Transcript

Welcome to this pensions board meeting. My name is John Jones. I'm the independent chair of the board and I'll be chairing this meeting today This meeting is being webcast live on the council's website I'll now ask board members present to introduce themselves and please can you also state any? declarations of interest you may have in in any agenda items and the nature of the Interest so just going round to start with David Good Good morning My name is David Thompson. I am a retired member and I have no conflict of interest on the agenda chair Thank You councillor councillor musta government Thanks, and it's going to the Going to the screen online Annette you can go first, please Morning Annette McKenna representing employers admitted bodies. I've nothing to declare Thank you and Chris Chris Boiler Yeah, Chris Boiler. You introduced me there for for everyone. That's good Representing employers and nothing to declare. Thank you and John John Gray Yeah, John Gray represented employees on admitted bodies Nothing to declare. All right. Thank you all everyone Perhaps just go around just in officers. Can introduce yourselves. I'll start with the abdul Morning all my name is abdul raza qasim. I'm the director of finance. Thank you Julie Thanks and Paul Paul I'll do interim head of pensions and Treasury and I think there's that everyone over on the screen. We've got Carol. Yeah Carol owes, I'm the legal advisor to the board Right. Thank you all everyone moving on then to item two declarations of interests for Hana Sorry, apologies for absence on them. Can't read what I'm yeah, we've had apologies for absence from NECA Thank you So moving on then first item is unrestricted minutes of the previous meeting So starts on page 9 of the agenda. I'll take these one by one so page 9 Page 10 Page 11 Page 12 Page 13 On page 14 Page 15 and Page 16, can we agree those minutes, please? I mean unless any points you want to raise Yes Yes chair the just confirmation please I waited till the end overall on three areas That we may be going to touch from Paul An update on that, you know the publication of accounts which we considered in July That we met the deadline for the unaudited commission submission. I realized that it's just the latest following then the ten outstanding admission cases that we covered and finally the Confirmation we're going to look at the compliance statement. So those three items were minuted Paul Thanks Jeff on the first one the accounts are currently undergoing statutory external or daily audited and We are still Targeting the accounts to be audited in time for the the accounts And as for the other issue which This is a food. I'm sorry if you remind me please what that's okay yeah, the ten outstanding admissions cases an update on those that was work in progress and finally the The compliance statement that was in work in progress as well Thank you as for the first one offices, you know working and at the stage of actually engaging the Legal there's a program a lot of progress has been made And and and likewise as well. I think we're working very closely with you know hymens or the governance Julie did you want to say anything? Yeah, it was just I can probably give you a bit more of insight into an update into the east of both worlds David between two sets of external auditors Deloitte's completing their tenure up to Twenty two three twenty four is actually the 28th of February is the date that we're working to so Every councils in a position where the auditors have been right board it that said Deloitte's on track happy to the 13th of December deadline Ey4 period to their standard. I just want to be very transparent and say fine with Deloitte's ey Naturally pushing very hard because it's their first year audit so far. We just back on track. I will know that Later this week with a pension specifically. I just wanted you to be absolutely away No, thanks for that. It's very and presumably we'll get further update later in the meetings But I'm sure we will but I mean it's reassuring to hear that there's progress being made because it's a long-standing issue, isn't it? Okay, if there's no more comments on the minutes, can we agree those everyone happy? Yeah, I'm seeing nods here So thank you for that Now moving on I was going to suggest that we did our training first because Barry Dodds is here from Hyman's So is everyone comfortable with that? Yeah So really over to you Barry to take us through and are you gonna are you gonna put the Have you got a link to the screen or I do or not? You don't say no, fortunately, hopefully everyone has this Pack, so this will be in the restricted The supplementary Okay, men treat back It's page 215 of that 250 I think is we're starting Yeah, 215, yeah, yeah, I'm ready so everyone got that Everyone find find their way there Right Okay, okay Barry, yeah, I'll talk through and I'll kind of see page numbers when When I'm moving Because I'm not I'm not actually in the meeting kind of fun teams, so I don't have the team's invite There we go, okay Um How long are you willing to give me John? I'd say maybe half an hour. Is that okay? Yeah Okay So yeah, and the idea behind this session is a little bit of a kind of recap to kind of refresher on what an actual evaluation is just Maybe kind of people who haven't been through one before and there may be seasoned professionals who have been through a few I know John's probably been through a few but just a couple of slides to remind everybody what it's all about or give a bit of background and then a little bit of a kind of update on what's happened since the last valuation in the markets and so on and Any emerging risks and so on and I'm kind of concentrating a little bit on those risks what we'll be looking at the challenges that we might face at the 2025 valuation and Finish off with a little bit of Valuation where we see things being done and when It's obviously your your guys role in this whole process is very important kind of overseeing committee what they're doing through making sure the Processes is done appropriately So yeah, hopefully this gives you a good bit of background as to what's going on and why So Apologies if this is a bit kind of basic first for some of you who will know this All already, but we'll start with a very basic kind of how the fund works So the fund is basically a pot of money that that employers are paying money into employees who are members and active members are paying money into it as well and The fund invests that money in various different asset classes In order for that pot money to grow And then what comes out at the end? Each month to anybody who's eligible for benefits is that the monthly kind of pension benefits that they're entitled to? So the overriding kind of goal of the valuation is basically kind of to make sure there's enough money To pay those benefits. So it's it's quite easy to kind of lose sight sometimes of The actual purpose