Agenda item

A representative from Hymans attended the meeting to present the 2022 Valuation Section 13 Results.

Under Section 13 of the Public Service Pensions Act the Ministry of Housing, Communities and Local Government (“MHCLG”) appointed the Government Actuary’s Department (GAD) to carry out a review of the LGPS local funding valuations. GAD published their report on the 2022 valuations on 14 August 2024.

GAD recognised the improved presentational consistency in the 2022 valuations, and that the continued use of the section 13 dashboard (first introduced for the 2019 valuations) greatly aids stakeholders’ understanding. GAD noted concern around the continued lack of evidential consistency since the previous review at 2019. Whilst GAD appreciate that specific fund circumstances may merit the use of different actuarial assumptions, they believe that these differences may lead to different outcomes, for example different contribution rates. Wherever possible, GAD believe in the importance of information being presented in a way that facilitates comparisons. GAD made two formal recommendations in this area for the Scheme Advisory Board to consider:

·        Whether greater consistency could and should be achieved to allow easier comparison between funds and better understanding of risks, and

·        whether guidance would be helpful to support greater consistency on emerging issues.

GAD recognised the significant progress made by funds and actuarial advisers in the presentation of climate risk analysis as part of the 2022 fund valuations. They recommended that work continues to refine their Climate Change Principles Document in advance of the 2025 fund valuations.

On solvency GAD reported:

·        In aggregate, the funding position of the LGPS had improved since 31 March 2019; and the scheme appeared to be in a strong financial position.

·        Total assets had grown in market value from £290bn to £366bn

·        Total liabilities disclosed in the 2022 local valuation reports amounted to £344bn.

·        The aggregate funding level of the LGPS on prudent local bases had improved from 98% (in 2019) to 106% (at 2022) due in large part to strong asset returns over the 3-year period to 31 March 2022.

·        The size of funds had grown significantly over the three years to 31 March 2022 relative to the size of the underlying authorities. This meant that funds in deficit were more likely to trigger GAD’s asset shock measure, where there is a risk of a large changes in contribution rates following a sustained reduction in the value of return-seeking assets. GAD raised white flags against impacted funds. Given the strong position, no red or amber flags were raised in the LGPS for solvency concerns.

Despite having Teesside Pension Fund having one of the lowest contribution rate levels at 14.8% of pay, no flags were raised against the Fund for long-term cost efficiency concerns.

A discussion took place whereby Members queried the Fund’s low level of contributions and whether this would have an impact on solvency.  It was noted that there was no overall cause for concern or immediate pressures.  The Director of Finance highlighted that the Medium Term Financial Plan (MTFP) and the financial pressures of employing authorities needed to be further understood by the Committee; the Pension Fund is in a stable state with no cause for concern, however, there would be cause for concern for the MTFP, should there be a significant need to increase contributions.

ORDERED that the information provided was received and noted.