Damien Pantling, Head of Pension Fund, introduced the report which covered the risk reporting methodology which was adopted in late 2021 and detailed in the risk management policy in March 2022. The risk register was a live document, kept continuously under review, and was brought to the Berkshire Pension Board and Berkshire Pension Fund Committee quarterly. A review had been conducted in the past quarter which resulted in changing the status of several of the risks which were detailed in the report. A new risk around planning for increased employer contributions had been added to the risk register. A detailed review would be undertaken on the risks of inflation and interest rates during the next quarter.

The Vice-Chairman, asked how Risk PEN014, detailed in paragraph 2.2.5 of the report, could be impacted by inflation.

Damien Pantling stated that inflation had a multifaceted approach through all areas on the fund, both on assets and liabilities. A review on this topic would be undertaken during the next quarter but the approaches in the risk report would still stand.

The Vice-Chairman asked what the consequences would be if the worst-case scenario arose.

Damien Pantling confirmed that he would respond to this issue outside of the Committee as it was a detailed issue.

Bob Swarup, Independent Advisor to the Committee, commented that the actual evaluation that had been conducted assumed for inflation of the long run, which was typically 2.5-3%. The issue was that the inflation print for each year’s payment happened around October to come through in April of the next year. When the particular print came through, it would show a much higher figure. The liabilities and payments going out of the Fund would have increased in a way that the actual evaluation did not capture. As a result, a divergence between the prediction and what actually happened occurred. At the next actuarial evaluation, the assumption would be raised as a result of this experience.

The Vice-Chairman asked how a short-term increase in inflation would be managed.

Damien Pantling stated that PEN014 referred to employee pay increases being significantly higher than anticipated for employers within the fund. If these rises occurred, the deficit relating to this employer would increase, but the actuary built in a lot of caution in setting rates over the long run.

Councillor Da Costa commented that it was positive to see the way that risks were being managed but noted certain issues that were particular relevant after Kwasi Kwarteng’s mini budget, announced on 23 September 2022. Councillor Da Costa asked if there was a set of circumstances which would warrant steps to manage any risks arising.

Damien Pantling stated that news headlines relating to liquidity issues around liability driven investment (LDI) did not apply to the Pension Fund. However, there was a small exposure to bonds, which were largely outside of the UK thus reducing the exposure of the Pension Fund. In terms of reacting to issues in the economy, the Pension Fund maintained a well-diversified portfolio as part of its investment strategy. This was kept under review by LPPI, who reported back to the Pension Fund on a quarterly basis.

Councillor Da Costa asked if LPPI had reported back with any issues to be aware of in relation to Kwasi Kwarteng’s mini budget.

Damien Pantling confirmed that no specific issues had been raised but any information relating to investments would be discussed in Part II.

Councillor Hilton stated that if the Committee progressed as it already was in reviewing risks which were laid out, then any potential issues could be identified and managed.

RESOLVED UNANIMOUSLY: That the Pension Fund Committee notes the report and;

I)               Approves the updated risk register including any changes since the last approval date, putting forward any suggested amendments as may be necessary; and

II)             Approves publication of the updated risk register on the Pension Fund website