Agenda item

This report provides an update to the 2025 triennial valuation including a report from the Fund actuary, Hymans Robertson.

Speakers:

Steven Scott, Hymans Robertson

Anthony Fletcher, Independent Advisor

Lloyd Whitworth, Head of Investment and Stewardship

Key points raised in the discussion:

1.    The Hymans Robertson representative outlined the four key decisions to be made and the summary of the recommendations on the assumptions.

2.    The Chairman asked what the most important assumptions were. The Hymans Robertson representativeexplained that it was the discount rate; he highlighted a chart showing the expected funding level based on the current level of prudence and the proposed increased level of prudence. The Fund could increase its prudence which improves the likelihood of positive future funding outcomes, without having to increase contribution rates for employers. He noted the contribution stability mechanism whereby rates cannot change by more than a certain percentage in a year for major employers.

3.    A Committee member noted that it was sensible to increase the level of prudence given the global situation. 

4.    A Committee member noted the need to think carefully about the messaging explaining why the contributions could not be reduced by a larger amount, despite the Fund having a high funding level. The Hymans Robertson representativenoted that he would liaise with officers to get the communications right.

5.    The Hymans Robertson representative outlined the rate setting approach, noting the likelihood of success of a given contribution strategy leading to an employer meeting the funding target in the long-term, and the risk of regret. He outlined the analysis undertaken using quantitative and qualitative factors.He outlined the strategic actions possible from the modelling. The Fund would be in a cashflow negative position if contribution rates are reduced but that could be managed.

6.    The Independent Advisor referred to the decision framework and asked whether Hymans Robertson had used the expected returns as they currently are. The Hymans Robertson representative noted that Hymans Robertson was allowing for full asset return expectations; he stressed that contribution stability is important.

7.    The Chairman asked how confident Hymans Robertson is that the data used in the assumptions is realistic.The Hymans Robertson representative noted that Hymans Robertson was highly confident, the analysis was done in advance of the valuation date to give employers advanced notice of the expected contribution rates. He explained that asset shares are tracked monthly for each employer, and there might be a small shift in the final valuation data, but that would not be material.

8.    The Head of Investment and Stewardship asked about the implications between the higher and lower funding level and how that would affect asset allocation. The Hymans Robertson representative noted that Hymans Robertson would never look to constrain the ISS, it tried to identify a sensible way to set contribution rates.

9.    A Committee member queried what mechanism would be used when providing cash when the Fund becomes cash negative.The Head of Investment and Stewardship noted that over the years there had been a switch between taking and not taking income. BCPP was working on a programme offering income units as well as accumulation units so income could be realised quickly if needed.

RESOLVED:

Noted the report from Hymans Robertson and approved the recommended valuation assumptions.

Actions/further information to be provided:

1.    6/25 - The Hymans Robertson representativewill liaise with officers to draft the communications to be issued regarding employers’ contributions.