of the fund when you're looking at investment stuff and it can be quite heavily investment oriented Members that have been earning them So How do you actually get the two sides of that kind of balance sheet to work? So on the left-hand side here, we've got kind of the money coming in or the money that's already held in the fund So you've got employee contributions As I said employer contributions and investment returns on that invested pot of money and on the other side You've got the benefits that are to be paid out Now you'll see the two kind of padlock symbols there and there's two things that are pretty much gonna locked in place Can't really be influenced Overly by by the fund So that's employee contributions, which are set out in regulation are so the fund doesn't have any kind of influence really over over what those are the other two items there are Where the fund does have some influence and that's employer contributions So every three years we look at the valuation and we decide on an individual employer basis How much they should pay in going forward for the next three years and the investment returns So obviously here the fund is in charge and the committee makes decisions on investment allocations investment strategy And so that is where the fund has a big big influence there on investment returns in terms of the valuation The employer contributions are that kind of main tool that we can use to to make sure held What the other reasons we do a valuation Well, you're at that top one mentioned already calculate employer and contribution rates. So looking at each each individual employers position Were required to by legislation. So that's a very good reason to do one It's a good opportunity to analyze the actual experience over the past three years against what we assumed the previous valuation and We also review what's called the funding strategy statement which is a bit like kind of the Bible if you like of the of the fund in terms of how employers are treated to the way in and on the way out of the fund if they do leave and It's just a good opportunity for a health check on the solvency of the fund at one particular point in time I'll mention as we go through probably quite a few times When we look at an actual valuation, we look over the long term into the future This is a fund that's going to be around for a long long time. You've got members From from all aspects and so there will be a lot of benefits to be paid out decades into the future. So Whilst we we look at a funding position at one point in time for the valuation that says focusing on what is the position right now? How do we do the valuation so there's a lot of inputs we got we get a lot of data from Paul and his team In terms of membership in terms of their service salaries Pensioners pensions that are payable and so on We also make financial assumptions, which we agree at committee in advance We also meet demographic assumptions So about what one protects very important is life expectancy that can have a big impact and I'll mention that again later on And also obviously the LGPS benefit structure is an important input in terms of when we're calculating the benefits that might be paid into the future So in the middle there, there's a picture of a very old picture of me I still have some here there and and a picture of my colleague Richard warden who's another another fund actually who works on your fund so yeah, we do our kind of actuarial modeling in the middle using all that all those inputs that are agreed in advance and We come out with the kind of primary outputs. There are the funding level which is basically what are they said? That's a snapshot in time on that one day But probably more important to certainly to the employers is the contribution rates that we come out with at the end of the valuation and So there's two different elements to the contribution rate that is published there's what's called the primary contribution rate and that is an estimate of the cost of the Benefits that are accruing in the future. So nothing to do with the benefits that have already been earned just it's now What is the cost of that going forward? The other element is what's called the secondary contribution rate and that is basically What is required other than that primary rate to make sure we have enough money to pay future benefits? to pay the overall benefits I Should say at this point that the primary contribution rate that's the future benefits the cost of that makes up the vast matter paid by employers Now On to the next page two to one key decision of the valuation and is Around kind of where you put that kind of pink line in this diagram So this diagram has liabilities on the left hand side the little blue box at the bottom left that's the benefits earned up until now up until the valuation date and They're kind of light green bigger bar. There is the benefits that are going to be earned in the future So there will be a far bigger amount of benefits earned going into the future and coming decades than there has been already And that's that's a key focus of the valuation on the right hand side there. We've got What the assets might look like so the assets today? Are will come to the funding level update shortly But the assets today are a bit higher than the value you were placing on the liabilities at the moment But the key really is where you put that pink line between kind of how are you covering the benefits that are going to be? earned in the future And that pink line is kind of how much are you relying on? Contributions from employers and how much are you relying on investment returns on the assets that you've already got that's a key key funding decision Now just to kind of show you kind of the balancing act here you've got this is a Fairly simplistic kind of diagram here, but on the left you've got what you might call like in a higher risk funding strategy Which says we're going to rely a lot and basically make the employers pay less because we're relying a lot more on the investment returns But on the right hand side, you've got what you might call a lower risk funding strategy. It says actually The contributions for employers is a bit higher so you've got a kind of Level this balancing act out in terms of what what the funds approach to prudence is And how we look at that at the valuation time So we'll start off with a bit of our kind of what's happened since 2022 so this chart shows The asset movement and the liability movement since the last valuation Catch up on the screen there and so The green line is how the assets have moved since the last valuation and the blue line is how the value of the liabilities has changed Over that period now, you will see the green line has gone up a bit since the last valuation But actually the biggest impact has been dropping the blue lines and the value placed in the liabilities Now in terms of the actual numbers So the funding level