Agenda item

The Funding Strategy Statement (FSS) was prepared in collaboration with the Fund Actuary and formed an integral part of the triennial valuation.  The FSS also outlined how the funding strategy fitted in with the Investment Strategy.

The current FSS was last presented to the Teesside Pension Fund Committee on 23 June 2021, to reflect updates required for the administering authority to be able to exercise powers in relation to “employer flexibilities”, for exiting employers and for contribution reviews between triennial valuations.

The 2022 review has focussed on adapting the FSS to the changing regulations and environment within which the Fund operated.  The 2022 review also reflected the updated approach to funding, working with the new Fund Actuary - Hymans Robertson.

The evolving challenges, increasing diversity of employers, and growing complexity and regulation in the LGPS over the last few years meant that many LGPS Funds had found themselves with an FSS that had become understandably, but increasingly, long and complex.   While the purpose of the FSS was to act as a compliant and robust reference document, it was acknowledged that a more streamlined document and modular approach to policies would improve accessibility and useability - ultimately making it more practical for all stakeholders, and particular employers.

The revised structure would be a streamlined core FSS document which was complemented by a number of satellite policies.   This would replace the current approach of having a single FSS covering all circumstances.

Alongside the restructure there were regulatory and other updates required since the current FSS was prepared.  The most significant changes included:

·        Review of funding assumptions and approach

            The actuary has reviewed the funding approach and assumptions as part of          the 2022 valuation. These had been          updated to reflect Hymans Robertson’s         actuarial methodology, and emerging experience and market conditions

            as at 31 March 2022.  The Committee considered and noted these at its 29           June 2022 meeting.

·        Climate risk

            The Fund recognised that climate change was a key risk due to the open-ended   time horizons of the liabilities.  As part of the modelling analysis for reviewing     the Council’s contribution strategy, the Actuary would stress-test the results   under additional climate scenarios.  The Fund’s draft FSS would clarify this             ongoing work.

·        Risk-based exit valuation approach

            The Fund was reviewing the approach to cessation valuations that were carried    out when an employer left the Fund.  The current approach was closely tied to       gilt yields on a particular day, an approach which introduced much volatility into            cessation valuations over time.  The new approach under consideration would instead be linked to the expected investment return of the assets held by the         Fund, with a prudent level of risk incorporated for the protection of the Fund.       Details of this proposed approach would be made available by the Fund Actuary for discussion with Officers.

A draft version of the FSS and policies was being prepared by Officers and Hymans Robertson working in collaboration.   LGPS Regulations required the FSS to be subject to formal consultation with employers.  This would most likely take place during December 2022 and January 2023.  Following the end of the consultation period, any comments received might lead to amendments to the document.  The Committee would be requested to approve the final version of the FSS at its 15 March 2023 meeting, which would enable the Actuary to sign off the final valuation documents in time for the statutory deadline of 31 March 2023.

ORDERED that the report was received and noted.