Issue - meetings

(a)          The Committee approved the proposed key actuarial assumptions and funding parameters, in paragraphs 1.05 to 1.10 of the report, which will be incorporated into the Funding Strategy Statement.

(b)          The Committee approved the draft Funding Strategy Statement for consultation with employers (noting some information can only be included when the actuarial valuation is complete) and note the provisional results in paragraph 1.16.

(c)           The Committee delegated the refinement and finalisation of the draft FSS to the Head of Clwyd Pension Fund, before formal consultation with employers, having regard to the advice of the Fund Actuary.

            Mr Middleman explained that the purpose of the Funding Strategy Statement (“FSS”) was to balance the affordability of employer contributions against long-term sustainability of contributions and the financial health of the Fund. He noted the following key points regarding the draft FSS:

-       The draft FSS will be included in the consultation with employers over their employer contribution rates effective from 1 April 2023.

-       He emphasised that whilst the FSS was a structure to support sustainable contributions, it is also the responsibility of employers to consider this in the context of their own budgets, now and in the future. The importance of communication with employers is therefore paramount on this issue as taking materially reduced contributions now, due to the improved funding positions, makes sustainable contributions in the future more difficult to achieve. Written communication and discussions would take place including at the AJCM in December 2022 and feedback from employers on various factors would be brought to the next Committee for final sign off of the FSS in February 2023.

-       A minimum contribution requirement for employers is set via the FSS parameters to target sustainability in the future, and the flexibility within these parameters exists for employers to pay more than the minimum depending on their circumstances.

            Regarding the key parameters for assumptions from paragraph 1.05 onwards, Mr Middleman noted the following:

-       Benefit payments are related to inflation and therefore liabilities are driven by inflation.  This was a key assumption as part of the 2022 valuation.

-       There were many viewpoints regarding the current high level of inflation and how long it would persist, and it is important that the Fund makes reasonable allowance for it over the next few years. It was proposed to increase the long-term average level of inflation from 2.4% p.a. to 3.1% p.a., which was a reflection of the expectation that inflation would stay high for the next few years and then tail off.

-       The other aspect regarding inflation is the fact that the pension increase awarded was based on inflation in the 12 months to September each year. So it is now expected that the 2023 pension increase is going to be 10.1%. Therefore, allowance for known inflation was built in to refine the Fund’s cashflows i.e. the liabilities.

-       Employer contributions are essentially driven by the relationship between the expected return on the assets (the discount rate) and the rate of inflation, as this determines the proportion of benefits paid for by asset returns in the long-term versus those paid for by employer contributions.

-       At the valuation date, Mr Middleman had a picture of what might be a reasonable assumption for the discount rate and inflation but from March 2022 onwards, there was a drastic change in interest rates, expectations and the global economic outlook. This was considered and it was concluded that the assumptions were still reasonable as they had anticipated the increased inflation/lower growth scenarios to a reasonable extent.

-       Mr Middleman proposed to reduce  ...  view the full minutes text for item 26