at the valuation last time around was one hundred and twenty three percent as at the end of June It was one hundred and sixty percent one hundred and sixty three. We've estimated so Now asset returns up until kind of September 23 were pretty pretty kind of minimal and they have picked up a bit since then Which is why you can see a bit of a jump towards the end of the green line there but as I say the main the main impact has been can a rising interest rates and the corresponding and higher expected returns on the assets that the fund holds so Generally speaking if interest rates go up and you can get higher returns on low risk assets You would expect to get higher returns on your higher risk assets that you hold as well within the fund So that's had the main impact there because the more expected return you're getting on your assets the lower value Replacing the liabilities because you don't from other elements There has however been high inflation over that same period as well I don't think anyone will be unaware of the last couple of years of inflation and And that does have a knock-on impact on the pension fund so pension increases in 2023 were ten point one percent and in 2024 was six point seven percent, so Much much higher than we we would have assumed from a kind of long-term Perspective and much much higher than the Bank of England's kind of target of two percent for for CPI Now that does have an immediate impact on the funds can a net cash flow because if you're paying out Benefits and you're paying a ten percent higher pension and one percent higher the next that has a cumulative Impact on your your cash flow position. You're paying out quite a lot more than you were expecting to So that's that's enough kind of income from the investments to cover whatever is necessary Now inflation has dropped back down over the last last year or so And in particular over the last few months back down to kind of what we'd seen generally before or in kind of two to three percent But actually the future inflation still remains pretty uncertain And so that's something we'll be bearing in mind going forward and particularly at the valuation So monitoring inflation is is very important in terms of your long-term benefit cost and manning the short term I kind of touched on the investment outlook before this chart kind of puts it into into numbers so along the the kind of horizontal axis the bottom axis there is what position was at the two in terms of expected investment returns on different assets and On the vertical axis is how that looked at 30th of June 2024 so I'll kind of pick one out as an example. So the overseas equity up at the top there Back in March 2022 and we're expecting round about six that has actually increased to about eight percent per annum As of kind of two and a bit years later Into June there and there's been similar trends across the other the other asset classes as I mentioned earlier Primarily driven by that increased interest rate environment where if you're expecting to get higher responding, they'd be expecting a bit higher returns on those As I mentioned that leads to a lower value being placed on the liabilities because you're actually expecting the assets to perform better And so the liabilities lower but we would kind of Warn for some caution at the the 2025 valuation because similarly to inflation investment return pretty uncertain pretty volatile volatile at the moment So the fact that there's an improved kind of funding level at that point in time. There is there is perhaps increased uncertainty Yes, sorry for the abbreviations there fixed interest gilts and index linked kills. Yeah So the key funding risks we've kind of touched on and Touched on already about investment returns this chart shows you in kind of risk-based terms How the investment returns for for the funds portfolio of assets looks as at as at the end of June So Your fund at last valuation used a prudence level of 65% So you said kind of 65% is we're going to use and as I mentioned future investment returns remain uncertain this chart shows Various different prudence levels if you like and the corresponding investment return at that point in time so for example, if you push the prudence level up to 80% and That would correspond of getting a 5% return or better Over the next 20 years or so, and if you use that kind of five and a bit percent investment return assumption your funding level would have been around about 130 percent That you'd have been showing so it places a higher value in your liabilities because you're expecting a lower investment return into the future So prudence levels are something we'll be looking at in quite a bit of detail During the valuation to see is this an opportunity given we're in a much earlier slide to catch up here and Mentioned how inflation and the cash flow impact of that this this chart isn't actually your fund But I can similar big similar fund in terms of go in the general GPS So I'll just explain the chart a little bit so that the pink bars are kind of projected contributions coming into the fund from employers and employees The green bars are the projected benefit outgo over the next 20 years or so and The black line is basically kind of the net position of those two kind of the the outgo Compared against what you're expecting in from employer contributions now as I say this isn't your fund in particular But is one of a similar similar nature and one that we're kind of a picture We're seeing across quite a few funds at the moment due to that high inflation over the last couple of years And that's showing that actually cash flow negative is becoming more likely so being in a position We're actually you're paying out more to members than you're getting in from contributions And that's not necessarily a bad thing. You have a whole pot of money sitting there as well That is to be used to pay benefits So it's it's not it's not necessarily a bad thing in general that you're actually paying out more money than you're getting in because you Have a pot of money there to pay benefits but it is just something you need to be conscious of in terms of having the liquidity In your assets if you do need to have more income from them that you can then pay the benefits from So that cash flow position is very sensitive obviously to future levels of inflation Because that will impact on the benefit outgo the green bars there If inflation is high in the future, then those green bars will be bigger. You'll be more cash flow negative But it's also worth bearing in mind on the the pink bars as well if at the next valuation There is a disuse contribution levels because we're in a good position and perhaps as a fund afford to do so Then that could worsen this cash flow position further because you're then getting less money in and therefore the cash flow position becomes more negative So just worth bearing in mind as we go through the process that there