just had one question which I think feeds into our question about investment strategy
later, but just this question of perhaps some of the data that's presented here appearing
to show we might be lagging slightly on counsel, on our peers.
To what extent would it be true to say that because we are in a very strong situation
as a pension fund, that does give us a greater degree of ability to set a conservative investment
strategy to hit our all -important discount rate, and therefore makes us more robust to
some of the ups and downs of the world markets?
Yes, I mean, not a pre -embroke.
I mean, coming on to the next paper, it talks about valuation, and then, you know, we are
looking at some further training on investment strategies.
But clearly, if you're in a fund that historically is not where it needs to be, i .e., below 100
percent funding level, you're always going to need, therefore, need to have a more aggressive
stance in your asset allocation.
We're in a positive position, so the need to try to recoup and recover under performance
simply isn't there because the fund is very well funded.
So when we've set our investment strategies in the past, it's been geared up purely
and simply to look at making sure that we can hit our primary rate or the cost of the
fund going forward.
We haven't got that additional recovery model to make.
So we haven't had to seek extra outperformance, should we say.
And that is, you know, is an important aspect when we're coming on to looking at our own
individual approach.
But when you're looking at benchmarks, that's why, you know, when you look at benchmark
lead tables, you can't necessarily compare, you know, Fund A with Fund B without understanding
why their strategy's been set up in a particular way.
Clearly, we want to make sure that our fund managers do what they should, what we're asking
them to do, but comparing with other ones, albeit this quarter, as you saw, we're outperforming
the peer group.
But I don't get overly focused on how we're comparing with our peers.
It's more about how we can perform it about what we're expecting our managers to deliver
upon.
Thank you for that clarification.
Are we content to approve this?
And Councillor Crayton.
One little question just because you often comment, why so much cash at the moment?
We try to put more money into equity.
I think we put £50 million extra in over since the last meeting, but more has come
back than anticipated through either redemptions, through private markets, hedging and other
aspects on that since the last one.
The aim isn't to have that level.
As you recall probably from the last meeting we said, right, we were going to put £50
million in, we have put that 50 million in and that's even after it, but we still seem
to have more coming forward.
Clearly when we look at the asset allocation review and everything else, most of that will
be redeployed.
But whilst we are hedging currency and everything else, and we've still got margins to call
and drawdowns to deal with in the private markets, you do need to have, shall we say,
a high level of cash than say 1 % or 1 .5%, which is what you would do if you were in
a very liquid and unhedged environment.
I have fairly further questions.
Do we note the performance and note these two technical points that the London CIF Global
Focus Fund is above 15 percent of the fund and cash is above the higher benchmark threshold?
Thank you.
Item 6, Mr. Chilotti.

6 Initial Valuation Results Based on Current FSS (Paper No 25/299)

Initial valuation results?
You've heard a lot of me recently.
It's not to say much than this one's because we've got Chris from Barnet -Waddingham who are our actuaries who can take you through the process.
So with the trine evaluation, this happens once every three years.
And this is key for us because it lets us review,
analyse the current position of where we are as of now.
This is an open fund, so it's gonna be around for many decades to come.
But this helps show you the health of where we are and will help set the future direction
of where we're going with regards to our asset allocation.
I would say that this is the starting point for it, so no doubt Chris will caveat everything
that he says in saying that these are all early indicative numbers.
But it shows you where we are, the direction of travel where we're going around our liabilities
that we have and our current assets, how they match those liabilities, and therefore what
we will need to seek to do, but it also sets the future contribution rate for the next
three years.
So I will leave it as there, and I will let Chris go into a lot more detail about how
the work that they are looking to do will achieve that, and the assumptions that we
will need to use in order to produce those numbers.
Thank you, Paul.
Thank you, Chair.
Thanks everybody for inviting me to present to the committee today as well.
We've circulated a discussion aid just to help to frame the discussion, the information
that I'm going to give.
