The Pensions Committee of Merton Council met on Wednesday 17 June 2026 to review the performance of the Merton Pension Fund and discuss the upcoming audit plan. The committee received a quarterly performance review, noting a slight decrease in fund assets but overall performance in line with benchmarks over the long term. They also reviewed the 2025-26 audit plan, identifying key risk areas for the upcoming financial year.

Merton Pension Fund Performance Review

Roger Kershaw, from Merton Council's finance department, presented the quarterly performance review for the Merton Pension Fund for the quarter ending March 2026. He reported that the fund's assets had decreased by approximately £1 million, bringing the total value to £1.046 billion. This slight decrease was considered minor given geopolitical influences at the time.

Kershaw highlighted that the fund's absolute return for the quarter was -0.5%, which was absolutely spot on with the aggregate benchmark. Over the past 12 months, the fund had outperformed its benchmark by 0.2%, though it lagged the benchmark by 1.8% over a three-year period. He stressed that the committee takes a long-term view of investments, as pensions can last for up to 40 years.

When compared to the actuarial target set by the fund's actuary, Barnett Waddingham, the fund underperformed by 1.6% over the last three months. However, over the 12-month and three-year periods, the fund outperformed the actuarial target by 7% and 3.7% respectively. Kershaw noted that it was important to stay ahead of the actuary's target over the medium to long term.

The report detailed mixed returns from various asset classes. While some sustainable equity and global alpha investments saw mixed results, tracker funds in emerging markets, property funds, infrastructure, and private credit mandates all produced positive returns.

Councillor Jane, a member of the committee, questioned the current asset allocation, noting that the fund was slightly heavier on our global equities and slightly younger than we, as the terminology goes, in our corporate bonds. Roger Kershaw explained that this was a result of the investment strategy review in November 2025, where a decision was made to gradually reduce global equities. He also mentioned that adaptations had been made to the private market, and capital calls were being managed to equalise market fluctuations. The committee was informed that funding for the private market had begun in the current quarter and would be more evident in the June quarter report.

2025-2026 Audit Plan

Kevin Suter, an audit partner from EY, presented the audit plan for the financial year ending 31 March 2026. He explained that the plan highlights areas with a higher risk of misstatement in the accounts. The key risks identified were largely unchanged from the previous year.

These risks included:

• Management override of controls: This is a mandatory risk that all audits must address under auditing standards.
• Valuation of complex and hard-to-value investments: This includes Level 3 and Level 2 assets, such as unquoted pooled investment vehicles, property, and private debt. These investments are more complex to value than publicly traded equities, involving a degree of estimation and complexity.
• Disclosure of the actuarial present value of promised retirement benefits: This is a significant estimate within the pension fund accounts, based on numerous assumptions, complexity, and subjectivity.

Suter detailed that the materiality level for the audit had been set at £9.5 million, representing 1% of the Pension Fund's net assets in the previous financial year. Performance materiality was set at £7.2 million (75% of planning materiality). The audit team would report any uncorrected misstatements over £0.5 million.

The audit fieldwork was scheduled to commence in July, with the aim of signing off the accounts by the end of the year.

Exclusion of the Public

The committee resolved to exclude the public from the remainder of the meeting to consider reports that were exempt from disclosure.