This meeting was scheduled to consider the routine running of the Royal Borough of Kingston upon Thames Pension Fund, including updates on performance, projects and governance. It was also scheduled to receive a report on the government’s pensions reform consultation, and a proposed timeline for the 2025 actuarial valuation. The documents do not tell us anything about what was actually discussed at the meeting, or what decisions were made.

Government Pension Reforms

A report was included in the agenda pack that provided a summary of the interim findings of the government’s Pensions Investment Review and the associated “Fit for the Future” consultation for the Local Government Pension Scheme.

The main changes being proposed by the government are:

• All assets must be transferred to the pool by 31 March 2026. This will affect the Fund’s actively managed equity mandates with Columbia Threadneedle and Fidelity, as well as the absolute bond fund with Janus Henderson, and its property investments.
• The Fund will have to fully delegate the implementation of the investment strategy to the London CIV. The Fund will decide the high-level investment objectives and choose a strategic asset allocation.¹
• The Fund will be required to set out its approach to local investment and set a target range for it in the Investment Strategy Statement.
• New governance requirements will be introduced for:
  • Training and knowledge requirements for officers and committee members,
  • A biennial independent governance review, and
  • The appointment of an independent advisor by each fund.

The report notes that:

Whilst there are challenges to overcome and details that will need to be worked through, the Fund is comparatively well placed to meet the requirements as set out in the consultation.

Officers were collaborating with other London Pension Funds and the London CIV on a response to the consultation.

2025 Triennial Valuation Timetable

The Pension Board was scheduled to consider a report on the proposed timeline for the 2025 Triennial Actuarial Valuation.²

This valuation is a legal requirement and is used to:

• Assess the financial health of the Fund, and
• Calculate how much each employer has to pay into the fund.

The report notes that:

The Fund is required by Statute to undertake a valuation every three years with the last valuation having taken place as at 31 March 2022 and the next one to be carried out as at 31 March 2025.

The proposed timetable included the following key milestones:

• Summer 2025: the Fund will provide data to the actuary.
• Autumn 2025: Discussions with employers will commence.
• Autumn/Winter 2025: Consultation with employers on the updated Funding Strategy Statement will take place.
• December 2025: The Pension Fund Panel will consider the actuary’s report.

Ill Health Retirement Strain Costs

The Board was scheduled to receive a report on the key governance activities of the fund, including a review of the Fund’s Risk Register.

The Risk Register had been reviewed since the last meeting and included a discussion of ill-health retirement strain costs.

When a member of the LGPS retires early due to ill-health, the liability for the employer increases, because the member’s pension starts to be paid earlier, and it is also increased in value. The amount of this extra liability, known as the ‘strain cost’, can vary depending on the member’s length of service, age and whether they were in Tier 1³ or Tier 2⁴ of the ill-health retirement scheme.

Until April 2023, a portion of employers’ contributions was used to cover the expected cost of ill-health retirements. When an ill-health retirement occurred, any strain cost above the amount already paid in by the employer was added to their liability and recovered through higher contributions in future. This system is known as the ‘Expected Budget Approach’.

From April 2023, a new system was introduced where employers were invoiced immediately for the full strain cost of any ill-health retirement. Employers could choose to buy insurance to cover this risk, but this insurance product is not currently available.

The report notes that:

Due to the unavailability of the insurance after 18 months, this was reported as a Risk on the Fund’s risk register as the scheme employers were unable to mitigate the risk as first intended.

The report proposed returning to the previous Expected Budget Approach, noting that:

In the absence of any external insurance, Officers have worked alongside Fund actuaries to explore other options available. The most suitable option for the Fund is to return to the model previously adopted prior to 1 April 2023, more commonly referred to as the “Expected Budget Approach”.

To implement this change, the Fund’s Funding Strategy Statement had to be amended. The proposed change had been circulated to employers for consultation, and one response had been received in favour of the change.

Pension Administration Performance

The Board was scheduled to consider a report on the performance of the Shared Pensions Administration Service.

The number of outstanding administration processes had decreased from 1,594 to 1,534 since the last meeting. Despite this improvement, the number of processes that were overdue by three months or more remained at 207. The majority (96.14%) of these overdue processes were leaver and transfer cases.

The report notes that:

Leavers and transfers remain the bulk of the outstanding processes (96.14%). Leavers continue to remain the priority for pension officers whilst senior pension officers are continuing to focus on priority cases such as deaths and retirements.

The report also noted that there had been a surge in the number of leaver processes after the end of the academic year, and that this would affect the Fund’s ability to meet its service level agreements.

Pension Administration Projects Update

The Board was scheduled to consider a report on the key projects of the Shared Pensions Administration Service, specifically the National Pensions Dashboard and the GMP Reconciliation project.

The National Pensions Dashboard

The National Pensions Dashboard is a government initiative that allows pension holders to view the value of all their pensions online. The Local Government Pension Scheme is scheduled to be connected to the dashboard ecosystem by 31 October 2025.

The report notes that:

Implementing dashboards does not generally require new information but rather that the information held by the Fund on each member is correct and available to be shared digitally.

The Fund will need to work with an Integrated Service Provider to connect to the Dashboard, and will need to improve the quality of its data in preparation for this.

GMP Reconciliation Project

This project aims to ensure that the Fund’s records of members’ Guaranteed Minimum Pensions (GMPs) are correct. GMPs are the minimum pension benefits that contracted-out pension schemes, like the LGPS, were required to provide before 6 April 1997.

Where the Fund’s records were incorrect, members' pensions have been either overpaid or underpaid. The report notes that:

Differences that exist in the records may have arisen because the LGPS was not notified of the member’s correct GMP rights and when they had claimed their state pension.

290 members are having their annual pension benefits reduced and 44 members are having their benefits increased as a result of this project. All amendments will have been made by February 2025.

Royal Borough of Kingston Pension Fund 2024-25 Budget

The Board was scheduled to receive a mid-year update on the Fund’s 2024-25 budget, which had originally been approved by the Pension Fund Panel in June 2024.

The update showed that the Fund was forecasting a net deficit of £260k, rather than the budgeted net deficit of £720k. This improvement was primarily due to higher than expected transfers in, partly offset by higher than expected benefit payments.

Pension Fund Panel Update

A report was scheduled to be discussed that summarised the investment-related papers that had been presented to the Royal Borough of Kingston upon Thames Pension Fund Panel at their meeting in November 2024.

The market value of the Fund’s assets was £1,292m as at 30 September 2024, an increase of £17m over the previous quarter.

The Fund had produced a positive return of 0.8% over the quarter, but had marginally underperformed its benchmark, which returned 1.5%. Strong positive performance had been delivered over the previous year (14.2%), three years (4.6%) and five years (7.1%).

Work Programme Update

The Board was scheduled to receive an update on its work programme for the remainder of the municipal year.

The next meeting of the Pension Board was scheduled for 12 March 2025.