Agenda item

A report of the Interim Director of Finance was presented to provide Members of the Teesside Pension Board (the Board) with the 2022/23 draft unaudited Annual Report and Accounts for the Teesside Pension Fund.

A copy of the draft unaudited Report and Accounts for the year ended 31 March 2023 was attached to the submitted report at Appendix A.  A version of these accounts was presented to the Pension Fund Committee meeting on 27 September 2023.

The overall financial performance of the Fund for the year to 31 March 2023 was broadly neutral.  The Fund’s value rose slightly to £5.064 billion, an increase over the year of approximately £27 million. Performance was muted but positive overall across equities, but property assets were negative, showing a -9% return over the year, largely because of revaluations following challenging economic conditions in some sectors.

Membership of the Fund continued to increase, with total membership at the year-end now standing at 80,338 an increase of 2,443 over last year.  The number of active members had increased by 764 or 3.0% over the year and increased by 15.3% over the past four years.  The number of pensioners increased by 703 or 2.7% over the year and increased by 12.2% over the past four years. The number of deferred members had increased by 976 or 3.7% over the year and increased by 16.5% over the past four years.

The Fund’s latest triennial valuation, which looked at the Fund’s assets and liabilities as at 31 March 2022, during the year and the final report was published at the end of March 2023.  Headlines from the valuation were an increase of around £1 billion in assets from around £4 billion at the 31 March 2019 valuation to around £5 billion.  However, this was accompanied by an increase in the value of the Fund’s liabilities – the estimated cost of meeting the pension promises it had made – primarily because the actuary increased their long-term inflation assumption and also became more pessimistic about the outlook for future investment returns.  Overall, the Fund’s funding level increased slightly from 115% to 116% but the estimated cost of providing future benefits increased as well, leading to contribution rate increases for some employers taking effect during the three year period starting 1 April 2023.

This year’s Pension Fund Annual Report and Accounts included some additional information in relation to asset pooling. This was shown starting at page 40 of the Report, and set out details Border to Coast had collated in consultation with its eleven Partner Funds (including Teesside) to show the costs and benefits of investment pooling so far.

For the Teesside Fund, the initial decision to pool assets was difficult to justify financially as the Fund’s internal investment arrangements had proved over time to be both successful and value for money.  The decision to pool assets as part of Border to Coast was largely taken to comply with central government directives, and to deliver greater resilience to the Fund’s investment approach.  There were other advantages to pooling, including developing a collective resource to assist the Partner Funds in areas such as Responsible Investment. Border to Coast was also able to leverage economies of scale to obtain better rates from external organisations such as private markets investment managers.  This latter point had increased in significance for the Fund as it had committed more assets to Border to Coast’s private markets investments (private equity, infrastructure and climate opportunities), to the extent that in 2022-23 the Fund was showing a net gain (in year) in respect of pooling – this was anticipated to translate into a net overall gain in the next few years.

The Annual Report and Accounts were presented in draft form and, whilst the main numbers and outcomes were not expected to change in any significant way, changes might be needed as further review took place. Some highlighted text from the previous year existed in the draft where further input was required.  In addition, the audit process for the Council’s accounts (which included the Pension Fund accounts this Report was based on) was not complete and further changes might be required.  When complete, the Annual Report and Accounts would be published on the Pension Fund’s website.

AGREED that the Teesside Pension Fund draft unaudited Annual Report and Accounts 2022/23 was received and noted.