This meeting of the Harrow Council Pension Board was the first of the 2024-25 municipal year, and it included a packed agenda with the Board considering a wide range of issues, many relating to the 2025 Triennial Valuation of the Fund and its implications for the Council and other Scheme Employers.

Triennial Valuation 2025 - Funding Review

The report pack included the outcome of an asset / liability modelling study carried out by the Fund's actuary, Steven Law of Hymans Robertson LLP. This study was commissioned to help the Board understand what impact the improved funding level of the Fund might have on employer contribution rates in the future. In particular it looked at the implications for the Fund's largest employer Harrow Council which, at 31 March 2024, accounted for almost 80% of the Scheme membership.

The modelling took into account the impact of a number of different contribution rate strategies. This included an option to keep contributions broadly at their current levels for the financial years 2026-27 to 2028-29, and to then permit the rate to vary by no more than 1% of pay in either direction per year thereafter.

Both approaches would meet the test of having at least a 70% chance of full funding in 20 years, and with an acceptable level of downside risk.

The actuary's advice to the Committee was that it would be possible to reduce the employer contribution rate for Harrow Council without this putting the Council's long term funding position at risk. They also recommended a review of the Fund's Investment Strategy Statement in response to the government's recent Pensions Review.

The Pensions Regular (TPR) Code of Practice

This item provided an update for the Board on the new Pensions Regulator General Code of Practice. This new Code, which replaces 10 of the existing codes of practice including the Code of Practice 14 (Governance and Administration of Public Service Pension Schemes), came into effect on 28 March 2024. It outlines the Regulator's expectations of schemes that are required to maintain effective governance and internal controls.

Two new modules in the Code, on 'Cyber Controls' and 'Scams', are of particular relevance to public sector schemes like the LGPS.

The report acknowledges that there is still a lack of clarity over which elements of the General Code of Practice apply to the LGPS, and that

The Secretariat is studying the Code closely to identify which parts of the Code specifically apply to the LGPS and what these mean for funds and how they should be applied in practice.

However, the report identifies a number of actions for the Committee, including a number of reviews to be carried out in light of the new Code and the guidance provided by the Local Government Pension Scheme Advisory Board.

Quarterly Actuarial Funding Position Update

This item included an update of the estimated funding level of the Fund, showing how it had changed since the last formal valuation on 31 March 2022. The actuary, Steven Law of Hymans Robertson LLP, produced an interim funding level update that showed the funding level to be 128% on 30 September 2024. This was a significant increase from the 96% recorded in the 2022 valuation.

The main reason for the improvement is that the increases in interest rates and their impact on Gilt yields have increased the discount rate applied to future liabilities, from 4.4% to 6.5%.

This means that because the discount rate has increased, the present value of the Fund's liabilities has decreased, causing the funding level to increase.

The report also drew the Board's attention to the fact that the estimated results are particularly sensitive to the real discount rate assumptions and longevity assumptions.

Review of Pension Fund Risk Register

This item included a review of the Harrow Council Pension Fund Risk Register. The Register is categorised into a number of areas including Regulatory, Governance, Funding - assets and liabilities, Funding - Investment strategy, Security, Operational, Cash flow, Cyber Security and Accounting.

Two new categories, Cyber Security and Conflict of Interest, have recently been added.

The report explained that

In reviewing the existing risk register, officers have followed the Council’s standard practice and approach to the scoring of each risk (assessing the likelihood and impact on the Pension Fund)

The Register highlights fifteen risks that are considered to be either 'Amber' or 'Red'. These are the risks considered most likely to have a significant impact on the Fund. These included the regulatory impact of the McCloud Judgement, and the risk that

The Fund’s assets are not sufficient to meet its long-term liabilities.

A number of mitigations for these risks are described in the report, including the ongoing collection of data to understand the impact of the McCloud Judgement, and the diversification of the Fund's investments to minimise its exposure to any single investment failure.

Pensions Administration Update with Key Performances

This report provided the Board with information relating to the administration performance of the Fund over the quarter ending 30 September 2024.

For the quarter ending 30 September 2024 the Administration Team completed a total of 1,767 tasks. An average of 58% of all tasks were completed within the target time over this period.

The report goes on to explain that this represented a slight drop in performance compared with the previous quarter.

During this quarter a number of staff committed significant time to working on the implementation of the council’s new payroll system and as a consequence performance dipped slightly.

The new payroll system, Zellis, went live in November 2024.

A number of other updates were provided in the report, including: one new complaint received during this period; an update on an ongoing complaint against Clerical Medical; confirmation that no new Pensions Ombudsman appeals were received in this period; an update on the Guaranteed Minimum Pension (GMP) Reconciliation Project; details of work to prepare for the next round of Annual Benefit Statements; an update on McCloud data collection work; and an update on the Member Self Service (MSS) portal.

Review of Pension Fund Committee Items

This item summarised the matters considered by the Harrow Council Pension Fund Committee at its meeting on 21 November 2024. It included a summary of the Committee's discussion of the Draft Pension Fund Annual Report and Accounts for 2023-24, and their review of a report from Hymans Robertson on the Quarterly Actuarial Funding Position at 30/9/2024.

The Committee also considered an update on the London CIV and Investment Pooling Arrangements. The Committee's discussion focused on the implications for the Fund of the most recent Budget, in particular the proposals for mandatory asset pooling and “Investment in UK Growth”.

The LGPS consultation document “Fit for the Future” was discussed.

The meeting concluded with a discussion of a number of exempt items including the Triennial Valuation - Output from Asset Liability Modelling; the Quarterly Investment Monitoring; and the Investment Strategy Update.

Pension Board Work Programme 2024-25

The report included a suggested work programme for the Harrow Council Pension Board for the remainder of 2024-25. It confirmed that the Board meets quarterly and included details of the next scheduled meetings of the Board and of the Pension Fund Committee.

The suggested work programme included a number of items to be considered at every meeting, including: performance monitoring; the Pension Fund Dashboard; long term cash flow and funding; and a review of the minutes of the most recent Pension Fund Committee Meeting.

The programme also included details of a number of other items to be considered during 2024-25. These included: a review of the Pension Fund Risk Register; consideration of the Annual Report and Final Audited Pension Fund accounts 2023/24; updates on relevant regulatory changes; a review of Fund Policies; a review of the Investment Strategy Statement; an update on the London CIV and Investment Pooling; and the preparation of the Pension Board Annual Report for 2023-24.