So as Paul said, my name is Chris Morton.
I am...
Sorry, can I just interject?
I wonder if you could just move the microphone closer so that it's just, yeah, you probably
You need to get it sort of within about,
you just need to get, you know, think rockstar,
you need to sort of get it up close.
I'll start shouting.
Thank you.
So my name's Chris Morton, I am part of the leadership team
within Barnet Waddingham's public sector consulting team.
I'm here to give you an update
on the 2025 actuarial evaluation process.
I think the key thing to note at the start
is that it's very much in progress.
As Paul said, I'm gonna start with a caveat.
So although the actual evaluation
typically takes 12 months to finalise,
everything needs to be signed off
by the 31st of March, 2026.
Actually, if you divide that 12 months into three parts,
it's the middle third where the bulk of the work gets done.
And that really only started last month.
So we received the membership data from Martin and his team.
We've been reviewing that, we're putting it into a position
where we feel like we're confident enough
that it can be used for calculations,
but we haven't actually performed
any individual member calculations on it yet.
We will be doing that, we'll be presenting initial results
in early October, so we don't actually have
initial initial results yet.
What we have is quite broad estimates at this point.
So today I'm gonna focus mostly on the process
of the valuation rather than necessarily
the results of the evaluation. Those will follow as quickly as we can get them to you.
The last thing I'm going to do is, I'm conscious of time, this is the last on the part one agenda,
so I'm going to try and be brief, be bright, and then be gone. I'm going to try and get through
the pack like running upstairs, I'm going to try and do it two at a time. So what I'll be showing
you is two pages at a time and taking you through both of those at roughly the same time. So just
Let's move into pages two and three.
The agenda is what of the past fund valuation shown, what are current funding hot topics.
When it says there are indications for the 2025 valuation, please treat these with a
pinch of salt.
As I said, initial results will follow next month.
The funding strategy statement itself, I'm going to focus on changes, major changes since
the last valuation, which affects the work that we do.
And what are we doing now?
I'm gonna answer right now, we're doing a lot.
So the team behind the scenes are working very hard just now with a lot of analysis.
There's more actions for our team ahead of us than behind us, but
we're still on track to deliver against the time scales that we're working to.
So very happy with that.
The picture at the bottom here on page three,
It's actually quite a simple diagram, but there's a lot to unpack here.
So we've tried to capture a key concept that the funding valuation does not determine the
cost of the LGPS.
It's just a tool to help you manage those costs.
So one of the primary risks to the fund is that the assets that you have will fall short
and that you won't be able to pay the promised benefits.
So that's why every three years what we do is we perform calculations to try and estimate what those promised benefits are.
So that the big yellow gear here that says benefit payments and expenses, we perform calculations at the last valuation that basically estimated that if we were to project out over the next 100 years from 2022,
what's the total value of all the pensions and benefits that are going to come into payment.
And at that point, our estimate was 5 .4 billion.
So that's the value of the promise of the benefits that were due to be paid at that
point based on service accrued to that date.
So that didn't allow for future service.
So what that does is it helps you to understand the size of the target, almost the promise
benefits, actually how much is going to get paid in the future.
Now since then there's been further accrual. Active members have accrued more
benefits. There's also been pension increases awarded on those benefits. So
what we're seeing is that number is typically going up. And for the LGPS is
an open scheme. It's open to new members and new accrual. So you would expect that
number to continue going up if that continues to be the case. So what we're
seeing is that if that's a target we're gonna perform the calculations and give
you an update as to what that number is. Based on estimates we have from other
funds where we've already gone through this process, we estimate that number is
going to increase by about 15 to 25 percent. So really the level of
promised benefits that are going to be paid out in the next hundred years is probably
going to be somewhere between six and seven billion. As I said we'll come back
with those numbers in about a month. But what that means is that as I said
it's evaluations are a tool to help you understand if you're on track to have
enough money to meet those benefits and it's useful in particular we've already
had commentary around the investment strategy review it's useful to work in
partnership with the investment consultants to make sure that the
funding approach and the investment approach are working hand in hand.
