Agenda item

A report was provided to present Members of the Teesside Pension Board (the Board) with the 2021/22 draft unaudited Annual Report and Accounts for the Teesside Pension Fund.

The terms of reference for the Teesside Pension Fund Committee required the Annual Report and Accounts to be considered by Members.  The draft unaudited Report and Accounts for the year ended 31 March 2022 were attached to the submitted report and an updated version would be presented to the Pension Fund Committee meeting

on 27 July 2022.

The overall financial performance of the Fund for the year to 31 March 2022 was very positive for a second consecutive year.   The Fund’s value rose to £5.073 billion, an increase over the year of approximately £514 million.  This increase in value was mainly a result of equity market performance, which was positive for the year as a whole, albeit deteriorating towards the end of the year and beyond.

The Fund’s asset value as at 31 March 2022 would be used by the Fund Actuary when

calculating the three-yearly valuation of the Fund.  The value of the Fund’s assets had

risen by around a billion pounds in the three years since the last valuation, an increase of around 25% in that period compared with an expected increase (based on the Actuary’s assumptions) of around 14%.   Although welcome news, it was important to recognise the long-term nature of the Fund and the volatility of many of its assets meant that the Actuary had to look beyond just the immediate value of the assets when carrying out the valuation.

In addition, the size of the Fund’s liabilities (the cost of paying current and future benefits) was just as important when carrying out the valuation and setting employer contribution rates.  Factors such as the Actuary’s view of future inflation rates, future investment returns and life expectancy expectations played a key part in the Actuary’s valuation calculations.

The membership of the Fund had increased, with total membership at the year-end standing at 77,895.  This was an increase of 4,696 over last year.  The number of active members had increased by 1,196 or 4.9% over the year, and increased by 9.2% over the past four years.  The number of pensioners increased by 846 or 3.3% over the year, and increased by 15.2% over the past four years.  The number of deferred members had increased by 2,927 or 12.6% over the year, and increased by 12.9% over the past four years.   It was highlighted that most of the increase in the number of deferred members was due to those individuals who had left employment but had not yet had their benefits fully processed now being recognised in the count of deferred members.  This also explained some of the increase in total headcount.

Every three years the Fund Actuary, carried out a full actuarial valuation of the Fund.  The purpose was to calculate how much employers in the scheme needed to contribute going forward to ensure that the Fund’s liabilities, the pensions due to current and future pensioners, would be covered.  Unlike all the other major public sector schemes the Local Government Scheme is a funded scheme.  That meant there was a pool of investments producing income which met a significant part of the liabilities.

The latest actuarial valuation of the Fund was as at 31 March 2019, with the final report published at the end of March 2020.  The Actuary calculated to what extent the Fund’s assets met its liabilities and this was presented as a Funding Level.  The aim of the Fund was to be 100% funded.  At the latest valuation the Actuary was able to declare a funding level of 115%.  This was particularly pleasing since it is the third time in succession that the Fund was able to declare it was fully funded.  The next valuation was due to be carried out as at 31 March 2022, with the final report due to be published in March 2023 and any changes required to employer contribution rates due to come into force from April 2023.

Financial Reporting Standards (FRS) and International Accounting Standards (IAS) required employers to disclose their share of the assets and liabilities in the Pension scheme in their accounts.  The Fund’s actuary, Hymans Robertson, offered to produce reports for the employers in the Teesside Pension Fund containing the figures which each needed to disclose in order to comply with the requirements of these standards.

Although the Fund was actuarially fully funded, the Employers still had FRS/IAS deficits due to the way the figures in the reports were calculated.  However, it was clarified that the FRS/IAS calculations had no impact on the actual Funding Level of the Fund or the Employers within it.

The Annual Report and Accounts presented to the Board were in draft form and, whilst the main numbers and outcomes were not expected to change, changes might be needed as further review took place.  Some gaps or text from the previous year existed in this draft where further input was required and some charts remained to be updated. An updated draft would be presented to the Pension Fund Committee later this month.  In addition, the audit process was not complete and further changes might be required as a consequence.  When complete and fully audited, the Annual Report and Accounts would be published on the Pension Fund’s website.

AGREED that the 2021/22 draft unaudited Annual Report and Accounts were noted.