The Pensions Committee of Tower Hamlets Council met on Monday 30 September 2024 to discuss the triennial actuarial valuation, employer engagement, governance, and the fund's risk register. Key decisions included noting the improved funding level of the pension fund and agreeing to hold a Pension Fund Information Forum in January 2025.

Triennial Actuarial Valuation and Funding Update

The committee received a presentation on the upcoming 2025 actuarial valuation, which is a crucial risk management exercise for the pension fund, conducted every three years. The valuation aims to ensure there are sufficient funds to meet benefit payments in the coming decades. The process involves analysing contributions from employees and employers, alongside investment returns, to balance against the benefits to be paid out. The presentation highlighted that the fund's funding level had improved significantly since the last valuation in 2022, rising from 123% to over 160% by June 2024. This improvement is attributed to strong asset returns, rising interest rates, and high inflation over the past couple of years, which have led to higher expected returns on the fund's assets.

However, caution was urged regarding these figures, as they are heavily reliant on future investment return assumptions, which are currently volatile. The presentation also discussed the challenges and opportunities for the 2025 valuation, including the uncertainty of future inflation and the potential for cash flow negativity in the fund. The impact of climate risk and longevity on the fund's liabilities was also considered. Several options for managing a potential surplus were outlined, including reducing employer contributions, changing the investment strategy, increasing prudence levels, or retaining some surplus. The roadmap for the 2025 valuation was presented, with new contribution rates expected to come into effect from April 2026.

Employer Engagement and Communications Report

The committee was updated on the fund's employer engagement and communications strategy, which is maintained in accordance with the Local Government Pension Scheme (Administration) Regulations 2013. The report highlighted the new risks and opportunities facing the LGPS, necessitating robust communication with stakeholders. It was proposed to hold a Pension Fund Information Forum in January 2025 at the Tower Hamlets Town Hall. This forum aims to share information with stakeholders and gather their views to inform the development of the fund's policies and strategies. Officers will provide a further update on the planning for this forum, including a draft agenda, to the committee in November.

Governance Report

This report provided an update on governance and legislative issues affecting the fund, including developments in the LGPS and the regulatory environment. The committee noted the Government Actuary's Department (GAD) 2022 Section 13 Report, which reviewed LGPS fund valuations across England and Wales. The Tower Hamlets Pension Fund received Green flags from GAD's analysis, indicating no concerns. The report also discussed the implications of the GAD report for the upcoming 2025 actuarial valuation and noted the ongoing government efforts to pursue efficiencies in the LGPS, including a Pensions Investment Review and a Call for Evidence. Additionally, the committee was informed about exit credit cases currently under consideration, where employers are leaving the fund.

Pensions Administration Report – June 2024

The committee received an update on the administration and performance of the pension scheme for the quarter ending June 2024. Membership figures showed a slight increase in active and pensioner members. The report detailed the tasks completed and outstanding, with a focus on retirements, transfers, refunds, and estimates. It was noted that the Annual Benefit Statements for 2024 were despatched a few days after the statutory deadline due to technical issues with the active members' template. The report also highlighted ongoing efforts to improve the quality of pension data, including reconciling records between different systems and addressing Guaranteed Minimum Pension (GMP) reconciliation issues. Two new employers, Caterlink and Atlas FM Payroll Ltd, were noted as being in the pipeline for admission to the scheme.

Pension Fund Risk Register – 30 June 2024

The committee reviewed the Pension Fund's Risk Register, which details identified risks and the measures in place to control them. The report highlighted several risks with a severe rating, including the risk of increased liabilities due to yields and inflation moving out of sync with actuarial assumptions, and the risk of underperformance by the London CIV and fund managers. Officers are actively recruiting more staff and working with external specialists to improve pensions administration and data quality. The report also noted the ongoing work to address the McCloud remedy, with data collection from employers still in progress. The low take-up of Member Self Service (MSS) was also mentioned, with plans to visit schools to encourage LGPS members to register.

Training

The committee was updated on the training arrangements for its members and the Pension Board. All members have been enrolled on the LGPS Online Learning Academy (LOLA) and have received confirmation emails. They can now access the portal to complete learning modules at their own pace. Hymans Robertson is launching the National Knowledge Assessment (NKA) on 17 September 2024, and members are recommended to complete this assessment as soon as possible. A link to the assessment will be provided. Members were also asked to inform officers of any training completed or events attended that are not recorded in the training log.

Work Programme

The committee reviewed the Work Programme for both the Pensions Committee and the Pension Board for 2024/25. This programme outlines the proposed agenda items for future meetings, including standing items such as updates on the Pension Board, administration, employer engagement, governance, the risk register, investment reports, and training. Specific agenda items for upcoming meetings were also detailed, including the 2025 actuarial valuation, the Annual Report and Accounts, and the Business Plan and Budget. The report also reiterated the importance of ongoing training for members to ensure they are equipped with the necessary knowledge and skills.