Because it is an open scheme, because it's, you know, that's six to seven billion pounds of future benefit payments, they're just an estimate.
Really, we won't actually know the cost of the LGPS until the last member dies.
And that what we do is we use the funding valuation every three years to make sure that we're on track, that we're not DVing,
that things aren't working against the fund, that things are turning against the fund, really.
So I've spent a bit of time on that diagram, but hopefully that's a useful explanation.
Moving on to the next two pages, we're looking at pages four and five, what have past fund
valuation shown and current hot topic.
So I feel bad actually, I've only just realised I put a photo of Graham Muir on the slide
there and actually almost makes it look like it's in memoriam.
he's not he's very much alive he's retired and very happily retired I think
he sold equity in his own business so yeah things did okay but the reason I've
put Graham in there and again I'm not gonna spend too much time in this today
because I was gonna spend time explaining the fundamentals of our
funding model which actually the reason Graham's on there is because it's it's
30 years ago. We've had it working relatively unchanged over the last 25, 30 years and we
continue to use it for the 2025 valuation as well. So the hard work that Graham put
into it in terms of designing it is still being used. Actually Paul Gelotti did a very
good explanation at the last Joint Pension Committee meeting so I'm not going to spend
too much time on it other than to note that the key aspects of our funding model are,
Number one, we don't look at one date
when it comes to looking at,
choosing financial assumptions, things like that.
As Paul's already mentioned, we use a smooth approach.
We look at market conditions over a six month period
centred around the valuation date.
And we find that's very useful
when it comes to long term planning
because you don't want one or two weeks worth
of market conditions completely,
drastically changing your results.
The second thing we do is when it comes to deriving
the discount rates that we use, we use a best estimate minus approach.
So we will calculate a weighted best estimate average of the returns that we would expect
your fund to produce based on the assets that you have.
What we don't have is a GILTS plus model.
We don't look at current GILT yields and allow for an element of performance over those.
And then lastly, the model we use to assess the funding level is the same model that we
use to assess future contributions.
And what that means is you get consistency of approach there.
As future service becomes past service, you are adequately reserving for it.
You know, you put a pound in to make sure it's covered.
So we've put in here a bit of a history of the last three valuations before the 2025
valuation.
And hopefully what you can see is it's a positive storey.
It's steady funding level improvements.
The costs have been increasing over that time, those projected benefit expenditures that
I talk about.
But the prudent approach taken by the fund means the liabilities are increasing at the
same time as well, it's just that the assets have been rising faster.
So that's a positive storey.
But the hot topic at the bottom here, that we're just going to touch on briefly, is quite
contentious, quite political, is surpluses in the LGPS.
So we are seeing a lot of market industry commentary about there being
significant surpluses in the LGPS. I think possibly even using words like
over -reserving, you know, too much money. We've seen commentary saying, you know, at
the moment there's probably 400 to 500 billion pounds worth of assets in the
LGPS across the UK. Maybe that's 150 billion too much. And again, we
think that's quite strong stance to take. What we'd focus on is the facts over the
last three years. Number one being that most funds have returned, fund returns,
actual fund returns that have either been broadly equal to or possibly
slightly lower than expectations. There have been funds that have outperformed, but in
general we've seen it's broadly in line with what the expectations were over the
period. But at the same time, pension increases over the last three years have
been much higher than were anticipated.
Now at the last valuation, you could see them coming.
But once those pension increases have been awarded,
they do substantially increase the cost
of all future benefits.
And that's happened over the last three years.
So just allowing for those two factors and no other factors,
you would expect the LGPS funding levels to probably have
dropped over the last three years,
not risen significantly.
Where we are seeing it come from is more around
not the cost of the benefits going down,
but the discounted present value of those benefits going down,
mainly due to higher discount rates.
