The Pension Board of Sutton Council met on Thursday, 23 October 2020, to discuss the triennial valuation and funding strategy update, pension administration performance, and the annual report and accounts. Key decisions included noting the progress on the triennial valuation, approving a new definition for pension administration backlogs, and noting the annual report and accounts for the financial year ending 31 March 2025.

Triennial Valuation and Funding Strategy Update

The board received an update on the triennial valuation of the pension fund, which assesses its financial health. The actuaries have recommended an increase in the discount rate from 4.3% to 5.3% and an increase in the fund's prudence level from 70% to 85%. The inflation assumption has been decreased from 2.7% to 2.3%, while the longevity assumption remains unchanged. A draft funding strategy statement was also presented, which outlines the fund's policies on various funding elements. This statement has been updated to align with new guidance from the Scheme Advisory Board, including a standardised terminology and a formal review process. The meeting noted that the fund's funding level has increased, largely due to the higher expected future investment return driven by the increased discount rate. A consultation process with employers regarding the draft funding strategy and initial employer results will commence at the end of the month, with individual discussions and an employer forum planned.

Pension Administration Performance Update

The board was informed of significant improvements in pension administration performance. The number of outstanding cases has reduced from 962 to 820 over the quarter. Crucially, there are now no cases overdue by three months or more, leading to a re-evaluation of the definition of a backlog. A new multi-definition approach has been adopted, classifying a backlog as more than 10% of total cases being overdue, with no more than 10% of total cases overdue by one month or more. The board noted the positive progress and thanked Tom and his team for their efforts. Discussions also touched upon the long-term resourcing needs and the impact of the upcoming procurement of a new administration system, with a clearer picture expected in 12-18 months. A breach of law was declared to the regulator concerning the McLeod remedy project due to a failure to meet a statutory deadline, which will be covered in more detail in the projects paper.

Pension Administration Projects Update

This update covered several key projects within the administration team. Annual benefit statements for active and deferred members were issued on time, with 7,739 deferred and 5,621 active statements sent out. A note was made regarding the McLeod remedy, where statements included a blurb explaining the situation due to project delays. It is estimated that only about 1% of members in scope of the remedy will be impacted, resulting in a slight increase in their pension.

The McLeod remedy project itself has experienced delays, primarily driven by the software provider, Civica. A breach of law was reported to the regulator for failing to meet the 1 August statutory deadline. The revised project timescale is June 2026, with a comprehensive project plan included in the appendix. Members currently retiring will be McLeod compliant, with data updated on a case-by-case basis. However, bulk remedy processing is heavily reliant on Civica's system upgrades.

The Pension Dashboard project is on track, with the council's staging date being 31 October. A data protection impact assessment has been completed, and a matching policy has been established. The board was informed that the fund is now fully compliant with the pension dashboard requirements, having connected to both test and live environments ahead of the deadline. A project closure report will be presented in the December board meeting.

Annual Report and Accounts

The Pension Fund annual report for the financial year ending 31 March 2025 was presented. The fund's assets stood at £979 million, an increase of £55 million, with an annual return of 3.7%. Contributions received exceeded benefits paid out by £3 million. Membership has increased to over 19,000. The report highlights that 84% of the fund's assets are managed by the investment pool, ELSIV, with a target of 100% by the next financial year. Fee savings of just under £1.4 million have been achieved through investing via the pool over the last five years. A new section on responsible investment has been added. The audit of the accounts is underway, with final findings expected in March. The board discussed the increase in external audit fees and the reasons behind it, including increased regulatory requirements and a recognition that previous fees were unsustainable. The report also noted fluctuations in transaction costs, primarily due to investment strategy reviews and one-off costs associated with private market investments. The cost per member for administration was noted as £65, and plans to benchmark these costs against other funds are in progress.

Governance and Risk

The board reviewed the fund's risk register. The sole red-rated risk relates to software releases from the fund's provider, Civica, primarily due to delays with the McLeod Remedy implementation. This risk remains under close monitoring. An amber risk concerning unfavourable trends in pay and price inflation was discussed. While the likelihood of inflation volatility has increased, the impact has been downrated due to increased prudence levels in the fund's actuarial assumptions.

Updates were provided on the Access and Fairness consultation, with the Local Government Association (LGA) providing a broadly positive response to the proposals, suggesting a staged approach to implementation due to the current busy period for the LGPS. The state pension age review was also mentioned, with potential impacts on benefit payment ages. The board noted that the fund has been recovering additional administration costs from underperforming employers, with only three outstanding charges relating to a single employer.

A further consultation, Access and Protections, was briefly outlined, covering changes to the earliest retirement age, potential inclusion of mayors and councillors in the LGPS, reforms to new fair deal arrangements for outsourced services, and measures to prevent contribution rate shopping between funds.

Work Programme Update

The December work programme includes a six-month budget monitoring update, an update on the investment strategy review, and the pension fund account audit findings report, which has been pushed back to the March/April board meeting.

Review of Pension Committee Papers

The board reviewed the Pension Committee papers, which provided an update on investment performance, strategic asset allocation, funding level, and cash flow, as well as the work of the London CIV. The fund's assets have surpassed £1 billion. The report highlighted a strong quarterly performance of 3.9%, outperforming the benchmark. The strategic asset allocation shows an overweight in equities and cash, with a plan to draw down into private market investments. The committee will agree on a new investment strategy in December. The London CIV is continuing its work, including responding to the fit for the future consultation and preparing to bring remaining assets under its management. The committee will also appoint an investment advisor to scrutinise the pool's governance and performance. Buckinghamshire has approached the CIV to join the pool, which would bring the total to 33 partner funds. The board discussed the role and legal standing of the Pension Committee in the context of pooling and the evolving governance landscape. A session on responsible investment was also highlighted, with the London CIV explaining its engagement process and matrix approach. The next board meeting will include the annual stewardship report detailing the implementation of the current responsible investment policy.