Agenda item

This report is a summary of manager issues for the attention of the Pension Fund Committee, as well as an update on investment performance and the values of assets and liabilities.

Witnesses:

Lloyd Whitworth, Head of Investment & Stewardship

Stephen Scott, Hymans 

Key points raised during the discussion:

1.    The Head of Investment & Stewardship introduced the report and provided a brief overview. Details could be found from page 45 of the report.

2.    In regard to discount rates, Cllr Williams said that it seemed like an appropriate approach in the current difficult climate. Cllr Williams said that modelling different scenarios with different discount rates would be a factor in decision making and asked how modelling had been a factor of the methodology. The representative from Hymans explained that the discount rate was not being set in an arbitrary way and that it was consistent with how the assumption was set at the 2022 valuation and that it was important to keep a consistent level of prudence when setting a discount rate.

3.    Cllr Potter noted the assumption salary increases of 3.6% and asked if it was for the next period or a long-term average, and the reason why it was 3.6% during the current economic circumstances. The representative from Hymans confirmed that the salary assumption was for the long-term and that it was assuming 3.6% per annum over the next 20 years and that this was set relative to CPI inflation. The representative from Hymans also stated that it was important to note that the importance of the assumption within future valuation would diminish over time. 

4.    In regard to the summary of quarterly results, Cllr Potter noted LGIM Gilts’ performance, and stated that there were a number of benchmarks that were either identical, or very similar, to the actual performance and asked how the benchmarks had been calculated. The Head of Investment & Stewardship said that, because the holding in LGIM Gilts’ came out of a product that was established years ago regarding equity protection, it was never subscribed a benchmark, so for consistency on the table, the performance was mirrored on the benchmark. Members further noted a brief summary of how the other benchmarks were produced. Cllr Potter said that the relative performance was often the most significant metric and so it was understood why there were benchmarks that reflect the market as a whole, however, for those that do not have a benchmark, it was slightly misleading to include a benchmark that reflects the actual performance. The Member suggested that, in future reports, the benchmark section was left blank when no benchmark is available.

5.    Committee Member Kelvin Menon asked for clarification on what had changed in the previous six months to enable officers to believe that there would be almost 50% more return over the 20 year period. The representative from Hymans explained that the significant change had been rising interest rates over the period, and that it was expected that rates would be sustained over the coming years,

6.    The Committee noted that there had been benefits of investing outside of the United Kingdom and during times of fluctuating rates of pound sterling.

Actions/ further information to be provided:

None.

Resolved:

The Pension Fund Committee noted the main findings of the report in relation to the Fund’s valuation and funding level, performance returns and asset allocation.