Here is a summary of the Pensions Committee meeting held on 7 January 2026. The committee noted the updated Funding Strategy Statement, and also noted the draft Annual Report, delegating approval of the final audited report and financial statements to the Chair. The public were excluded from the remainder of the meeting to discuss investment manager performance, investment strategy, and a London CIV update.

Draft Annual Report 2024/25

The committee convened to discuss the draft annual report for 2024/25, which must be published by 1 December 2025. The report included the statement of accounts (still in draft form and subject to audit) and several narrative sections.

The officer recommended that the Committee delegate approval of the final report to the Chair, Councillor Martin Bailey, noting that a draft version would be published on 1 December 2025 due to ongoing audit backlogs, with the final audited report to be published once the audit was completed, hopefully before the February 2026 deadline.

A member questioned the proposal to delegate approval of the annual report to the Chair, arguing that it made no sense to grant approval authority before the Chair had written their own section of the report. The member stated that they would not support giving the Chair approval rights under those circumstances. Councillor Martin Bailey responded that, in the spirit of the Stewardship Code, they were happy to ensure their section of the report would be circulated in sufficient time for the Committee to review and comment before approval.

Officers clarified that the three missing sections were simply introductory forewords which summarised the Pensions Committee's and Pensions Board's activities over the year, along with the Section 151 officer's overview of the fund. Officers emphasised that these would not add any new content and agreed to share the completed sections with the committee in advance of the Chair's approval.

The committee agreed to note the draft Annual Report as appended and delegate approval of the final audited report and financial statements to the Chair. Five members voted for the motion, with one abstention.

Actuarial Valuation and Funding Strategy Statement Update

The Assistant Director of Payroll and Pensions and the Acting Assistant Director of Finance presented a report outlining how the pension fund had changed since the 2022 valuation. At the last valuation, the fund had a deficit of about £80 million, with a funding level of 96%. Over the past three years, lower-than-expected investment returns and higher-than-anticipated benefit increases had worsened the position.

However, adjustments were made for market conditions and updated assumptions, including a lower expected pension increase of 3.8% and higher expected investment returns of 5.5% per annum. Incorporating these future expectations improved the fund's position, leading to a reported surplus of nearly £300 million and a funding level of 120% at 31 March 2025.

The Hymans Robertson representative highlighted that, while this was a significant improvement, risks remained. The draft Funding Strategy Statement outlined how the fund would manage risks such as inflation, membership, and market changes, and set contribution rates for all employers. Over the next 5–6 weeks, the team would calculate contribution rates, make necessary adjustments, consult with employers and the Department for Education, and then present a final version of the Statement.

Members asked officers to outline the considerations involved in setting employer contributions and achieving a stable funding position. The Hymans Robertson representative explained that several factors were considered:

• Regulatory requirements: primary rates must cover the cost of new benefits, with a Government aim for stability over time.
• Oversight bodies: the Ministry of Housing, Communities & Local Government (MHCLG) produces a Section 13 report every three years, comparing the fund's actions to other LGPS funds and assessing intergenerational fairness. Contribution rates should not overburden future taxpayers, nor should excessively high rates disadvantage the current generation.
• Employer-specific factors: for each employer, the team considered the assets needed to cover benefits, the contribution rate required, and the period over which to achieve it. For long-term employers like the Council, a 20-year rolling period was used, while for contractors or charities with shorter tenure, contributions were adjusted over a shorter period. Surplus employers, such as contractors, received lower contribution rates, whereas the Council and academies were aimed to be fully funded over longer periods.

The committee agreed to note the updated Funding Strategy Statement as appended to this report.

Risk Register Update

The Assistant Director of Payroll and Pensions and the Acting Assistant Director of Finance presented the report. There were no changes to the current risk ratings since the last meeting. The inherent rating for one risk, PA 22, was adjusted to reflect that, in a worst-case scenario without mitigations, the accounts could be qualified again, even though remedies from the previous year had been implemented. Narrative changes were also made to the register, particularly relating to PA 18 and PA 20, and the report sought feedback on these adjustments.

It was noted that at the Pensions Board meeting on 30 October 2025, the board had expressed support for the Committee's ongoing commitment to Environmental, Social, and Governance (ESG).

A Member asked about the pension fund accounts at risk PA 22. Officers explained that last year's accounts had been qualified due to two balances, current debtors and current liabilities in the statement of accounts, that auditors could not fully test because of historical record-keeping issues from a prior finance system. The risk was included in the register to reflect the possibility of the accounts being qualified again for 2024–25. Officers stated that they had worked to address these balances and present them appropriately, and early feedback from auditors was positive, though the audit had not yet started. The risk remained to monitor these specific issues.

Members noted that the new wording introduced at the last meeting for risks PA 18 and PA 20 was an improvement. However, concerns remained that the risk, particularly regarding potential complicity and legal liability, was still present despite the updated wording.

Members questioned whether the mitigation for PA 20 had been addressed, specifically whether advice had been received from London CIV, The Local Authority Pension Fund Forum (LAPFF), and the Scheme Advisory Board, and if the fund's position aligned with that advice. Officers explained that while some advice was still pending from the Government, all LGPS funds were operating collectively through the advisory board. Officers confirmed that legal advice was expected soon and that the risk was being managed in the meantime.

