Issue - meetings

Investment strategy – focusing on the objectives and the parameters

40.1     The Committee considered a report by the Interim Chief Finance Officer setting out the draft results of the 2016 Actuarial Valuation of the East Sussex Pension Fund. Hymans Robertson also gave a presentation discussing the Fund’s objectives and an introduction to the ALM analysis that will take place during 2017.

40.2     The Committee RESOLVED to note the report.

27.1     The  Board considered a report on the draft results of the ESPF Actuarial Valuation.

27.2     BR expressed concern that the new valuation of the Pension Fund expected salaries to grow by only 2.6% -- compared to an estimated 4% increase in the previous triennial valuation – and that this accounted for the majority of the estimated funding level increase from 81% in 2013 to 92% in 2016. He considered that inflationary pressures would make it unlikely wages would only increase by 2.6% and questioned why the actuary had not foreseen them. Councillor Kevin Allen also questioned on what basis this estimate was made.

27.3     The Chair suggested that the timing of the valuation was unfortunate (coming just before the emergence of potential inflationary pressures) but by law it had to be a snapshot of the Fund at a particular moment in time (31 March 2016) and was based on circumstances facing the fund over the previous three years, rather than potential future pressures. PH added that assets were performing well at the time of the valuation, and in the last couple of months it is likely that the funding level would have nudged downwards in response to asset performance. PH said that it was reasonable to assume wages would increase but would be tempered by public sector pay freezes, and the move towards an increasing number of career average pensions – which would have less impact on future pension payouts. 

27.4     The Chair asked what percentage of scheme members had taken up the 50/50 option – which is identified by the actuary as a risk. WN said that 2% of ESPF scheme members had chosen this option (of paying half the contribution level in return for building up half the normal pension) compared to 0.1% nationally.

27.5     PH said that there would be an opportunity for employers to question the actuary’s (Hymans Robertson’s) methodology at the Employers Forum in November. Ultimately, the valuation would be the actuary’s decision as it is their professional judgement. However, they invite stakeholders to challenge their assumptions and they have been open about their methodology used to reach these assumptions. RS had been in a meeting of Pension Committee Chairs where the actuary had responded robustly to challenges to its assumptions. The Chair said that Hymans Robertson was also the actuary of Harrow Pension Fund but their assumptions were different, demonstrating that there was no standardised approach.

27.6     OO said that the expected market volatility between 2017/18 -2019/20 would mean it was unrealistic to expect the funding level to remain at 92%, which was based on market performance since 2013 valuation. The Chair observed that funding levels had previously reached 100% and the Government had authorised a pension holiday; the six pension funds now performing the worst had all chosen to declare a pension holiday at that time, demonstrating that it was not a good idea.

27.7     The Board RESOLVED to note the report.

1.1.        This item was introduced by OO.

1.2.         OO said that the actuarial valuation timetable called for the submission of employer data, accounting data, and membership data to the actuary (Hymans Robertson) by 29 July 2016 and that both the employer and accounting data had been supplied. OO advised that this deadline would now slip due to the membership data and passed to Jason Bailey (JB) to update the Board. JB advised that the reason for the delay was the discovery of 13,000 validation queries regarding the membership data. JB said that the vast majority of the queries resulted from differences between the software suppliers (that supply the new universal data capture software used by LGPSs) and the actuarial firms regarding the data specification; this was a national issue affecting all LGPS funds as the triennial valuation is the same date for all funds (though some actuarial firms may take a slightly different approach to validation) and beyond Orbis Business Operation’s control. 

1.3.        JB was confident that this discovery of the 13,000 validation queries was related to validation differences  rather than incorrect  data being held on the pensions data; and the queries were  now being processed by Orbis Business Operations – with 8,000 already processed – prior to the submission to the actuary, so the quality of the data will be higher when it is submitted.

1.4.        The Chair expressed concern that the difference in the data being asked for and being supplied had not been noticed during the testing period. He asked for confirmation that this would not come at a cost to the ESPF; JB said that it would not.

1.5.        The Chair said that it was critical that this issue did not affect the availability of the draft employer results in time for the Employers’ Forum on 18 November, as failure to reach this milestone would cause reputational damage to the administrative authority of the ESPF. Tony Watson (TW) added that this would affect the credibility of the ESPF. JB said that he was confident that the actuary’s draft results would be available before then. Wendy Neller (WN) added that the actuary has advised that the delay in the submission of ‘clean’ membership data by up to three weeks will impact the agreed timescales for the delivery of the initial whole fund valuation results; this was scheduled to be issued during September, but is now expected to move to October. The time that the Fund has to discuss the results with the actuary in detail in relation to each employer will consequently be reduced.  WN advised that delivery of membership data on a date later than 19 August 2016 will further impact the valuation timescales.

1.6.        The Board RESOLVED to note the report.