are kind of knock-on impacts of various different elements Yeah so the intention would be here that be more kind of cash flow monitoring goes on and Going into the future in particular when we get the data for the valuation I mentioned briefly earlier on and what we call demographic assumptions and that the main the main to page 230 This if you can kind of zoom in you might need to zoom in to kind of see particular areas but this is the local kind of Tower Hamlets area and this is from our partners at Club Vita heat map of life expectancy within within the area and Club Vita data from millions of different pension members throughout the UK and I think they cover the definite life expectancy assumption at each valuation So you'll see the kind of the key down the bottom right there and the kind of darker blue the better in terms of sorry the worst in terms of life expectancy and The kind of darker green is the higher life expectancy and so you can see it kind of varies in different areas But it's it's really insightful in terms of the information we can use from a value system each valuation So that's really useful we'll look at that again and going forward That can be used as I say for kind of baseline life expectancy What we call baseline life expectancy is kind of what that looks like now based on the data. We're seeing But we also have to consider what that might What impact there might be in future in terms of life X improvements over the last few decades and through this? improvements in health care and so on lifestyle changes this chart shows how that kind of Impacted over the years from 2011. So pre 2011. There was quite kind of steep Increase in life expectancy since 2011 that's gonna tailed off a bit and then obviously 2019-2020 COVID that That impact you'll see a steep steep Decrease in the line there it coming down The impact of the pandemic is still uncertain in terms of the long-term impact on life expectancy We're obviously looking at that data making sure we're taking as much information from the data as we can And what we'll do is part of the valuation is look into that in a bit more depth as to kind of look at different I continued kind of decline in life expectancy for whatever reason so there's various different Approaches we can take to look at that and see what the impact might be in terms of the funding level going forward Yes, yes, so this is this is national figures Yeah national figures LGPS is actually bucking the trend a little bit in the sense that the Nationally, the life expectancy has dropped and quite a bit during the pandemic and in the LGPS tend to be a bit more Comfortable, there's more comfortable people that kind of comfortable income level For example in the LGPS compared to nationally over that's that's one impact that we do see a difference and that's that's a key So that's that's a key Key advantage again of using Which is key so we have a policy of Increasing members of the works tower Hamlet's and our and demographics Yep, no very good points and I can assure you it's entirely focused on your membership Each member of your fund is looked at individually and where they when you get the data on The demographics of where our members are will you be able to share that Specific piece of data I don't want to use of a pendulum use It won't reach where you should have that already in the sense that we get that Information from Paul and his team in terms of lives when you when you do when you do the kind of heat map and Yeah, I mean we can show you I'll consult because it's it's kind of club Vita that do it specifically And but I mean actually there's a link to the you can see the whole country and see the heat map across the whole country I'll see if there's a way of kind of specifically kind of highlighting the areas where we're Your membership specifically kind of clusters if you like and I know I'll come back to you and that might be the club Vita Can can give you that information yet? You know, I thought there was because obviously some parts of the country Compared to others the longevity that you know, if you live in certain areas and certain genders you likely to live longer than yeah Yeah, I think I'm sure that's I sure this has come up before in valuations when I've been involved. Anyway, yeah Yeah Yeah, absolutely and and actually that's great the link in the slides there It's quite interesting for into gonna life expectancy because it does show you can Moving on to Another area of risk that we'll be looking at and a lot more detail evaluation climate risk so We have the past two valuations and looked at climate risk and done some climate risk modeling and what we're doing is the modeling around climate risk is very new and is always developing and what we're trying to do from one valuation to the next is always develop that and make sure that we're Realistically Modeling what may or may not happen in the future now There's wide variations obviously of what might happen in the future climate risk wise and so we're kind of trying to look at More real-world examples and and and show what that might look like from a real-world narrative of a position And so as part of this valuation, we'll be looking at kind of specific examples like a kind of global food supply shock similar to kind of what happened in Ukraine and when there was kind of green shortages when Russia invaded initially And so can we can see those kind of can be knock-on impacts worldwide around and the economy and we can also So we can look at not only the effect on the economy and your your assets that you might hold but we can also look at them kind of the longevity life expectancy impacts as well of Climate risk and can a balance those two out and see what that might look like in various different scenarios So we've further developed the modeling that we did in the last valuation to make it a bit more Kind of real-world examples and and make sure we're showing kind of potential realistic situations As we go through the valuation So this next slide kind of shows just a few different elements that we've discussed And so yeah, basically it's a challenging environment for the next valuation We are in a much better position Financially than we were in terms of the funding level than we were at 2022 But there are different challenges this time around so you've got kind of More volatility in terms of market risk more volatility in terms of inflation mean cash flow risk as well Life expectancy is a bit more Bit more challenging in terms of what that what that might look like in the future Got climate risk and you've also got kind of covenant risk as well in terms of employers that are in the fund. So How are we going to deal with that in the 2025 valuation It all kind of comes back to this chart and kind of where you put that that pink line And how much do we want to rely on future investment returns? How much do we want to rely on future contributions from