The Pensions Committee of Havering Council met on Wednesday 24 January 2024 to review the funding and performance of the Pension Fund. The committee noted a significant increase in the fund's funding level and reviewed the performance of its custodian and investment managers.

Pension Fund Valuation Funding Update

The committee was informed that the Havering Pension Fund's interim funding position had improved significantly, with the funding level increasing from 80% as of 31 March 2022 to 106% as of 30 September 2023. Officers advised that this increase was driven by the prospect of future returns and a change in the discount rate used to value liabilities. While funding levels can fluctuate, the committee noted that the overall trend over the last 15 years has been positive. No action was deemed necessary to change the current funding plan.

Service Review of Pension Fund Custodial and Performance Monitoring Service

The committee reviewed the performance of Northern Trust, the fund's custodian since October 2019, which is responsible for investment accounts and reporting. Officers expressed satisfaction with Northern Trust's performance, as indicated by Red-Amber-Green (RAG) ratings. While independent verification of these assessments was discussed, officers felt it would add no further value, as Northern Trust's internal controls are externally audited as part of the annual pension fund audit. The committee noted that custodial fees had decreased, although performance management fees had risen due to external index fees. Officers have enquired about the possibility of using alternative indices.

Pension Fund Performance Monitoring

The committee received an update on the performance of the Pension Fund for the quarter ending 30 September 2023. The total value of the fund decreased by £5.75 million during this period, with slightly negative returns of -0.5%. This was attributed to a number of factors, including the performance of the London Collective Investment Vehicle (LCIV) Global Alpha fund, which has experienced recent struggles due to its growth-oriented investments.

Despite the quarterly dip, the overall funding level of the pension scheme has improved compared to previous years, and advisors did not recommend significant changes to the investment strategy. The committee noted that the fund's cash account held £22 million, which is higher than the council's policy target of £3-8 million. Officers are reviewing the cash flow policy, and an update will be presented at the next meeting. It was also noted that Royal London Index Linked Gilts had underperformed due to a miscalculation regarding falling interest rates.

In an exempt session, the committee discussed the implications of the annual London CIV return to the Department for Levelling Up, Housing and Communities, where Havering was flagged for a lower pooling level. This was explained as a reflection of the fund's lower asset value rather than its approach to pooling. Updates were also provided on the implications of the McCloud judgement, new government regulations, and the Next Steps on Investment programme. A training session on nature-related financial disclosures is also planned.

The committee agreed to note the detail in the reports and presentations received, including the exempt material.