At the same time though, we are absolutely conscious
that there is a lot of pressure
for significant contribution rate reductions.
And again, we're seeing a balance there
across all of the funds that we work with
in terms of understanding that there is a,
most funds do have an objective
about maintaining stability of contributions.
There is a regulatory objective to maintain stability at primary rate as well, but there
may be opportunities for contribution reductions in certain instances.
What those contribution reductions do, though, is they place more reliance on future returns.
That means that you're taking an approach that means you're more heavily looking for
returns in the future.
So again, what we see is that if you're hearing a lot of commentary about funding levels being
very, very high about there being too much money in the LGPS, please treat that with caution.
We're still working through the calculations for your fund.
Most funds will be looking at their own situation, basing their decisions on their own specific
circumstances and in particular on their own funding strategy.
So just move on to the next two pages quickly.
Pages 6 and 7, what's happened since 31st of March 2022.
and then the 2025 valuation early indications. So since March 2022 we
focused on three key areas investment returns, inflation and discount rates. So
for your fund the average investment return over the last three years was
broadly in line with the discount rate that we assumed at the last valuation
and that's a good thing you've kept track there's no deficit has
are risen from that, so that's a positive. Again that's on the asset side, that has
no influence on the liabilities. On the inflation side, as I've already mentioned,
very substantial pension increases awarded over the last three years, much
higher than anticipated, that increases the cost of all future benefit payments.
And because of that, when we discount them back to produce a present value,
that present value is also increased as well. Lastly, the discount rate is an
assumption we make, or we in conjunction with the fund make, to determine how much, what
rate we use to discount back future payments to produce a present value as of today's day.
Now as I've already said, we take our estimate of the best estimate returns for the fund
and then allow for a certain level of prudence to produce a discount rate.
The proposed discount rate that we're using for this valuation is going to be a net rate
rate of 2 .4%, so a discount rate of 5 .1 % minus an assumed inflation of 2 .7%.
That is higher than the discount rate that was assumed at the 2022 valuation, which was
a discount rate of 4 .4 % minus inflation of 2 .9%, net rate of 1 .5%.
As I said, the long -term approach we used, though, it has jumped over that three -year
period, but actually it has brought it closer to the net discount rate that we used back
in 2016 and back in 2013, for example.
So again, the model we use is, we like to think,
very deliberately stable.
We end up usually with a corridor of values
that we find ourselves in, and we're not stretching out
with the corridor of assumptions we've used
in the last 12 years.
Can I just jump in, just a very simple point
that I think might help certainly some of anybody.
The numerous people we're tuning in,
A higher discount rate, is that good or bad?
Perhaps you could just sort of give us at that simple level
what this discount rate means.
Oh, that's a good question.
I'd love to have a very simple answer.
I'm probably gonna take the politician approach
and say it's a little more complicated than that.
So as I said, the approach we take is that
we set expected returns and then we allow for prudence.
So actually what you could look at is you could say,
well, the discount rate could be higher
because the expected returns are higher.
That in itself might be a positive thing,
but the more you allow for future discount return,
future expected returns being higher,
the more that has to happen.
So the higher the expected return you allow for,
the higher the target you're setting yourself,
and the higher the target that Tony and his colleagues
will have to be as well when they advise the fund.
Oh, sorry.
Okay, well I was just gonna say the second element then
is the level of prudence that you allow for.
So we are typically proposing to use, for your fund,
the same level of prudence that we used
at the last valuation.
So how much we then reduce the expected return by
to get our discount rate,
we're proposing to use the same allowance,
which we think, using our modelling,
comes up with the same level,
broadly the same level of prudence.
We are seeing other funds who are exploring
possibly increase in the prudence,
And what that would mean is reducing the expected return by a higher amount to produce a lower
discount rate.
So again, there's a couple of factors going on there.
