The Pensions Committee of Tower Hamlets Council met on Monday 30 September 2024 to discuss the triennial actuarial valuation, employer engagement, governance, and the fund's risk register. Key decisions included noting the improved funding level of the pension fund and agreeing to hold a Pension Fund Information Forum in January 2025.

Triennial Actuarial Valuation and Funding Update

The committee received a comprehensive presentation on the upcoming 2025 triennial actuarial valuation, delivered by Barry Dodds, Fund Actuary from Hymans Robertson. The valuation aims to ensure the fund has sufficient money to pay benefits in the coming decades. The presentation highlighted that the fund's funding level has improved significantly since the 2022 valuation, rising from 123% to over 160% as of June 2024. This improvement is attributed to strong asset returns, rising interest rates, and higher-than-expected inflation over the past two years.

However, caution was urged regarding future investment returns, which remain volatile. The presentation also discussed the importance of prudence in setting assumptions and explored various funding strategy options should the fund report a surplus in the next valuation. These options include reducing employer contributions, changing the investment strategy to be lower risk, increasing prudence levels, or retaining a surplus as a buffer. The roadmap for the 2025 valuation was also outlined, with new contribution rates expected to come into payment from April 2026.

Councillor Saied Ahmed, Cabinet Member for Resources and the Cost of Living, asked about the potential future contribution rates, and it was indicated that there may be an opportunity to reduce contributions, though the exact level of reduction is difficult to predict. Councillor Saied Ahmed also inquired about the drop in liabilities around September 2022, which was explained as a consequence of the mini-budget announced by Liz Truss's government, leading to significant jumps in government bond yields.

Employer Engagement and Communications Report

Officers proposed holding a Pension Fund Information Forum for scheme employers and members in January 2025 at the Town Hall. This initiative aims to enhance communication with stakeholders, particularly in light of new risks and opportunities facing the Local Government Pension Scheme (LGPS). The forum will provide a platform to discuss the fund's changing landscape, including the upcoming actuarial valuation, the impact of climate change, and investment strategies. An update on the forum's planning, including a draft agenda, will be presented to the committee in November. The committee noted the report and agreed with the proposal to hold the forum.

Governance Report

The committee noted the Government Actuary's Department (GAD) 2022 Section 13 Report, which assesses LGPS funds in England and Wales for compliance, consistency, solvency, and long-term cost efficiency. The Tower Hamlets Pension Fund received Green flags across the board in GAD's analysis, indicating no concerns. The report highlighted that the overall funding position of the LGPS has improved since 2019, with the aggregate funding level on prudent local bases rising to 106% in 2022. The report also discussed the implications of the GAD findings for the upcoming 2025 actuarial valuation and noted ongoing government actions to pursue efficiencies in the LGPS, including a Pensions Investment Review and a Call for Evidence. The committee also noted the exit credit cases currently under consideration.

Pension Fund Risk Register

The committee reviewed the Pension Fund Risk Register as of 30 June 2024. The report detailed several risks with a severe (16) risk rating, including the risk of increased liabilities due to yields and inflation moving out of sync with actuarial assumptions, and the risk of underperformance by the London CIV and fund managers. Officers reported that actions are being taken to control these risks, and they are considered to be moderating. For instance, the funding level has improved, increasing the probability of achieving required investment returns. The committee noted the detailed Risk Register appended to the report.

Training

The committee was informed about the training arrangements for its members and the Pension Board. All members have been enrolled on the LGPS Online Learning Academy (LOLA) and have received confirmation emails. They can now access the portal to review modules and complete learning at their own pace. The National Knowledge Assessment (NKA) is launching on 17 September 2024, and members are recommended to complete it as soon as possible. A link to the assessment will be provided. Members were asked to inform officers of any training completed that is not recorded in the training log.

Work Programme

The committee noted the Work Programme for both the Pensions Committee and the Pension Board for 2024/25. This programme outlines the proposed agenda items for future meetings, including standing items such as updates on pensions administration, employer engagement, governance, the risk register, investment reports, and training. The committee was advised to read this report in conjunction with the separate Training report.

Public Engagement

Kerry-Ann, Branch Secretary of Tower Hamlets Unison, and Rupert Franklin, a social worker and PSC representative, addressed the committee regarding the ethical investment of pension fund assets. They urged the council to divest from companies involved in human rights abuses, planet destruction, and those profiting from the Israeli state's actions in Palestine, as well as from fossil fuel companies. They advocated for a planned divestment process accompanied by an ethical investment strategy. The committee noted their submission.

Pension Board Submission

John Jones, Independent Chair of the Tower Hamlets Pension Board, presented a submission highlighting the board's discussions on the 2025 triennial actuarial valuation, the risk register, pensions administration, and training needs. The board expressed full support for the proposed employer engagement forum and new initiatives to engage employees on the benefits of the LGPS. They also welcomed the positive funding level of the fund and the absence of red flags in the Government Actuary's review. The board also had a discussion on human rights issues and their interaction with the fund's current investments.

The meeting was confirmed as held, and decisions were made on the matters discussed.