Agenda item

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

The Board received a report setting out the results of the 2025 triennial valuation and the final version of the Funding Strategy Statement.  The Board was reminded that the key headline results would be familiar from previous meetings during the year, as the whole-fund results and assumption-setting process had been presented at earlier stages. The following points were highlighted:

·            The Fund’s funding position had improved from 87% at the previous valuation to 113% as at 31 March 2025, described as a very significant improvement and a strong position for the Fund to be in, particularly noting that nine years ago the funding level had been as low as 55%.

·            Employer contribution rates for the majority of employers in the Fund would be reduced from 30.5% to 23% from the start of April 2026. The Board was advised that an earlier indicative rate of 26% had been proposed in November, but that the final data had produced a further positive shift across most metrics, enabling a further reduction. The rate of 23% had been agreed with the actuary as appropriate, maintaining prudency and protecting the Fund’s surplus while passing on the benefits of improved funding to employers whose budgets remained stretched.

·            The prudency level had been increased from 70% in the last valuation to 80% at this valuation.

·            Draft employer contribution schedules had been produced and communicated to all employers, and had been reviewed at the November 2025 employers’ forum. The Funding Strategy Statement had been consulted upon with the local authority, academy and other schools, and for the first time with the Department for Education, over the winter period. The final version had been presented to the Sub Committee following consultation for approval.

·            The final version of the valuation report from the actuary was expected within the days following the meeting, subject to completion of the remaining appendices.

Following the update, the Chair invited comments from Board members, with questions and responses summarised below: 

·            Regarding cash flow, it was noted that, based on the prior year’s accounts, the Fund had received £73 million in contributions against £60 million paid out in pensions and lump sums, giving a headroom of approximately £13 million. Given that employer contributions were being reduced by approximately a quarter, and that deficit recovery contributions would no longer be needed, a query was raised as to whether this might result in the Fund moving into negative cash flow position.  In seeking to provide assurance, the Board was advised was not considered a cause for concern. In the short term, the Fund held around £50 million in cash, providing ample capacity to pay pensions without issue. In addition, the deficit recovery rate would not be eliminated entirely given the stabilisation mechanism, which caps and collars contribution rate movements to avoid volatility between valuation cycles. The full picture on the cash flow position would not be known until contributions and payments had been running under the new rates for a month or two, likely in April or May. Longer term, most of the Fund’s investments were currently set up to reinvest income rather than distribute it, and the most straightforward adjustment available, should further income be needed, would be to switch a portion of those investments to distribute income or dividends on a regular basis, as many funds were already operating in this way.

·            Moving on to cover negative secondary rates, the Chair noted that certain employers within the Fund appeared in the schedules with a negative rather than a positive secondary contribution rate and sought clarification. The Board was advised that these tended to be standalone employers, generally either newly established rather than converter schools and therefore tracked independently, admitted contractors who had entered the fund for a specific period in connection with an outsourced contract, or smaller employers with a long-standing community link to the borough. Where those employers were well-funded in their own right, it was appropriate to apply a negative secondary rate as a way of effectively returning a proportion of the surplus to them through a reduced overall contribution.

In noting that the report had been subject to detailed review and approval at the Brent Pension Fund Sub Committee, the Board endorsed the approach outlined and RESOLVED to note the draft valuation report (as detailed within Appendix 1 of the report), proposed change in employer contribution rate and Funding Strategy Statement (FSS) as set out in section 3.5 and Appendix 2 of the report.