Agenda item

This report provides an update from the Surrey Pension Fund Actuary on cashflows.

Speakers:

Colette Hollands, Head of Accounting and Governance

Steven Scott, Hymans Robertson

Neil Mason, Director of Pensions (LGPS Senior Officer)

Key points raised in the discussion:

1.    The Head of Accounting and Governance noted that at the last review in December 2023 the actuary reported that the Fund was looking to become cashflow neutral. The Fund was now looking at being cashflow negative by 2028.

2.    The Hymans Robertson representative provided a detailed overview, noting that over the past three years the Fund has been cashflow positive, with contributions and transfers in exceeding benefits paid. However, the net cashflow position has decreased due to high pension increases as a result of inflation, and reduced employer contributions following improved funding positions at valuations.

3.    The Hymans Robertson representative noted that the Fund was approaching cashflow negativity, requiring income from assets to cover the payment of pension benefits. He noted the three inflation scenarios and three contribution rate scenarios. The expected growth was from £200 million to approximately £375 million in twenty years. The contribution projections assume no change in local authority size and constant payroll growth. Under baseline and high inflation scenarios, the maximum required income yield is below 1%. The Fund is likely able to invest to generate required income for pension benefits. The cashflow position would be monitored.

4.    A Committee member noted concern that there would be a significant drop in the number of people employed due to LGR, and so a reduction in contributions.The Hymans Robertson representative noted that would reduce contribution income but would not reduce benefits outgoing, in the short-term benefits outgoing could increase due to redundancies. Modelling could be undertaken in due course.

5.    A Committee member noted that over the long-term most pension funds end up being cashflow negative as there are fewer people coming in than going out, that was nothing to be worried about if that transition is managed well.

6.    A Committee member asked whether modelling had been done on the level of the reduction in employees which would lead to cashflow becoming negative.The Hymans Robertson representative explained that from 2026/27 the Fund is likely to be in a position where benefits exceed contributions income, any decrease in employees would increase that gap; that would be monitored.

7.    The Vice-Chairman noted that the State Pension is suffering from similar issues as pension payments continue to rise but the number of people of working age supporting that has dropped so the retirement age increases. The Hymans Robertson representative acknowledged that issue. He noted that benefits exceeding contributions was a natural position for the Fund to be in, it was vital to ensure that the ISS reflects the income needs of the Fund.

8.    The Director of Pensions (LGPS Senior Officer) noted that if members of the LGPS are made redundant and are of pensionable age, they would be entitled to an immediate non-reduced pension. The employer would face a one-off capital cost to fund that, the short-term effect to cashflow would not be detrimental.

9.    A Committee member noted that there could be resistance against the change to increase the State Pension age. The Chairman noted that there was no indication that the Government would amend the LGPS along those lines.

RESOLVED:

Noted the Surrey Pension Fund cashflow position.

Actions/further information to be provided:

None.