employers? and We are very likely to be in a surplus position at the next valuation. So moving to slide 200 page 236 We are likely to be in a surplus at the next valuation unless there's some kind of catastrophic event over the next few months and so there's four kind of Different things you can do if you're in that surplus position, you can reduce employer contributions. That is an option You can change the investment strategy. You can say right, okay We maybe we go for a less risky investment strategy because we increase the prudence levels So I mentioned earlier about prudence and that the prudence level that was set at the last valuation was 65% There is there will very likely be scope to be able to increase that prudence level So you actually want to be a bit more prudent want to be a bit more secure about about the returns we're going to be getting or You could aim to retain some of the surplus you can see right instead of just aiming for 100% funded since we're 150% funded maybe we aim for 120% funded instead and so we have a buffer there in case the future events aren't Exactly panning out as we expected. So that's another option as well to kind of shoot at a higher funding target and It's not that you just have to do one of these things and stick with one of them You can do a kind of blend of blend of more than one So it's kind of seeking that balance of employer affordability, but also long term sustainability You still want to make sure And I'll finish with this Which is just a bit like in a roadmap of the valuation I'm not going to kind of the specifics, but it's got various different parts of the valuation where We'll be coming back to committee and board About various things around funding policies assumptions The results themselves and the modeling of council contribution rate in particular Employer results as well towards the end of 2025 for those and then finalizing the valuation in advance of the March 2026 deadline play on the 1st of April 2026 Okay, thank you very much open it up any questions or issues anybody wants to rise while Barry's here David And thanks the team for bringing this training session and very Really insightful into the very big picture But as Julie said earlier matching that very big picture to local needs What you seem to be inferring and in that last summary slide of the options? when you have a surplus If you change your investment strategy you were inferring earlier on that you should change it to An option is to change it to a liquid investment option So that you can deal with volatility more fluently and I just wanted you to Confirm that because we are looking at that late later on in a later paper And then the other one is about the frequently repeated employer contributions just for My refresh is there a floor and a ceiling to employer Contributions and if so, where is Tower Hamlets in that? Full stop Thank You Chet Okay. Yep. I'll do with your first question first. So around liquidity and Yes, we are we are seeing funds quite a few funds moving into some more liquid assets You wouldn't go fully into everything being liquid but but enough enough to make sure you're covering Any necessary cash flow requirements? So yes We are seeing funds kind of looking at that and saying do we have enough income at the moment in the assets that we have To cover the benefit outgo the liquid assets Or more more income-based assets and so we do see that a bit in terms of this slide on page 236 the change in investment strategy was Not just around the liquidity angle, but also around the kind of risk return ratio and kind of perhaps looking at Moving and this is just an option but in terms of your investment strategy And therefore you would you would therefore expect to get a lower investment return because you're taking less risk And that that way because you're you're taking less investment risk Your second question about employer contributions, is there is there a floor and a cap? Technically, well technically there's a floor of zero in the sense that you can't start giving money back to the employer So the floor of zero contribution zero percent contribution rate there's more than There isn't a cap as such and and there is it's important to note that there's more than one employer in the fund as well So obviously the council makes up the vast majority of the fund but there are various other employers in the fund as well and Who are as we look at each employer individually at the valuation and see what is your funding position look like? So that kind of hundred and sixty odd percent funding level that's for the whole fund But we then drilled out of the different individual employers who won't all be at funding level I think we mustn't get ahead of ourselves on contribution rates because either value a no no It's all right. And also we probably need to talk about some of this in part two if we get to it because yeah as well Yeah, I'll not be too general principles So the only other thing I've mentioned is and from the council's perspective There is a what's called a stability make increase or decrease in the contribution rate in any given year so that's and that's Particularly in place. It's basically to smooth out the contribution rates So in the good times so that you don't drop down too much So you've got a bit of a buffer in the bad times and then in the music the contribution rates over the good times in the bad times Okay, I can see John Johnny hands-ups over to you Yeah. Yeah. Thank you, John and thank you Barry for the presentation. I've got two questions I'm my first is I personally I'm convinced that the Local government pensions scheme as a whole is in good shape because of improvements in the scheme I keep coming across people who claim it's all an illusion and it's it's been driven by the the exceptional inflation We've had we've got to to reducing the cost of liabilities and Also helping with some again what they claim is illusion of Returns and obviously that's if there's any truth to this This is a problem. This is also for the for the private DB sector as well the second one is is all local authorities are desperately hoping that the new government's going to come out with Pots of money in the autumn statement, which is going to stop Quite significant risks of redundancies in the future because local parties as a whole are broke And again, well people saying there is going to be no pot of money in the autumn statement so if that happens and if Employer councils have to make significant redundancies and more people of suit are early You know, how do you quantify that risk? Thank you Thank you very much two very good questions and so the first one around kind of is this basically is this situation real or is it not and Kind of comes back to this investment return slide that I put up here on page 228 of There are various assumptions you can make about investment returns into the future and it kind of comes back to