Agenda item

The Committee considered the Pension Fund Accounts Executive Summary.

The Chief Financial Officer introduced the report and made the following points:

·         The full set of Accounts would be considered by the Audit and Governance Committee at its meeting on 26 June 2015

·         The value of the Pension Fund's net assets had increased by approximately £200m to a total of £1.98bn which exceeded the actuarial prediction. Contributors to the Fund had increased partly as a result auto-enrolment combined with an uplift following the 2013 Actuarial investment. Net investment earnings had decreased by 3.1% whilst ongoing expenditure had increased by 2.9%

·         Contributions from staff and employers plus interest and dividends received exceeded benefits paid in 2014/15 by £47.6m

·         Investment managers were paid on the basis of the value of assets under management. As a result of fee discounts negotiations, a reduction of £1m per annum in fees had been agreed with investment firms

·         There had been a significant withdrawal of £52.3m from the Fund with the transfer out of the Probation Service to Greater Manchester Pension Fund

·         A significant risk to the Fund was how liabilities were valued. Liabilities were measured against the gilt rate. There had been a sustained period of very low gilt rates but this was likely to change and which could have a big impact on the Fund's liabilities. The key factor was understanding how liabilities worked and influencing them.  

In the ensuing debate, the following principal points were raised:

·         What discretion did the Actuary have over the discount rates? The Chief Financial Officer advised that different actuarial firms had different ways of calculating discount rates. Actuaries made a number of assumptions in their calculations eg. longevity. They had started with the view that a rate of 1.25% was appropriate. However the advised rate was considered very prudent when benchmarked against other Funds' assumptions and following negotiations the rate moved to 1.5% which had a considerable impact on liabilities

·         It was expected that an operating surplus would exist for the foreseeable future and yet concern was being expressed about the potential Pension Fund liabilities. There needed to be a correlation drawn out in the report between the performance of the Fund and what it meant in terms of paying off the deficit. The Chief Financial Officer offered to provide a presentation to members of the Committee which would explain the process and provide members with an assurance that there were no major concerns

·         The fee discount of £1m was significant and good news for the Fund. Officers should be congratulated for their efforts and encouraged to negotiate further discounts in the future 

·         Was there a "tipping point" for the Pension Fund in terms of the deficit for the scheme? The Chief Financial Officer advised that auto-enrolment had had a significant impact on stabilising scheme membership and therefore contributions. If the position was reached where dividend income was being used to pay benefits then this would be a major cause for concern

·         It was clear that a lot of work was being undertaken to manage the deficit. The problem was being exacerbated by the reduction in the number of local authority employees and therefore the deficit impacted upon the remaining staff who contributed to the scheme.

RESOLVED that the Pension Fund Accounts Executive Summary (pre-audit) be noted.