Issue - meetings

68.1     The Committee considered a report seeking its approval of the Triennial Valuation 2019, Funding Strategy Statement and Investment Strategy Statement.

68.2     The Committee discussion included the following key issues:

·         The Fund had been valued at 108% funded at the time of the valuation in 31 March 2019. In reaching this conclusion the Actuary had conducted modelling that took into account sustained period of economic downturn.

·         The Actuary did not propose changing the reduction in employer contributions for 2020/21 of 0.5% in light of the economic downturn. Regulations give the Fund the power to review the contribution rates after a year if there were significant changes to the Fund’s valuation. The Pension Scheme Advisory Board is also expected to release guidance taking into account the impact of the Covid-19 outbreak.

·         The Fund is expected to communicate to employers the situation regarding the financial downturn and their contribution rates.

·         A collapse in dividend payments could have a significant impact on the Fund due to the reliance of dividends as a source of cash. Consideration would need to be given as to how to make up the difference in the short term, for example, the selling of index linked gilts.

·         Consideration should be given as to whether it is appropriate for the Committee to take decisions on issuing an exit credit to an employer when it is above a certain value, given the potential impact on the Fund’s financial sustainability.

·         More work needs to be undertaken to understand the financial position of a number of smaller employers within the Fund to determine which are in deficit and which would be entitled to an exit credit if they chose to leave the Fund.

·         The Committee agreed that it was not appropriate to offer ill health insurance to some employers and not others, particularly as a full procurement exercise to appoint an insurer would be necessary. 

68.3     The Committee RESOLVED to:

1) request a future report on the impact on the Fund of a reduction in cash flow from dividends, including what other funds may be doing to raise cash;

2) approve the 2019 East Sussex Pension Fund Valuation report;

3) approve the revised Funding Strategy Statement, subject to the removal of the following paragraph under section 3.7

The Fund intends to offer ill health insurance to a subset of employers in the Fund. This is likely to be for smalleremployers (e.g. CABs and academies) who are typically less able to cope with large and unexpected straincosts. The Fund will be contacting these employers in due course;

4) approve the revised Investment Strategy Statement; and

5) recommend that the East Sussex Pension Fund Governance review considers whether decisions relating to the paying of exit credits to employers should be a function of the Pension Committee or delegated to officers depending on the value of the credit.

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39.1.      The Board considered a report providing an update on the Fund’s revised strategy statements and draft 2019 valuation report.

39.2.      Richard Warden (RW) advised the Board that changes to the regulations around exit credits meant that the Funding Strategy Statement (FSS) would need to be revised again after 1 April to reflect the changes.

39.3.      MK added that five exit credit payments had been made that had been risk assessed by the actuary and were seen to have no material effect on the Fund.

39.4.      The Chair asked whether the fall in the stock markets due to Coronavirus had affected the funding level of the East Sussex Pension Fund (ESPF). 

39.5.      RW explained that the modelling for the triennial valuation had taken account of increases and decreases in the markets over the next three years, so the impact would depend on the ultimate extent and duration of the fall. The coronavirus could also have an effect on the liabilities of the fund if there was a significant increase in death rates amongst the elderly population.

39.6.      MK added that there were also uncertainties in financial markets due to the US elections and potential of a no deal Brexit. Climate change and the Green Revolution also potentially effect both assets and liabilities, for example, companies benefitting from responding positively to market demands for greener services, and people living potentially living longer due to reduced pollution.

39.7.      The Chair asked, in light of around 50% of assets being in equities, how much the 15% fall in the stock market had affected the Fund’s valuation.

39.8.      RW said there had been a 5-10% fall in the funding level and the actuary was tracking it.

The Board RESOLVED to note the report.