prudence how prudent you want to be if you kind of Believe the hype if you like about investment returns in the future being being much higher Expect the expectation now than there was a couple years ago Then then you can do so and kind of stick around that maybe 65% Prudence level if you kind of maybe want to be more cautious Then you can you can increase your prudence level as I mentioned earlier if you went to kind of 80% prudence level then you're you're back down at kind of 5% instead of six and a half percent and Whilst five percent versus six and a half percent might not sound very much over the long term that compounds to an awful big difference And so it does have a big difference on the the value that you're placing on the liabilities and how much you expect your assets To perform so it can it comes back to if you don't believe the hype If you like of investment returns and that's we're we're not kind of here to tell you what is right and is wrong We're here to kind of show you the relative risk associated and kind of what the relative impact is And it's for it's for the committee and officers to decide kind of what prudence level to sit at And so yeah the one way of combating that kind of not believing the hype or one way of dealing with not believing The hype is to to move that prudence level and kind of shunting up that we increase in the prudence level the second point about Kind of political situation and whatever may or may not happen in the budget in October And kind of specifically about redundancies what we can do as part of the modeling that we do for the valuation is we can we can model what what look kind of largest what a good chunk of redundancies might look like in terms of the Membership profile and the cash flows going forward and the liabilities going forward and can assure you that impact on on kind of the figures and and that kind of helps especially from a we can also look at kind of What it might look like from a profile of membership So typically if you have kind of redundancies, they'll be the kind of older group of members Does that shift your shift your profile of your membership quite a bit to shift the cost of the benefits? for example because Younger members the cost of younger members future accrual is lower than older members Because the older members have got much shorter paid until you're starting to pay out benefits So so actually they're not gonna earn as much you're not gonna earn as much investment return Because you don't have as long to earn that investment return for older members So it actually costs more for one year of benefit for an older member than it does for a younger member so we can look at various different scenarios as part of the valuation to kind of see what the impact might be of different circumstances like that Okay, John Think that's right. Yes Just brief substantive Barry are the valuations regarding liabilities real because that's the key thing Are they real or are they artificially being suppressed due to the return to know of? of inflation Well arguably arguably it's not real until until all the benefits have been paid but the the it depends It depends on the assumption you make basically if you are if you were to follow the same approach as last time and look at a funding level of 160 percent and you're happy that that is a realistic view of the future and Nobody knows what's gonna happen in the future even I might be an actuary But I'm just making an educated guess of what might happen in the future financially Nobody knows for certain the reason that we show this kind of risk-based approach of seeing there's a 65 percent chance of Six and a half percent return is so that so that you guys can judge for yourselves How prudent or otherwise you want to be and if you don't believe that six and a half percent is real or realistic Then you can choose a different level of prudence. So it's various of people have different views on on what the current expected future investment returns are and We we can show you the impact of different assumptions and being more prudent But it's not it's it's not it's not something that somebody knows for certain there isn't a right answer Okay, thank you Thank you very much for that and It's always very useful. I'm sure we'll know we'll return to this topic at a later stage So, thank you, right I'll move back to the Agenda now if I may I think we got as far as item for didn't we submissions of fund members? We haven't as far as I'm aware. We don't have any No Yeah, and also submissions responses from the pensions committee, I don't think we have any of those In that case moving on to the reports for consideration and I've now got to spin back to the beginning My where are we so I think we're on Item six point Six point six point one aren't we which is the employee engagement and communications report so Paul do you just want to give us a very brief introduction to this, please Yes. Thank you chair. This is just a quick, you know update The proactive in how we engage scheme employees. Thank you. Check. Thank you I know the board's been very supportive of an AGM in the past. So we welcome this David. You've got a question Yes chair. Thank you. I was going to absolutely concur with your last statement. This is this is good news and we've been Asking for this for several years and to listen to the voice of The service user just in paragraph 3 to chair and Paul in particular If that is outlining what could be the menu? of an information day in AGM It's got some very strategic heavy subject areas listed in those six bullet points Whereas we've been when we've talked about it in the past advocating simply and I know John has off-site Simply you know, what are the benefits how you access? What are options at various stages of your career with Tower Hamlets? What are the myths so? straightforward issues rather than the overall economic position if I could put it, but that has to be part of it, but I just didn't see it in that substantive paragraph about what could be the menu of this day Thank You che I think the report says that a proper agenda will be brought back to a picture of the current LGPS environment and the proliferation of issues to talk about and All officers will be going beyond just having the annual Meeting because I think the LGPS requires officers to actually do you know regular? Engagement activities it could be roach actually engage with it correctly Okay, I Had one Question or point were to pick up really which is the plan on pages 22 to 26 Just to make sure that all these are picked up in the monitoring You don't have to go through all them all now I know a lot of them are but in terms of monitoring against this plan We probably need to a report back on on these at some form or other. I think a lot of them are but I think that there may be one or two that have escaped the monitoring that you include in the In the regular papers that you come up with