High expected return might mean you're placing more reliance on what your assets do.
But if you use a higher prudence allowance, if you use a higher probability of success,
you're being more naturally cautious and giving yourself more opportunity to then meet the
discount rate.
Yeah, I'm moving from a 4 .4 discount rate to an above 5 percent discount rate.
That's really quite a substantial increase based on optimism about future market conditions
rather than pessimism.
Would that be an oversimplification?
I would say that our best estimates have increased since the last valuation.
So we're not saying that the expected returns are optimistic.
we're not saying they're pessimistic, we're saying what we think is the sort of 50 -50
the average has increased since the last valuation.
Thank you, sorry for that.
Councillor Gasser.
Can I just go back to the basics?
The cost of what?
The cost of paying everybody here?
The cost of the LGPS.
The cost of paying everybody for the next 100 years.
The next 100 years, okay.
Thank you.
So, in essence, investment terms have been broadly in line with expectations.
Inflation has been much higher than expected.
But the discount rates that we're going to be using will then rein some of that back.
Now, what I've put on slide seven here, 2025 valuation early indications, as I said, we
haven't actually run through the individual member calculations yet.
That is the valuation results.
What we've done here is a roll forward estimate.
And a roll forward is where we don't do
individual member calculations,
we just look at average statistics
and use them to estimate where we think we are.
Now roll forward estimates versus full valuations
tend to vary by one or two percent per annum.
So over a three year period,
it could be five or six percent different
to what a full valuation would produce.
So the 128 % funding level that's quoted here
Actually, it could be low 120s, it could be mid -130s.
We haven't done those calculations yet.
And that's why the box on the left -hand side there is just a caveat, those numbers.
But again, from the asset side, the asset performance has been in line with the expectations.
The fund's assets have grown.
But as I said, the cost of the scheme is likely to have increased by 15 to 25%.
When we then discount that back, again, the assets will probably have grown faster than
and what would we allow for when it comes to
looking at those two things together.
I mentioned the affordability aspect as well.
The primary rate is the rate of contributions
that you set in order to pay for future benefits.
So it doesn't allow for any deficit or surplus.
That's historically been between 18 and 20%.
We're thinking it might be slightly lower than that.
It might be of the order of sort of 15%.
That's the average that we've done so far.
again, using any membership data yet. That's not to say that will be the level of contributions
that employers will pay. So as I said, we still need to look at the approach that's
taken within the funding strategy statement to allowing for how employers can move from
the contribution rate they are paying just now to any future contribution rates, allowing
for any change in circumstances.
So page 8 just summarises the key assumptions that I mentioned here, a change in the discount
rate.
So the first two boxes are the sort of financial assumptions.
So for those, we've already done the analysis and we're at the stage where proposing these
assumptions.
You know, we're not based on using the same approach, the same level of targeted prudence
as last time, we think the discount rate should be 5 .1.
We think, given market indicators,
we think the proposed future inflation should be 2 .7%,
so slightly lower than last valuation.
The last box here, the mortality,
is a task that we're still doing.
So we're still performing a five -year analysis
of your mortality experience.
The details should actually follow.
The results of that should follow in the next couple
of days.
We're just slightly behind, unfortunately.
Not slightly behind, sorry.
slightly too late for this meeting.
But we'll issue the results of that
in the next couple of days.
But one of the things that we absolutely know
that we probably will be doing is increasing the level
of long -term rate of future improvements
up to one and a half percent.
So just coming back to that point,
the fourth point of the agenda,
funding strategy statement.
So the bottom of page nine here,
we've got just a box summarising some of the key changes.
So there was new guidance issued in January 2025, and the aim of the new guidance is to
make sure there's a more consistent presentation across the LGPS funds, and that people can
read funding strategy statements of different funds and get very much a clear picture as
to where they are and be able to consistently compare them.
So in a lot of key areas, such as the setting of contributions, such as exit valuations,
such as the calculation of exit credits, how they'd be awarded or exit debts, how they'd
be clawed back.
