Agenda item

This report sets out the results of 2025 triennial actuarial valuation and the Funding Strategy Statement (FSS) for consideration and approval.

Sawan Shah (Head of Finance, Pensions) introduced a report from the Corporate Director Finance & Resources, covering the results of the 2025 triennial valuation and presenting the Funding Strategy Statement for approval. In presenting the report key points summarised were as follows:

·            As reported to the Sub-Committee at the previous meeting, the triennial valuation had shown a significant improvement in the Fund's funding level, rising from 87% at the 2022 valuation to 113%. Individual employer results schedules had been produced and communicated to all employers, and an Employers' Forum had been held at the Civic Centre.

·            Every three years, a formal valuation of the whole Fund was carried out under Regulation 62 (1) of LGPS Regulations 2013 to assess and examine the ongoing financial position of the 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 perform a health check on the Fund’s solvency. The last valuation had taken place as of March 31^st, 2022 with the next therefore due to be carried out as at 31 March 2025 with the results to be reported to the administering authority within twelve months of the valuation date.

·            Under the process, the actuary calculates the funding level at each valuation. This was calculated as the ratio of the market value of the assets and the value of the benefits built up to the valuation date for the employees and ex-employees. If the result was less than 100% this would mean a shortfall (deficit) if more than 100% then there would be a surplus.

·            Hymans Robertson, the Fund actuary, had attended the October 2025 Sub Committee to outline the valuation process, and the initial results from the review of the Funding Strategy Statement (FSS).  This had included a presentation of the whole fund results including the funding level, assets, liabilities and the overall deficit level. It was explained why the funding level had improved since the last valuation 3 years ago with the main driver being the significantly improved investment outlook. It was also explained that different employers within the Fund would have different funding levels due to the profile of their members and contribution rates in the past.

·            The results from the valuation process had shown a significant improvement in the Fund's funding level, rising from 87% at the 2022 valuation to 113%. Individual employer results schedules had been produced and communicated to all employers, and an Employers' Forum had been held at the Civic Centre.

·            The valuation was in its final stages, with the remaining steps principally comprising finalisation of the valuation report, which had been produced in draft and attached as Appendix 1 to the report. Since the October 2025 meeting, at which a proposed reduction in the main employer contribution rate had been reviewed based on advanced modelling, detailed modelling and individual employer calculations had been carried out. This had revealed a further improvement across all key valuation metrics, enabling an additional 3% reduction in employer contributions whilst still maintaining the key funding parameters. The proposal was therefore to set the main employer contribution rate at 23% from 1 April 2026 for the three-year valuation cycle, remaining constant across all three years. This compared to the staggered approach taken in the previous cycle, which had been set at 33.5%, 32% and 30.5% respectively. The results demonstrated that the significant improvements from the last valuation on 31^st March 2022 were primarily due to higher assumed future investment returns.  Members noted that the draft valuation report had summarised the process undertaken to date and detailed the valuation results, funding position and employer contribution rates for 2026/27 to 2028/29.

Craig Alexander (Fund Actuary, Hymans Robertson) was then invited to present the draft valuation report in further detail. The key points were highlighted as follows:

·            The draft valuation report set out the final results of the triennial valuation, building on the initial results reported to the Sub-Committee in October 2025. The improvement in the funding level from 87% to 113% was described as a position of real strength and one which the Fund should seek to protect. Craig Alexander noted that, as actuary, he was required to certify the contribution rate and was satisfied that the proposed rate of 23% was prudent, reasonable and justifiable as a long-term rate, set with a good margin for adverse outcomes. It was noted that in the context of the wider LGPS, a rate of 23% would remain at the higher end of what other funds were paying, reflecting Brent's historical position, from which the Fund was now making significant progress.

·            The reduction in contributions was estimated to amount to approximately £5–7 million per annum for the Council and its schools, acknowledging that the precise figure was subject to uncertainty given that contributions were expressed as a percentage of pay and were dependent on nationally negotiated pay settlements.

·            It was highlighted that the reason employer contribution rates had previously been set at a higher level related to the funding of historic deficit, with that position now having broadly been closed. The rate had not been cut to the minimum possible, as the priority was to avoid a situation where rates would need to increase again within the next three-year cycle.

·            Members were advised of the GAD (Government Actuaries Department) Section 13 dashboard, which formed a mandatory component of the valuation report. This statutory set of metrics allowed the Government Actuaries Department to assess the operation of LGPS funds on a consistent basis. The Fund's funding level on the GAD basis had moved from 94% to 93%, a marginal change which did not reflect the Fund's strong position on the funding basis relevant for contribution purposes. It was noted that the full comparative analysis across all LGPS funds would not be available for approximately 18–24 months.

·            Two appendices were noted as not yet finalised: the climate risk analysis, which formed part of the actuarial regulations for LGPS valuations and had been completed in previous valuations in the form of a stress test; and the gender pensions gap report, which was new for this valuation cycle following recent government guidance. The gender pensions gap report would require mandatory reporting of the Fund's gender pension gap using a specified methodology. It was anticipated that this would be finalised and included in the public valuation report by the end of March 2026.  At this stage both drafts had been attached in Appendix 3 of the report (classified as exempt).

·            Turning next to the Funding Strategy Statement, Sawan Shah and Craig Alexander highlighted its importance as a key governance document for the valuation, setting out the underlying assumptions and principles that adopted when valuing the Fund’s liabilities and setting contribution rates as well as addressing the fact that different employers within the fund had different objectives and including deficit recovery periods for different employers.  The draft FSS had been presented to the Sub Committee in October 2025 prior to consultation with employers with members noting that a full review had been carried out to ensure the document was compliant with updated guidance including two new parts to the FSS: Key Funding Principles and Employer Events. In addition, a new policy has been introduced to outline how individual employer contribution rates may be reviewed in-between valuations.  Consultation had then been undertaken with all key stakeholders during December 2025 and January 2026 with the final FSS provided in Appendix 2 of the report  for final approval. The main change made since the draft FSS, had been to update section 2.3 on the approach for stabilised employers to reflect the one-off change to contribution strategy during the current valuation with members noting the outcome of the consultation process and response to a small number of technical questions relating to the treatment of academies compared to local authority schools which had been raised by the DfE.

In terms of comments raised, members noted the positive outcome of the valuation and welcomed the proposed reduction in level of employer contributions, including the Council with the Sub Committee also taking the opportunity to commend officers and advisers for the significant improvement achieved since the 2022 valuation.

Following its presentation and review, the Sub Committee RESOLVED, having noted the content of the exempt appendix, to:

(1)      Note and agree the draft valuation report as detailed within Appendix 1 of the report.

(2)      Delegate authority to the Corporate Director, Finance and Resources to finalise the valuation report before 31 March 2026.

(3)      Note the proposal to reduce the employer contribution rate for the next three financial years for Brent Council, local authority schools and the majority of academies to 23.0% (from 30.5% in 2025/26).

(4)      Approve the Funding Strategy Statement (FSS) as set out in section 3.5 and Appendix 2 of the report