so if we can just pick that up going forward. Yeah. Okay. Yeah. Sure. Sorry Julie yeah Yeah, I agree and I had one of the comment if that's okay, of course you can yeah carry on it was picking up David's point and I think it's strategically really important a I Know this is going to come as a shock to a pension board, but a lot of people It's not sexy But I think that it is so important as an employer to encourage simple Clear measures maybe about that. I Think you'd find the board would hold heartily endorse what you've said and certainly before the three of you as officers joined You know, we've raised this On more than one occasion in the past. So it's very reassuring to hear that Julie and Pick that up going forward Any further comments on this report before we move on if we can agree this I think I'm not seeing the hands go up Yeah, everyone happy. Yeah. Thank you So moving on then 6.2 the governance report. This is on page 27 onwards 27 to 160 So I think we just need to focus on the the main points here Otherwise, we'll spend the rest of the day going through the actuary or a report which is perhaps not what everybody wants to do Right Paul just to draw out the main issues for us, please Thank You chair, I think I'm happy for much of the report to be taken as read the website is included Okay, thank you any Questions open this up for questions comment. Nothing David. I'm not seeing any hands go up on the screen. I had When I went through the papers I had The the one the bit that I couldn't quite track down was the government actuary Calculated everybody's funding level on a common basis, didn't they in appendix to somewhere but I couldn't track down where that was Can you just remind us where? Tower Hamlet sits in that analysis because we've heard that our funding level Earlier what it is, but what is it on the the government actually is common basis. Does it change? I'm pleased to say that we had absolutely no Negative white or you know red flags. So because you know, it's Green flags, you know Through and through then there's enough say about time. It's so basically it's gone through it with flying colors and the Recorded surplus and everything else is consistent with the picture at local level. So that's great news Okay. Thank you. Any further Comments. No in that case. Can we agree this please? Yeah, happy. Thanks So moving on then we're now on to six point three which starts on page 161 pensions admin as I think Paul data cleanse idle things to be noted. Thank you Jay Okay, thanks. Open this up the quick David hands up straight away. Yeah Yeah, thanks for this Paul Looking at the tables. I've got four areas Paul that I want to ask you Frozen members 2.5 K numerically that's a lot. It's under 10% but it's numerically a lot Just outline the actions very briefly That you're taking to unfreeze Number one, that's number one number two undecided so prima facie for me that underscores the AGM information day prima facie Undecided 30% Could really feed into the February 25 agendas that we've discussed Decided 30 percent three On the table, which was hard to read so I'm sure you'll blow it up and next time but cases outstanding first quarter Good in that there were a lot of reductions or a lot of straight lines Some are good in terms of percentages Some are very good some are very poor and Then fourthly you've just brought in the Annual statement the August statement which attracted my interest the two days late Those of us born on this committee for some years will remember two days late previously and Informing the regulator came into action It was a postal issue, but just described to us the need Of informing others of that and did that apply that delay to post and online? Thanks Paul Is to decide what they want to do with their frozen benefit say there is a time scale of over which it all plays out and but it all starts with the Ski members or the frozen members Deciding what they want to do with their frozen benefits and upon election to either Take it with them elsewhere or or you know, do whatever they water they wish to do with that and Similarly with the undecided yes, this is to do with backlogs that have built up and Efforts have been made to You know to process names When you see certain issues and then things like this can skew you know the Results and I'd say We are also on the other side of it the issue of resources offices have been and and It will be there with and as as far as the Outstanding cases is concerned. Yes. You are absolutely correct. It is a mixed bag and Again, it's all reflective of the that we've got anyone time to throw, you know at all of these but a lot of Effort is going in and I can do this. Thank you Yeah, as I alluded to earlier that was you know mainly a technical hitch that we we couldn't resolve it on this side because the template was locked into the system of you know, hey we do and and Again, because a few people were on leave and all that so I had to escalate The matter to very senior people who were able to with them and it was resolved quickly Thanks very much apologize the 30% is not outstanding. It's an improvement acknowledge that but it's still over 200 folk I've just got a couple of points actually Paul Can you speak near in the microphone because I don't think everyone can quite catch up with it So first questions around I connect and then we we discussed all this on many occasions in the past and and there was an issue about Building the link and getting it to operate properly between payroll system and and the pension is that now been overcome? Is that now sorted or is it still ongoing? Is that yeah, we are working very closely with Haywood to improve all systems also the member self-service portal That is to be retired Pretty soon. So we've engaged with them. And so we've been trialing the Replacement product for that so I cross Technology suite improvements are being made and we're giving them feedback once you know, we've we've done The demos with them to let them know what our views are on the system so that we are actively Working with them to ensure that either these systems are doing what they designed to do Okay, the second point in the past. We've had an update on staffing. I don't know whether you want to do that now or Later on in the meeting, but it's always quite helpful just to know where we are on vacancies and recruitment Thank You chair, yes offices, I've been very active in the recent months and weeks and we have had you know successes and we've had a new member of the team join the admin and she's already in the ground running and making you know contribution to the team and also Before the end of this week be having another member or a new member joining joining us and then because obviously we want to You know Ensure that there is sufficient resilience, you know across the service areas and then Before The end of the year I decided of Christmas. We're also Anticipating another