To note the report from Damien Pantling, Head of Pension Fund.

Damien Pantling, Head of Pension Fund, delivered the update on Risk Management and explained they were presenting 46 risks this quarter, including two new risks and three that were removed or merged since the last meeting. It was noted that one new risk involved differences in the fund’s performance compared to the wider LGPS. The other risk noted concerned climate impact, split into assets and liabilities. Damien Pantling noted a new table had been included of top risks post-mitigation in the report, with a minor error to be corrected post meeting. It was also mentioned that during the Pension Board meeting it was discussed about a specific risk related to audit delays being documented in the Risk Register from March 2024.

Councillor Stephen Newton, Wokingham Borough Council (Advisory Panel), raised concerns regarding unsigned annual accounts affecting council operations, he emphasised the need for auditors to focus on resolving issues related to the Pension Fund accounts, minimising broader audit concerns.

Councillor Da Costa thanked Damien Pantling for the inclusion of climate risk in the Risk Register and for splitting it between assets and liabilities. He asked a few questions, firstly about how and when will they address operational risk, especially concerning infrastructure and building usability in the face of climate change impacts, secondly what their approach was to quantifying risks in terms of monetary value and considering potential increases in operational costs due to audit related issues?

Damien Pantling explained that Councillor Da Costa’s concern extended beyond climate risk and encompassed disaster recovery and business continuity which while not explicitly stated in the Risk Register, Damien Pantling said there were robust disaster recovery and business continuity plans, annually reviewed, that addressed these aspects. He noted that for quantifying climate risk, their methodology aligns with government guidelines. Damien Pantling also noted that climate risk scenario analysis was mandated in their triennial valuation process and was last conducted in 2022.

Councillor Da Costa wanted to clarify that the net risk would be borne by the scheme members rather than those paying the pension? And commented on operation risks, that the Pension Fund Committee should be able to see where they are at with their disaster recovery scenarios, and asked what kind of scenarios are included?

Damien Pantling said what whilst employers bear the risk, it was important to acknowledge that local taxpayers, who fund the employers, are also impacted. As for disaster recovery, it was primarily an operational matter managed across various departments within the administering authority and his focus was solely on the Pension Fund’s concerns. Councillor Da Costa believed it was essential to consider the significance of the risk and delegating responsibility was not good enough. He believed they should be aware of, if not directly involved in, addressing the risk.

Alan Cross, Chair of the Pension Board, said that regarding the new risk concerning a different investment approach, it's important to note that the approach aligned with their unique funding level. The Strategic Asset Allocation was thoroughly debated and unanimously agreed upon by the Pension Fund Committee in March. Revaluation would occur during the next Tri evaluation, considering input from advisors and LPPI.

In response to Councillor Newton's concern about local authority audit backlogs, Alan Cross said that it was a national issue receiving consideration at the national level. Wokingham's situation was not unique and had become a significant problem in recent years.

Councillor Tisi had two questions regarding the risk register. Firstly, concerning the new risk regarding the Fund's performance compared to the LGPS and the actual risk to the Fund, and were they satisfied with the current asset allocation, or could there be a need for adjustments?

Secondly Councillor Tisi commented on the Risk Register circulated before the meeting and the risk labelled "McCloud Remedy,". He said the net rating of this risk was very high, implying limited control over the situation and wanted clarification on this.

Damien Pantling commented on how the asset allocation differs from other LGPS Funds, mainly due to the Fund’s positive cash flow, relative youth, and significantly lower funding level. While it’s reasons for this deviation were well-documented and robustly decided, there was a perceived risk associated with this divergence when compared to other LGPS Funds.

Secondly, addressing the McCloud Remedy risk, Damien Pantling explained that the residual risk remained high due to ongoing uncertainties despite having a plan in place. He said they were engaging with external advisers and their actuary to finalise the implementation plan, addressing remaining gaps and uncertainties.

Councillor Tisi responded on the McCloud remedy, saying that whilst they have a plan in place, they’re adopting a prudent approach due to remaining uncertainties. Acknowledging the need to complete certain steps before assuming effectiveness. He also responded regarding the Fund's unique characteristics and asset allocation, whilst there was a perception difference compared to other LGPS Funds, driven by factors like age, cash flow, and funding level, the actual risk was unclear.

Damien Pantling explained that the real risk associated with the asset allocation compared to the wider LGPS was the slightly higher volatility. However, they closely monitor this through their risk appetite statements, assessing factors like the likelihood of being fully funded over time and the affordability of employer contributions. While there was increased volatility, it was managed and monitored within acceptable parameters.

Philip Boyton, Deputy Head of Pension Fund, added that the Berkshire Pension Fund, like all participating LGPS Funds, received the draft McCloud Remedy regulations, which became final on 1 October. Following this, Officers finalised a project plan by 3 October, outlining criteria, required resources, project structure, milestones, and detailed risk analysis. This living document would be continuously updated as additional guidance was received. He added that it aligned with other LGPS Funds, particularly in the southern area, with ongoing discussions to identify scheme members impacted by the underpin, informing resource and time allocation.

Alan Cross noted that with the budget plan, it was previously shared by Damien Pantling and could be made available to Pension Fund Committee members upon request. He then spoke on the real risk of the investment strategy and explained if shares and equities significantly underperform in the market over the next few years, the funding level suffers, putting them at the bottom of the return pile compared to other authorities. However, they opted for a strategy most likely to improve their position, following the thorough debate in March 2023.

AGREED: That the Pension Fund Committee notes the report;

i) Approves the updated risk register for publication including any changes since the last approval date, suggesting amendments as required.