Agenda item

The Committee considered a report of the Director of Corporate Resources, the purpose of which was to seek approval of the results of the stabilised employer modelling, a consultation with the stabilised employers, and a mid-valuation cycle review in September 2027. A copy of the report marked ‘Agenda Item 6’ is filed with these minutes.

The Chairman welcomed Mr. Tom Hoare from Hymans Robertson (Hymans) to the meeting who was in attendance online. A presentation was provided as part of this item. A copy of the presentation slides is filed with these minutes.

Arising from discussion, the following points were made:

1. In response to a Members’ query, it was acknowledged that the 6% contribution reduction in terms of the risk of regret was applied uniformly across all contributions, and furthermore, the stabilised employers had been through a number of valuation cycles, and had the expectation and understanding of the requirement to underpay in bad times, and overpay in the good.

2. In response to a question over the disparity between Blaby and Leicestershire County Council where the ‘risk of regret’ was a 22% and 11% respectively, it was explained that it was important to also look at the downside risk of a funding plan, and the new metric had resulted in the figures presented.

3. It was explained that ‘risk of regret’ was the chance that remedial action would need to be taken at the next valuation, for example, if the contributions of an employer were to be reduced from 26% to 20%, and at the next valuation it was acknowledged that the decision to reduce the contribution had been wrong.

4. Members noted that it was right to express caution around the current economic environment at home and geo-politics. It was further noted that it was a difficult period to project forward when looking at demographics after recently coming out of the pandemic, and life expectancy had been modelled specifically across Leicester, Leicestershire and Rutland. In terms of modelling halfway through the valuation the purpose was to provide guidance, not to change rates for a future valuation.

5. A Member questioned if the 6% reduction in contribution was applied across all authorities, if the’ risk of regret’ would reduce equally across all. It was noted that ‘risk of regret’ would not reduce equally as it was dependent on different factors affecting different employers.

6. A Member drew attention to upcoming local government reorganisation and asked if predictions had been made based on there being a reduction in councils in a few years. Members were advised that results were modelled based on the current structure of the scheme, and if there were to be any change to the structure or boundary changes, a number of factors would be looked at, such as assets and liabilities, and rates remodelled from current to new. On an administrative side there would be a lot of work behind the schemes but statutorily pension entitlements would remain the same.

7. In response to a Member’s question, Hymans Robertson undertook to circulate information on the value of the 6% reduction in year one at whole Fund level to Members following the meeting. It was noted that where the figure became relevant was on the cash flow side where the reduction would eat into the current next cash flow position, but it was noted that the Fund was in a very healthy net positive position with contributions coming in from employers covering pension payments. The Committee would need to revisit the position again in three to five years when payments would not be covered by employer contributions, with the possibility of switching investment units to bolster income.

8. A Member queried how the ‘risk of regret’ number would change if the 120% funding changed. It was explained that if the funding buffer target was reduced to 100%, then the ‘risk of regret’ would also reduce as there would not be any need to hold as much money, and in three years’ time there would be a lower chance that reducing the contribution rates was a regret. Hymans was requested to share with Members following the meeting a few different scenarios of the modelling undertaken to help explain different 'risk of regret’ examples.

RESOLVED:

a.     That the proposed changes to the stabilised employer contribution rates from 1 April 2026 to 31 March 2029, subject to there being no material changes, be approved.

b.     That the consultation with the stabilised employers to discuss the proposed rates from 1 April 2026 to 31 March 2029 be approved.

c.     That the mid-valuation cycle review in September 2027 be approved.

d.     That Hymans be requested to circulate information on the value of the 6% reduction in year one at whole fund level to Members.

e.     That Hymans be requested to provide examples of scenarios modelled to explain the term risk and regret.

Mr. Tom Hoare, Hymans Robertson, left the meeting at 10.15am.