A Member questioned the current risk rating for PA 20, arguing that the reputational risk, particularly related to the Committee's support of controversial international issues, was substantially higher than indicated.

A Member discussed risk PA 19, climate change, noting it as a major source of uncertainty affecting investments. The Member argued that the current risk rating was too low, given rising insurance premiums and the costs of extreme weather events.

The committee agreed to note and review the Lambeth Pension Fund Risk Register and the additional actions proposed to mitigate risk.

Investment Performance Report - Quarter 2 2025

A Mercer Representative presented the report. Within the asset allocation, it was noted that there were some differences between the target and actual allocations. It was noted the portfolio was overweight in global equity and multi-asset credit; and underweight in private equity and liability-driven investments.

It was noted that within asset class performance net of fees, over the quarter, the total fund, including the Adams Street mandate, returned 3.4% against a benchmark of 3.3%, slightly outperforming. Over the year, however, the absolute return was a disappointing 3.5%, below the benchmark of 4.9%. Over the three-year period, different from the one discussed in the valuation section, the fund returned 3.9% compared to the benchmark's 6.5%, indicating a very disappointing relative performance.

The Mercer representative noted several contributing factors: global equities lagged the benchmark by around 3%, with an absolute return of 9.7% versus the benchmark's 13.4%. Mercer remarked that it had been a very challenging environment for active managers. In hindsight, a passive management approach would have performed better over the past three years, as it benefited from the strong growth of the Magnificent Seven stocks, which many active managers had been underweight in, negatively affecting their performance.

The Mercer representative explained that the Liability-Driven Investment (LDI) mandate with Insight had been particularly disappointing, though gilt yields had now largely reverted to pre–global financial crisis levels. As a result, the LDI mandate returned - 12.6% per annum, which was a painful outcome. However, the fund had actually benefited overall because its target was to hedge around 30% of its inflation risk. Due to the rise in gilt yields, the value of liabilities had improved even though the LDI mandate's performance was negative.

The Mercer representative discussed the allocations by managers, noting that these were divided between London CIV mandates and non-London CIV mandates. The plan was for all assets to come under the stewardship of London CIV from 1 April 2026, although significant work was still underway to make that transition happen. Mercer also mentioned that the necessary primary legislation, part of the Pension Schemes Bill, was still progressing through Parliament.

The Mercer representative outlined individual manager performance, noting that while some managers had been struggling recently, there were early signs of improvement. For example, Baillie Gifford delivered a strong quarterly return of 9.6% against the benchmark of 5.2%, showing strong absolute and relative performance. However, over the year, they remained slightly behind at 7.1% versus 7.6%, and their longer-term underperformance continued to affect the overall figures.

London CIV (RBC) was also highlighted as another manager that had struggled. Despite a slightly better quarter with a 5.7% return versus 5%, they were still behind over the year at 6.6% compared to 7.2%. As with Baillie Gifford, their three-and five-year results showed continued underperformance. The Mercer representative added that, as previously discussed under the Fit for the Future plan, there was an intention to address these performance issues going forward.

Regarding private equity, the Mercer representative highlighted ongoing concerns about underinvestment, noting that despite long-standing commitments, the fund had never reached even 50% of its allocation over the past 20 years, having achieved only about a third of its intended commitment.

A Member expressed frustration regarding private equity, noting that they raised the same issue at every meeting and asked when the matter would finally be addressed and what progress had been made. Councillor Martin Bailey responded by stating that there will be a discussion to item 12 on the agenda on private equity, where the issue would be covered in detail. Councillor Martin Bailey acknowledged that the fund was underweight in its private equity allocation and that this needed to be addressed.

The committee agreed to note the report, together with the information in the accompanying performance report at Appendix One.

General Update

The Acting Assistant Director of Finance presented the report. Officers confirmed that work was continuing toward the 31 March 2026 deadline for the transition of assets and that a workshop had recently been held with the London CIV to discuss practical matters, particularly the investment management agreements governing the asset transfers. The workshop had been productive, though it was acknowledged that the timeline remained tight.

Officers also drew attention to paragraph 2.7, noting that Buckinghamshire Pension Fund had approached the London CIV to join the pool. This proposal had been agreed in principle by all shareholders, and the technical and formal approval processes for Buckinghamshire's admission were underway.

Officers reported that as part of the Hymans governance review, all Members of the Committee had been contacted by Hymans to arrange interviews and surveys, thanking those who had already participated or were in the process of doing so. The first stage of the review, which examined the pension support function, had been completed. The second stage, focusing on the effectiveness of the board and committee, was now underway. Additionally, a review of compliance with The Pensions Regulator's (TPR) Code of Practice was scheduled.

Officers noted that the audit had been deferred to November 2025, but initial feedback on the work completed so far had been positive. Officers promised to provide further updates.

Regarding the stewardship report, officers apologised for its extremely late circulation, acknowledging that Members had little time to provide feedback, though it had been submitted on time. The results were expected around January or February 2026. Officers also noted that the new code would apply from 1 January 2026, meaning next year's report would be significantly different.

The committee agreed to note the contents of the report, together with the information in the accompanying papers.

Items discussed in private session

The committee moved into a private session to discuss the Investment Managers Performance Report, an Investment Strategy Update, and a London CIV Update. The public and press were excluded from these discussions due to the commercially sensitive nature of the information to be discussed.