couple of people joining us. So we are working very hard. Yes it's difficult to find the right people right skills because other LGPS schemes are exactly looking for the same thing. So but we are making every effort to To be for the team. Thank you Yeah, Julie Sure, thank you. Thank you Right any more questions on this item? Not seeing any hands got everyone happy Dave. Yeah in that case. Can we agree this please? Yeah Everyone's content. Thank you So moving on item 6.4 on training, which is on page 171 And I think this is just to Update Paul on where we are with this. Thank you chest training arrangements, isn't it? Thank you chair again This is something that I know the board has been very keen on as well as the committee and offices have been making very very Good progress in festival making sure that all board members and all committee members registered on the LGPS online learning Academy otherwise known as Lola and I know that all enrolled members will have received individual email confirmation and Both committee and board members You know can now access the portal to review the models there and of course Start completing them, you know at their own pace and Hyman's will be launching the 2024 national knowledge assessment in NKA on the 17th of September and again committee and board members Will be sent links once those are available to actually Onboard themselves and then to do the assessment it is recommended that committee and board members and sick, you know takes place Thanks. Can I can I just check? the two things one is does this replace the Training that we did in the past because I can remember doing this, you know already So is this a is this a new thing? And secondly, can I just check with board members? I have you all received anything To confirm this Yeah I was gonna ask the same question chair I must check because the LGPS does send me and I'm sure others but I haven't Recognized something which says you are now engaged with an online Academy I will now look out for that and but they do do frequent updates But I didn't chair a good question. We may need just them to do it again Just to be absolutely sure You know, it's gonna make the same point. Sorry. Yeah Barry I can comment from his perspective in terms of to the Lola that the online system You you may if you've already if you're already on the lower system You might not have had another kind of reminder back and double-check back and make sure and it's the same system But there'll be there'll be new modules on there So we're constantly kind of updating it. So if you've completed all the ones that were previously on there There might be new ones on there that you can do. I Think it would be really useful if everybody was saying a new link or new details And I suspect that applies to the committee as well. Just so that everybody's on the same level. Yeah I know I have been sent the hymens warning Through a hymens link though rather than the LGPS Learning Academy link that I thought there were two separate is there a link between the two because LGPS Online Learning Academy Lola, is that also that's both Then it's the same. It's the same thing. Yeah under the hymens heading I have been notified right and I just wanted to ask if I could but in clarifying just if we have a deadline And indeed you'd give us periodic reporting because last time we had it there were six modules It's it's it's challenging. It's a real commitment. I think John and I did it. You've got a certificate for each stage But we need visibility certainly we have no greater visibility than this group If you were to say by December the something that would help busy people Paul cope Yeah, I think that's useful any other comments I'm not seeing any hands go up on the screen there no in that case Right in that case. Can we agree this? Approach. Thank you. Yeah Six point six point four so six point five is It's the pension boards annual report, which is on page one eight one Onwards which I circulated to everybody and had some comments back that were incorporated Any questions or comments on this I've got no questions as I wrote it, but No, you can't really in that case we're happy with this Okay, right that's agreed, thank you And that takes us to item seven Which is the committee agenda for the forthcoming meeting, but is there anything other than we've spoken about already Where are we Oh Jai Tim seven, which is on page one eight seven Oh The work program right Paul, I think this is you again, isn't it? Yes. Thank you chair Any questions on this additions or comments David I Was just checking chair, but Paul could you tell us where on this draft annual rhythm of reports The annual funding and investment strategies Previously chair we've had a document called the annual funding and investment strategy and I don't see that in September Well, let's pick that up and include that at some point because it presumably you'll pick it up after the when you pick it up after the valuation Because we had it we had it not long ago, didn't we? Well, unless there's an unless there's a mid-year review needed I think the easiest thing is to put it put it in in in here So it's logged up and then you'd bring it forward when you when it's when it's when it's timely Can I just clarify I'm sure the strategy because next year is actual evaluation year Say you would not have every three years You know happening exactly the same way so things will actually change just before the next actual evaluation because what you want to do at the time of evaluation is Review the strategy on both sides of funding strategy and investment strategy to make sure that they're consistent So it would not actually work to be doing that now. So yeah, so that will come at some point Any more any more questions comments Okay, well with that I had one what I had one other comment I wanted to raise which is somewhere in here I Seems that I'm the only one who's recorded any training and development So that the message for all board members is if you do on a training and development this needs to be You should send this in to Paul and then this will be recorded Is this published anywhere other than here is this form part of the annual report now or not? And will you pick up training for example the training we've just had that will need to be picked up as well in here Won't it? Yes. Yeah Okay, any more questions comments. No That case can we agree this please everyone happy? Yeah, I'm seeing hands go up. Thank you Item that takes us to item eight Which is any other business? That's urgent. I'm not aware of anything No In that case we now move on to nine which is to exclude the press and public And we're just and The under the provisions of section 100 a of the local government act 1972 as amended the press and public be excluded from the remainder of the meeting for the consideration of section 2 business on the grounds It contains information defined as exempt [BLANK_AUDIO]