The Pension Board of Tower Hamlets Council met on Monday 27 February 2023 to discuss the actuarial valuation of the pension fund, review policy documents, and consider updates on risk management and administrative matters. Key decisions included the approval of the council's contribution strategy for the next three years and the adoption of new policies relating to cessations, academies, and bulk transfers.

Actuarial Valuation Results and Council Contribution Strategy

The meeting received the results of the latest actuarial valuation of the pension fund, which showed a significant improvement in the funding level, rising from 102% to 123% since the last valuation. This positive outcome was largely attributed to strong investment returns over the past three years. Barry Dodds, an actuary from Hymans Robertson, presented the findings, explaining that the valuation process had been smoother than in previous years.

A key discussion point was the council's contribution strategy. Following analysis of various scenarios, the board agreed that the council's non-schools contribution rate would be frozen at its current level for the next three years. The schools' contribution rate will increase slightly in line with previous agreements, aiming to align it with the non-schools rate over time. This strategy was modelled to have a high likelihood of success in maintaining the fund's solvency.

Concerns were raised about the impact of inflation on liabilities, with an adjustment of £113 million included in the valuation to account for expected higher inflation. The board also discussed the potential consequences of a legal challenge to the 2016 cost cap, which could lead to benefit improvements for members and increased costs for employers.

New Pension Fund Policies

Several new policies were presented and discussed, designed to formalise existing processes and sit alongside the Funding Strategy Statement.

• Cessation Policy: This policy details the process for employers ceasing to be part of the pension fund. It includes provisions for exit credits, which allow for the repayment of surpluses to employers upon cessation, subject to the fund's discretion and regulatory requirements. The policy also outlines options for managing deficits, including debt spreading agreements and deferred debt agreements, to protect the fund's financial stability.
• Academies Policy: This policy formalises the process for schools converting to academy status and becoming separate employers within the fund. It covers their creation, asset allocation, contribution rate calculation, and treatment upon cessation. Miriam Adams, Head of Pensions, noted that while the policy formalises existing procedures, the fund has had limited experience with academies ceasing operations.
• Bulk Transfer Policy: This policy outlines the fund's approach to bulk transfers, which involve the movement of a group of members (typically more than 10) into or out of the fund. This is becoming more prevalent with multi-academy trusts consolidating their positions. The policy aims to ensure the fund's security by carefully calculating asset transfers and preventing financial losses.

Risk Register and Administrative Updates

Miriam Adams, Head of Pensions, provided an update on the supplementary risk register. Key changes included:

• Data Issues (AG2 & AG3): These risks remain a concern, with AG3 downgraded to red status due to ongoing issues with data uploads and cleansing from the council. Nisar Visram, Head of IT, outlined an action plan involving training for payroll staff and improvements to the Zealous software and reporting systems to address these issues within the next three months.
• Scam Detection and Prevention (AG12): The team has updated transfer out procedures to align with new guidance from The Pensions Regulator, and officers are regularly trained to identify potential scams.
• Financial Regularity (AG14): This risk has improved and been upgraded from moderate to minor unlikely due to enhanced processes, including monthly pensioner returns and twice-yearly National Fraud Initiative (NFI) comparisons.
• Delay in Transfer Processing Time (AG15): A new risk has been introduced due to delays from other pension schemes in responding to transfer requests. The fund is now alerting members directly to encourage them to put pressure on their previous schemes.
• Cyber Security (AG10): This risk remains amber until cyber projects are completed.
• Climate Change Impact (FI12): The fund is continuing to monitor climate change impact, with investments in inflation-linked assets like renewable energy infrastructure and affordable housing to mitigate exposure.

The board also discussed administrative updates, including efforts to verify overseas pensioners through methods like Western Union checks, and improvements in the process for identifying deceased pensioners. The team is working towards exceeding CIPFA targets for processing times, with a new training plan for pension officers to be implemented.

ESG Voting and Work Plan

The board reviewed the ESG (Environmental, Social, and Governance) voting activities for the quarter. It was a quiet period with only two voting alerts from LAP (Local Authority Pension Fund). Discussions also touched upon the upcoming attendance of the London CIV at the next committee meeting, with a focus on their voting approach.

The work plan for the upcoming period was also presented, with the pension fund accounts and annual report expected in May, and the business plan to be presented in June.