Issue - meetings

(a)          The Committee approved the draft Funding Strategy Statement; and

(b)          The Committee delegated the refinement and finalisation of the draft Funding Strategy Statement to the officers before formal consultation with employers.

Mr Middleman presented the key factors to consider when developing a funding strategy. 

He emphasised the importance of the Funding Strategy Statement as part of the Actuarial Valuation as it balances out a number of key risks.

Mr Middleman explained that fundamentally it is the “plan” for the Fund to ensure it has sufficient monies to pay members' benefits when they retire for as long as they live. This is financed through employer and employee contributions, and investment returns, so the balance between the two elements is what the FSS determines.  The other critical aspect is an employer’s covenant.  The covenant of an employer is the ability and willingness that an employer can pay their contributions that we require from them.  This also affects the level and timing of contributions you would request from different types of employer.   For example, a Council would be expected to be able to fund its pension liabilities over a longer timeframe with more certainly than, say, an employer who is reliant on specific funding streams. Therefore, the funding strategy has to take into account these differences.

Mr Middleman noted key points about the proposed assumption changes on the Funding Strategy Statement which was contained in the separate presentation.   The key changes where:

·         A reduction in the discount rate/return outlook relative to CPI inflation.

·         A change in the life expectancy assumption resulting in a reduction in life expectancy for the Fund.

·         A change in the short term pay growth to a minimum of 2% p.a. for 4 years to 2023.

·         An average reduction in the recovery period of 3 years to target the same period to full funding.

Mrs McWilliam queried why there are two different discount rate assumptions; one for past and future. Mr Middleman confirmed that there are two elements for how contributions are set.  Past service is looking at the deficit relating to the benefits that have already been earned. Future service is based on members who are in the Fund continuing to earn benefits, and these have a much longer timeframe to earn returns than the liabilities already accrued as this includes pensions in payment already.

Secondly, Mrs McWilliam asked about the recent announcement of the merging of RPI and CPI. Mr Middleman said that the announcement would not affect the valuation position as this was determined prior to the announcement so assets and liabilities are consistently measured. Equally it is not absolutely certain that the change will happen (although likely) and how it will manifest itself.  Mr Middleman therefore recommended no change in the parameters at this valuation but consideration of this issue will be needed going forward.  However, there was a market reaction to the announcement which will need to be considered in the context of the flightpath and hedging strategy adopted.   Any impact will be reported at future Committee meetings where appropriate.

            Mr Everett said that even the Councils are in different places in terms of affordability so it has to cater for all circumstances and he felt  ...  view the full minutes text for item 21