There needs to be basically a recipe in the FSS that's then followed.
So the FSS has more detail, or will need to have more detail around how those calculations
are performed to make sure it's more predictable for employers.
The guidance is 34 pages long.
your current FSS is 20 pages long.
Allowing for the new guidance,
we anticipate your new FSS will be between 55 to 60 pages long.
So we're going to get a draught of that to you as early as we can,
again probably in the next week or so.
It will be a document that will be refined over the next
month and a half I would say, with the view of going out to consultation.
And that's one of the other key points about
the new guidance is that funds need to have an engagement plan in place that
allows for meaningful consultation and that's not just with employers but also
with other stakeholders. So for example funds that have academies will need to
consult with the Department for Education as the guarantor for a lot of
those academies and their subsidiary pass -through employers. So moving to the
page now just last couple of pages so I've mentioned meaningful engagement is
needed what we have here is a proposed engagement plan very high level month by
month for the next seven months but ultimately what we're planning to do is
to release a draught FSS over the next week or so there will be a lot of areas
where it'll still be you know X's in there because we haven't got the the
initial valuation results yet, but again, we'll update that.
It's a document that will be reviewed by yourself
and reviewed by board.
The plan is to go to consultation in November time,
have the consultation finish before Christmas,
review the consultation responses
over the Christmas, early January period,
and then write to employers to inform them
the outcome of the consultation in January
to then allow the final calculations to be performed
for signing off the valuation in March. So last topic what we do now and I think
I said this at the start it is still a lot of work that we're doing just now. So
the team at Barnum Waddingham are doing a lot of work with cleansing the
membership data and the cash flow data that we've been provided with. We're also
looking at the results this valuation will be released online so we're making
sure that we've got our system set up to have those online employer schedules
available when the results are ready. There was two other analyses that I
mentioned that we're still doing. We're finalising the longevity analysis which
will come out in the next week or so. We're also finalising our climate risk
scenario testing as well. So again we'll issue that analysis to you as soon as
is ready.
And we're finally we're drafting the revised funding strategy
statement in line with the new guidance.
And again, we'll get that out to you
sometime soon for continuous feedback over the next four
to six weeks.
On top of that, we've been having regular meetings
with fund officers about the work we've been doing,
about the deal we've been getting from them,
and discussing possible approaches to other things.
But as I said, the main preparation now
is using the individual member data,
getting the initial results based on the assumptions that we're proposing for the main councils
and whole fund level in early October and then for the rest of the employers sometime
in November in line with the consultation.
And that's as much as I was planning to cover today.
Happy to open the floor to questions now.
Thank you very much.
That's been a very clear and illuminating presentation.
I think there's some spark, there's some interesting debate coming up.
Councillor Craigie, Councillor Caddy, did you have a question, sorry?
Yeah.
No, it's Councillor Craigie.
Anybody?
Yeah, he'll be there.
Yeah, followed by Councillor Caddy.
Thank you.
Thank you for that presentation.
As the Chair said, quite a complicated thing explained actually quite well.
My question is about your smoothing of valuation, particularly at the start of the process,
because it goes to the stuff we're going to talk about later about the asset allocation,
because one of the key constraints we've got with the asset allocation is managing volatility
over these triennial cycles.
So, and if we didn't have to manage valuation over triennial cycles, we could invest it
like it was 50 -year money and it would probably be in 100 % equities, but we do have to manage
over a three -year cycle, so we can't.
On the discretion you've got,
you said you'd smoothed the starting valuations
over a six -month window.
Is that a fixed window?
Are there criteria under which you could adjust that,
maybe due to market volatility
or due to macroeconomic conditions
or even your individual clients?
Could you speak to that, or is that just fixed,
because that's the model, that's the rules you play by?
It's a good question.
I think what we try and make sure that we communicate is the reason why we did it in
the first place.
