Agenda item

The purpose of this report is to update the committee on the 2025 Triennial Valuation and to introduce the report from the Fund Actuaries (Hymans Robertson) on the key assumptions.

Sawan Shah (Head of Finance) introduced a report from the Corporate Director Finance and Resources updating the committee on the 2025 Triennial Valuation.

In presenting the report the Sub Committee was advised of the process, undertaken every three years, in terms of a formal valuation of the whole Fund.  The purpose of the valuation was to compare actual experience against assumptions made at the last valuation; value the assets and liabilities of each individual employer and the pension fund as a whole using data from the Fund’s administration system and financial records; set employer contribution rates, including for the Council, for the next 3 years (1 April 2026 to 31 March 2029); review the Funding Strategy Statement (FSS) and also perform a health check on the Fund’s solvency. Members were reminded that the previous valuation had taken place in March 2022 with the current valuation process to be carried out as at 31 March 2025 and the results being reported to the administering authority within twelve months of the valuation date.

Craig Alexander (Hymans Robertson Partner and Fund Actuary) was then introduced to the Sub Committee who provided a presentation on the key inputs and assumptions identified as the basis for undertaking the 2025 valuation, as set out in Appendix 1 of the report.  Members were advised that the assumptions had been designed to reflect both current market conditions and long-term expectations as well as being benchmarked against industry standards and LGPS-wide trends to ensure consistency and prudence.  The following key areas were highlighted by Craig Alexander (Hymans Robertson) in presenting the assumptions to the Sub Committee:

·            The background to the valuation assumptions, with the key focus on the discount rate (used to value liabilities to be paid out in the future); Future investment returns (the rate of return the Fund’s assets were assumed to achieve in the future); Future price inflation (CPI); Salary expectations; how long pensions would be paid for (longevity) and other demographic assumptions.

·            The funding progression and general market insights since the previous valuation in 2022, which had seen an improvement in the whole fund position.

·            An outline of the key financial assumptions, which included considerations in relation to:

Ø   the level of prudence & Future Investment Returns (Discount Rate) leading to the recommended increase in prudence level from 73% to 80% for the 2025 valuation.  In general, it was stated that Pension Funds were expected to be prudent, with most funds currently moving to minimum targets of 70%-80% or above. This was even more so the case following the recent global developments and whilst the decision was noted to be subjective to individual cases, an established process was expected to be put into place for the purposes of good governance.

Ø   Benefit & Salary Increases leading to the recommendation that the same approach be adopted for the 2025 valuation as in 2022, reflecting the current inflationary environment;

Ø   the recommended continue use of the tailored Club Vita assumptions in terms of longevity and adoption of the overall Club Vita LGPS future improvement assumption with other demographic considerations and assumptions based on analysis of the Fund’s actual membership experience.  An example was provided in relation to operation of the longevity assumption with figures updated annually.

·            The summary of the proposed key assumptions being recommended for adoption in relation to the 2025 valuation process as compared to the 2022 valuation along with the additional detail provided within the full advice report attached as Appendix 2 to the main report, which it was noted had been classified as exempt and contained further background on the basis on which the assumptions had been developed.

In terms of timescales, the Sub Committee was advised that the 2025 valuation process had now commenced, based on the indicative timeline set out in section 3.2.6 of the report.  It was noted this would include consultation with employers, currently anticipated for October 2025, with the need for complete and accurate membership data also identified as critical in ensuring the valuation results are accurate.  Based on the timetable outlined it was anticipated that the valuation process would be completed by 31 March 2026 with new contribution rates payable by employers from 1 April 2026.

Following the presentation of the report, the Chair invited members to raise any questions or comments, with the issues highlighted summarised below:

·            In response to a question regarding the differences between LGPS average life expectancy and the national average, Craig Alexander (Hymans Robertson – Partner & Fund Actuary) provided further clarification highlighting the principal distinction in the national average not accounting for every individual as being in, or having been in, employment, whereas the LGPS tended to estimate marginally higher life expectancy overall. The LGPS data was also adjusted to reflect more specifically the demographic characteristics of the areas under its coverage. Craig Alexander subsequently confirmed that longer life expectancy increased the financial contributions required within a scheme with reference made to the example provided during the presentation in relation to application of the longevity assumption model in Glasgow.

Members welcomed the report and, with no further issues raised, the Chair thanked Craig Alexander (as Fund Actuary - Hymans Robertson) for his presentation and update provided.  Consequently, the Sub-Committee RESOLVED, having noted the additional detail provided within the exempt appendix of the report, to:

(1)       Note the update on the 2025 valuation.

(2)       Note and agree the key assumptions for the 2025 valuation as summarised in Appendix 1 and detailed in full in Appendix 2 (classified as containing exempt information) within the report.