Agenda item

The Committee considered a report of the Director of Corporate Resources, which provided information of a proposed change to the Fund’s cessation approach when an employer left the scheme. The change would be incorporated into the Fund's final Funding Strategy Statement (FSS). A copy of the report marked ‘Agenda Item 6’ is filed with these minutes.

The Chairman welcomed Mr. Steven Tart and Mr. Richard Warden from Hymans Robertson who had joined the meeting online for the report.

Arising from discussion, the following points were made:

1. Clarification was sought on the process an employer would have followed if they were considering leaving the scheme, noting that an employer might have wished to understand their position within the 85–95% funding rule before making such a decision. Officers confirmed that where an employer had expressed interest in leaving, the Fund would have worked with them to provide the relevant information to support their decision making, adding that the Fund would not have prevented an employer from exiting, provided the process complied with regulations and the Fund was satisfied with the approach.
   
   
2. A Member noted that the forthcoming local government reorganisation (LGR) would result in many current authorities ceasing to exist, and questioned what mechanisms were in place to ensure continuity within the pension fund. Officers confirmed that some employers would indeed have ceased under LGR. It was reported that regulations required a cessation valuation to be undertaken in such circumstances. The Fund, with support from actuaries, would have determined member transfers and allocated assets and liabilities appropriately, whether to a single new authority or divided across several.

3. A Member queried whether the Fund should have avoided adjusting assumptions or risk profiles solely because market valuations fluctuated. Officers responded that other funds had adopted similar approaches, as confirmed by Hymans, and explained that while the Fund had previously been in deficit, it had taken a measured approach to avoid sharp increases in employer contribution rates. Now that the Fund was in a stronger position, the strategy had been to retain an element of surplus to protect both the Fund and employers against future volatility. Hymans supported this view, noting that the fund had historically experienced market rises and falls and was a long-term investor. Surpluses should not have been distributed entirely, nor should deficits have resulted in excessive contribution increases. They added that prudence had increased in the latest valuation due to economic uncertainty and long-term assumptions had not yet been realised.
   
   
4. Concern was raised whether the timing of the proposed changes was appropriate given the forthcoming LGR, and that decisions made beforehand might require revisiting following LGR. Officers explained that the regulations required a cessation valuation, and regardless of whether applying the proposed or previous approach, the Fund would still need to assess and allocate assets and liabilities upon employer exit. The timing of LGR therefore did not materially affect the requirement. The Director of Corporate Resources added that the structure of LGR meant future unitary authorities would still have been required to offer LGPS membership. Assets and liabilities would have transferred accordingly, and although administratively complex, the change would not have altered the operation of the Fund.

5. A Member expressed support for the proposal, noting the importance of protecting the Fund from employers exiting when the Fund was performing strongly. It was questioned whether employers could have attempted to leave under the old policy before the new policy came into effect, and how changes in funding positions between initial assessment and exit date would have been handled. Officers confirmed that the calculation was fixed by regulations and must be based on the employer’s funding position on the actual date of exit. While an employer’s position could have changed between assessments, the exit date valuation was definitive. It was reported that no challenges were anticipated from employers currently exploring options. The FSS would have taken effect from April 2026 if approved on 20 March 2026.
   
   
6. It was questioned how common employer exits were and whether LGR was expected to increase the number of cessations. Officers responded that employer departures occurred regularly, particularly among Transfer Admission Bodies whose participation was linked to contract duration. Exits by larger statutory bodies were, however, highly unusual.

RESOLVED:

a)    That the proposed change to introduce a corridor approach for the Fund’s cessation methodology be noted.

b)    That it be noted that the Fund’s final Funding Strategy Statement will be brought to the 20 March 2026 Pension Committee meeting for approval.