To consider the report and approve the 2016/17 accounts.

The Panel considered the Pension Fund Annual Report and Financial Statements 2016/17. Members were requested to inform the Pension Fund Manager of any typographical errors after the meeting. It was noted that the accounts had also been considered by the Audit and Performance Review Panel on 6 September 2017, as part of the overall Royal Borough statement of accounts.

Councillor Hilton questioned the difference between the budgeted and actual figures for administrative costs in 2016/17. The Pension Fund Manager commented that there had been a number of staff changes and some temporary recruitment; he was unsure however why the costs of supplies and services had increased so much. The Head of Finance agreed to seek further details and circulate to Panel Members.

Councillor Hilton commented that the number of pooled investments in terms of value had reduced; this was interesting when pooling was on the horizon. The Pension Fund Manager explained that the term ‘pooling’ referred to any collective investment vehicle set up under EU legislation. Over the years there had been a number of redemptions out of the hedge fund portfolio.  It also reflected a movement in the global equities to RWC.

Councillor Hilton questioned the figures for ‘change in financial assumptions’ in Appendix 2 of the statement. The Pension Fund Manager explained that this was an accounting standard that treated all the liabilities of the pension fund as a loan or a debt on the council, and valued liabilities at the corporate bond rate. In 2015 the corporate bond rate used was 3.3%. This increased to 3.7% in 2016, resulting in a reduction in the value of liabilities. In the current year to 31 March 2017 the rate was 2.8%, resulting in the increase in the accounting liability. The Pension Fund Manager commented that if all deficits were explained as notes to the accounts this would be complicated and lengthy.

Councillor Hilton commended the communications plan with members of the fund, deferred members and pensioners.

Councillor Hilton queried the different contribution rates detailed on page 117 of the report. The Pension Fund Manager explained that employer rates had two elements. The primary rate would be the same for all councils, subject to minor variations due to the age profile of members. The secondary rate was the deficit recovery rate and therefore varied dependent on the age profile of members and what options the local authority had taken at the time of the last valuation in relation to the recovery period.

Councillor Hilton highlighted the important statement on page 126 of the report: ‘The Pension Fund does not wish the fund to sell assets to pay benefits.’

It was confirmed that, in relation to the Key Performance indicators referred to in the report, officers were working with the actuary to stress test scenarios. It was expected that further details would be presented to the Panel in November 2017, and then included in future stewardship reports. 

Councillor Hilton commented that on page 128 of the report it suggested 34% of assets would be pooled, whereas on page 129 the figure was 50.8%. The Pension Fund Manager explained that difference was cash, which stood at 11% at the moment.

Councillor Hilton commented that the fund seemed to have plenty of money to pay pensions so questioned whether the £87m deficit figure was an accounting aberration. The Chairman commented that the deficit figure took into account the fact that the fund was receiving contributions from 20 year olds who would receive their pension at age 70. The deficit could only be covered by fuller contributions. The base rate had at one time been 15%, whereas it was currently 0.25% and could obviously change again over time. The question was how far to take a view on this; currently the recovery plan covered a period of 23 years.

Members noted that although the fund targeted a long term return of CPI+4.5%, the current figure being used by the actuaries for monitoring purposes was CPI+2.8%. The difference was a buffer. Councillor Kellaway commented that the actuarial report reviewed in April 2017 showed a return of 15.8%, which was an outstanding achievement. The Pension Fund Manager explained that the 2008 investment review agreed to target a return of 8% with low volatility. The issue had been the change in the discount rate.

The Pension Fund manager agreed to circulate a final copy of the statement of accounts to all Members.

RESOLVED UNANIMOUSLY: That Panel notes the report and:

i)          Authorises Officers to correct typographical and drafting errors and to insert the Auditors’ Report on receipt.

ii)             Approves publication of the final version of the Fund’s Annual report and Financial Statements by the statutory deadline of 1 December 2017