The Local Pension Committee of Leicestershire County Council met on Friday, 20 March 2026, to discuss a range of significant financial and investment matters concerning the Pension Fund. Key decisions included the approval of the Pension Fund's Funding Strategy Statement for the period 1 April 2026 to 31 March 2029, and the noting of the Fund's 2025 Valuation Report. The Committee also approved changes to the 2026 target Strategic Asset Allocation, including an initial 1% allocation to Local Investments, and agreed to undertake two asset class reviews.

Pension Fund Valuation and Funding Strategy Statement

A major focus of the meeting was the Pension Fund Valuation as at 31 March 2025 and the associated Funding Strategy Statement (FSS) for the period 1 April 2026 to 31 March 2029. The valuation revealed a significant improvement in the Fund's financial position, with assets (£6,698 million) now exceeding liabilities (£4,785 million) by £1,912 million, resulting in a funding level of 140%. This is a marked improvement from the 2022 valuation, where a surplus of £283 million and a funding level of 105% were reported.

The improved funding position is largely attributed to higher assumed future investment returns, with the discount rate increasing from 4.4% per annum in 2022 to 6.1% per annum in 2025. The Fund Actuary's¹ analysis indicated that the required future investment return to be 100% funded at this valuation was 4.1% per annum, unchanged from the previous valuation. The estimated likelihood of the Fund's investment strategy achieving this return has increased to over 90%, up from 78% in 2022.

The Committee approved the Fund's Funding Strategy Statement, which underpins the methodology for setting employer contribution rates. Key changes in the 2025 FSS include an increase in the minimum likelihood of success for all employers from 75% to 80%, and for Universities from 80-85%. A new section has been introduced to address the approach to closing schemes to new staff, and the FSS explicitly states the Fund's policy of not facilitating alternative employer investment strategies, such as buy-ins.

A significant development is the introduction of a corridor approach for cessation calculations, moving from a fixed 90% likelihood to a lower prudence level of 85% and an upper level of 95%. This aims to provide greater certainty for employers exiting the scheme by reducing the volatility of cessation valuations. The FSS also clarifies the Fund's approach to managing surpluses, allowing employers to benefit from a contribution rate reduction of up to 3% of pay less than the Primary Rate², balancing stability and inter-generational fairness.

The consultation on the draft FSS received a strong response rate of 41% from employers, with positive feedback on clarity and accessibility. However, some concerns were raised by employers in the Education Sectors regarding the 3% cap on the secondary rate being too prudent. Officers and the Fund Actuary retained the view that the 3% cap is fair and reasonable, balancing efficiency with stability and prudence. The Fund also noted the potential impact of the forthcoming 'Fit for the Future'³ proposals on pooling and governance.

Strategic Asset Allocation (SAA) and Investment Strategy Statement (ISS)

The Committee approved changes to the 2026 target Strategic Asset Allocation (SAA). A key amendment is the introduction of a 1% initial allocation to Local Investments across private equity, property, infrastructure, and private credit. Additionally, a 2% allocation to UK Government bonds has been initiated. Two asset class reviews will be undertaken for listed equity and investment grade credit, with outcomes to be presented in 2026.

The Fund's Investment Strategy Statement (ISS) was also updated to reflect the 'Fit for the Future' proposals, clarifying the Fund's role in setting strategic objectives while LGPS Central⁴ manages implementation. Investment beliefs have been extended to include preferences, guiding Central's approach. The ISS now explicitly addresses local investment targets and responsible investment policies, incorporating feedback from a recent survey and stewardship themes for engagement with Central.

LGPS Central Presentation and Pooling Progress

Representatives from LGPS Central provided an update on public market investments and the development of investment solutions. The Committee noted the presentation and requested further details on partner funds within the pool and a briefing note explaining the pooling structure. Discussions covered the performance of US technology markets, the benefits of diversification, and the rationale behind manager changes, such as the replacement of Western Asset within the Global Active Multi-Asset Credit Fund due to performance and governance concerns.

It was noted that the Fund has approximately £4.6 billion invested in Central's products, representing 63% of total assets, with over £900 million in uncalled commitments. The Fund is progressing towards 100% pooling, although some legacy private market investments will take time to recycle capital to LGPS Central products.

Responsible Investment (RI) Update

The Committee received an update on the outcome of the Responsible Investment (RI) survey, which garnered over 2,400 responses. Key findings indicated that economic factors remain the most important consideration for respondents, followed closely by investor protections and company management. While climate risk is recognised as a significant concern, there was a more divided view on the scale and pace of action required for net zero targets. The survey highlighted a preference for practical and transparent climate risk management, with strong support for monitoring and reporting, and shifting investments away from high-risk industries.

The Committee approved the 2026 Responsible Investment Plan, which aims to improve reporting on how RI delivers stronger financial returns, revise the Net Zero Climate Strategy to focus on risk management, and strengthen transparency in stewardship activities. The Fund will continue to engage with LGPS Central on these themes.

The Committee also noted the Fund's quarterly voting and stewardship activities undertaken by LGPS Central, LGIM⁵, and the Local Authority Pension Fund Forum (LAPFF). This included votes against management on resolutions related to board structure, remuneration, and human rights issues in conflict-affected regions.

Risk Management and Internal Controls

The Committee noted the updated Pension Fund risk register, which categorises risks into investment, liability, employer, governance, operational, and regulatory areas. The risk score for Assets held by the Fund are ultimately insufficient to pay benefits due to individual members has significantly reduced due to the improved 140% funding level, moving from a current risk score of 10 to 5, and the risk response has been changed from 'treat' to 'tolerate'. Updates were also made to reflect the implementation of monthly data tracking for employers and the ongoing 'Fit for the Future'³ developments.

Business Plan and Budget 2026/27

The Committee was presented with the Pension Fund's Administration, Investment, and Governance Business Plans, along with the Training Plan for 2026, and the Pension Fund budget for 2026/27. The total forecast cost for 2026/27 is £69.6 million, with approximately 90% allocated to investment management expenses. The budget includes increased costs for LGPS Central due to the 'Fit for the Future' programme and an increase in staffing within the Pensions Administration team to manage the complexity of the McCloud⁶ remedy and preparation for Local Government Reorganisation (LGR). The Committee was recommended to approve these plans and the budget.

Pension Fund Policy Report

The Committee reviewed and approved updates to several Fund policies and strategies, including the Investment Strategy Statement (ISS), Investment Advisor Objectives, Cash Management Strategy, Funding Strategy Statement (FSS), Administration Strategy, Fund Training Strategy, Conflict of Interest Policy, Fund Employer Risk Policy, and Administering Authority Distribution of Death Grant Policy. Key amendments to the ISS include reflecting the 'Fit for the Future'³ position, updating investment beliefs, and formalising the approach to local investment and responsible investment. The Conflict of Interest Policy was updated to include specific provisions for LGPS Central and local investment considerations.