Because we have seen times where, for example, we advise a number of Scottish funds where
their valuation date two valuations ago was 31st March 2020.
Now, if you remember back that far, I think there were quite a few people already off
with suffering the symptoms of what was a pandemic landing on our shore.
So at that point, markets were very volatile.
The fact that we had a smoothing approach that allowed for market conditions for the three months before and three months after,
actually there was quite an immediate bounce back in May and June of that year.
So that was already incorporated within the assets.
And it's important for me to note that what we do is we smooth both the assets and the liabilities.
We look at the six -month market indicators, so three months before the valuation date,
three months after.
We use that not only to apply a smoothing factor to the fund's assets, but also when
we're deriving the financial assumptions that are used to calculate liabilities, so the
assets and liabilities are consistent.
So I think the question you're mainly asking is, is there more discretion for further tweaking
of that?
And I think so far we've not really seen much of a need.
I think the approach that we take, we feel we're confident that it allows for enough
movement, and we know that from experience that it does capture quite a lot of the movement
that you would hope to capture.
What we have seen in other instances where funds maybe don't necessarily use our funding
model is that actually when market ignitions do change,
sometimes other funds think, well, we don't really
want to use the 31st of March market ignitions.
We'll use another date, say, 30th of September
later that year, because we think
that's more reflective of the conditions that
are going to apply for the next three years or so.
What we don't like to get into as much as possible
is that sort of pick and choose element
where there's no real driver for it.
And that's why the approach that we take
is not necessarily fixed in stone,
but again, we've not really had the challenge
or the requirement to then try and tweak that
for different funds.
Thanks very much, Chair.
Unless I've misunderstood, it seems from this report
like there'll be a recommendation to go
from an employer contribution rate of around 18 to 20%,
which has been fairly consistent over the last half many years,
to a rate of 15%.
Is that correct?
What I've put in here is the primary rate.
So again, you've been in a fortunate position
that being very well funded, being over 100 % funded
for the last six years or so, actually
that the dominant characteristic of your total contribution rate
is the primary rate.
And that has been more steady between 18, 19 .6 and then 20 % over the last three evaluation
cycles.
So all that we put in here is an initial indication, as I said, that number is still subject to
change of what the primary rate might change to.
Whether that's what the total contribution rate is going to change to will very much
depend on the fund's approach to how much you want to give back surplus immediately,
how much we want to consider that actually it might not be the circumstances right now
with global economic uncertainty, with impact of tariffs, with impact of Gaza and Israel,
with impact of Ukraine and Russia, whether that's the sort of thing that you think we
want to do.
And I think in particular there's another element around predictability.
We know a lot of employers actually want to have stable contributions, appreciate that
there's also affordability constraints as well.
But what we don't necessarily want to get into a situation is that contributions drop
at one valuation cycle, only to then immediately have to bounce back at the next valuation
cycle.
But I'm correct in thinking that the 15 is a direct comparator to the 18 to 20, and the
18 to 20 is also the primary rate, which has then had those factors applied to it in previous
years?
Yes, but it's a weighted average.
So the primary rates that we've quoted here are at the whole fund level, whereas the total
contribution rate is more of a weighted average.
So what you will see is that there will be some employers who've had negative secondary
contributions.
So they've got a primary rate, and then they've been allowed to adjust it to a contribution
rate that's lower than the primary rate, whereas other employers, their funding position is
that either, you know, they might have to,
in the past, have been paying slightly above
the primary rate.
When you average it out, you get,
broadly, the 18 to 20%.
So again, the individual employer circumstances
will need to be taken into account
when it comes to understanding what,
actually, the impact will be per employer.
Okay, thank you.
That's really good and helpful.
So, I guess in a couple of lines,
how would you summarise,
or how would you sort of characterise the reasons
for the change from the 18 to 20 to the 15 given the presentation that you've made.
You know, if I was explaining it to someone who was reading this report, what are the
kind of, or was aware that just the rate had gone from 18 to 20 down to 15, what's the
kind of headline explanation as to why that is?
So the headline probably comes from the financial assumptions that we're adopting.
And going back to Councillor Marshall's point around the explanation of the disc in way.
So actually, because the net discount rate is increasing,
what that means is that the future service,
which actually is, past service, a lot of it is,
occurring in the next 20 years,
in terms of pension payments that are going out,
that are actually being paid by the fund.
When you look at future service, though,
it's based on your active membership,
who are typically younger than your average member.
And what that means is that they're further out in time,
the average future service payment
is actually further out in time, which means that because you're then discounting it back,
if there's a longer discounting period, if you had £100 in a year and you had a discounting
rate of 6%, then you only need £94 now.
If you had £100 in 100 years, you probably only need £6 right now to pay that because
of the compounding.
So the increase to the net discount rate is going to be one of the driving factors that
is reducing the primary rate.
Thank you very much.
That's very helpful.
Thank you.
Quickly, just to add to it, obviously, just for the context, remember, even within the
core of main three employers, there's three separate ones.
You've got Richmond, you've got Wandsworth, and then you've got the Better Service Partnership.
All three will have different funding levels and have different contribution rates.
So what we're talking about here is a wholesale approach.
But therefore, when we're setting an approach, we have to try to take something.
when we're setting the funding strategy statement that's fair and reasonable to all the employers
in there rather than any one specific employer.
Yeah, you're talking about employers. What about the employees? Do we assume that the
number of – the workforce remains constant because with AI and everything, you might
think the workforce is going to go dramatically down so you'd have fewer members, less people
to pay in, would you then want to be asking them for more?
Asking the members for more, asking employers for more.
Well, either.
Right, got you.
So the employee contributions are set out in the regulations.
So they're fixed, and it's dependent on the salary
of the individuals.
So they are not likely to change unless the regulations change.
I think this is one of these cases where we try not
to be too predictive and try not to be too clever.
What we do at each valuation is we take account of the change in the membership that's actually happened.
I think it is a challenge to be able to see hand on heart, you know, where do I think the workforce is going to move in the next three years, six years, nine years, 20 years, and take account of that in a way that would be more accurate than just actually allowing it to flow through.
And in particular, when it comes to councils, for example, there may be impact of local
government reorganisation across the UK, the impact of fair funding, the impact of various
factors may influence, as well as artificial intelligence and the impact they may have
on productivity and different types of work.
There's a lot of moving parts there that in a lot of cases, it's better to let it run
course and see and observe and then predict.
I think it's probably too much for us to just immediately take a call on.
We will look at the membership and we will compare it against the last valuation.
And in particular, when we're doing our calculations, we'll compare experience against the last valuation.
We do make a lot of assumptions about what members do, how they act, how they interact
with the fund, what age they retire at, how they retire, do they retire normal health,
ill health, those sort of things.
We'll analyse a lot of those factors to help us to understand what we expect the members
to do in the future.
So if more members have retired through health than we necessarily expected and it's more
of a trend, then we might allow for more health retirements in the future, which again you'll
see more people being predicted to drop out of the active workforce.
But other than that, any sort of wider macroeconomic themes we don't necessarily take into account
immediately explicitly.
So if there are no more questions about that, can I take it that these comments are noted
and approved?
Thank you very much.
Thank you.
I think we're now going to close the session.
It's a little more select.

7 Exclusion of the Press and Public

Yes, thank you.
So we're now moving into a closed session, which means we need to pass a resolution for
that in the following terms.
Under Section 100A4 of the Local Government Act 1972, the press and other members of the
public should be excluded from the meeting while Item 9 is being considered, because
it is likely that exempt information as described in paragraph three of part one of schedule
12a to the Act would be disclosed to them if they were present.
Is that agreed?
Thank you very much.
.
Thank you.