The Pension Fund Committee of Harrow Council met on 8 September 2025 to review the fund's performance and financial health. Key discussions included the draft Pension Fund Annual Report for 2024-25, an update on the fund's actuarial funding position, and proposed actuarial assumptions for the upcoming 2025 triennial valuation. The committee also received updates on the London Collective Investment Vehicle (LCIV), investment pooling arrangements, and the draft Responsible Investment Policy.

Draft Pension Fund Annual Report for 2024-25

The committee received the draft Pension Fund Annual Report for the year ending 31 March 2025. The report detailed that the fund's net assets increased from £1,057m to £1,076.7m during the financial year. This growth was attributed to a £38.2m increase in fund assets and a net withdrawal of £19.1m from fund expenditure over income. The report highlighted that benefit payments exceeded contributions, resulting in a net withdrawal of £14.287m for 2024/25, an increase from £9.037m in the previous year. The fund's overall membership increased to 20,258. The committee was recommended to approve the draft report for publication.

Quarterly Actuarial Funding Position Update

An update on the Pension Fund's interim funding level as at 30 June 2025 was presented, showing an estimated improved funding position of 138%. This represents a significant increase from the 96% funding level recorded at the 31 March 2022 triennial valuation. The improvement is largely due to an increase in interest rates and gilt yields, which have raised the discount rate applied to future liabilities from 4.4% to 6.9%. The report noted that the required rate of return to achieve 100% funding had increased slightly to 4.7%, with the likelihood of achieving this return estimated at 90%. The committee was asked to note this estimated improved funding position.

Actuarial Assumptions for 2025 Triennial Valuation

The committee was presented with the actuaries' recommended assumptions for the forthcoming 2025 Triennial Valuation. These included financial assumptions such as the discount rate, CPI expectations, and salary increases, as well as demographic assumptions concerning longevity. A key decision was to increase the prudence level for the discount rate assumption from 70% to 80%, resulting in a discount rate of 5.6%. This increase in prudence was attributed to heightened market volatility and uncertainty. Other financial assumptions, including CPI and salary increases, were recommended to remain largely unchanged but updated to reflect current market conditions. The longevity assumptions were recommended to adopt the latest available data and models, with no significant changes to the core approach. The committee was recommended to agree these proposed assumptions.

Update on London CIV, Investment Pooling and LGPS

This report provided an update on the current position of the Fund's investments within the context of government requirements for pooling and developments within the London CIV and the wider Local Government Pension Scheme (LGPS). It was noted that the government's LGPS Fit for the Future consultation response had been published, and legislative changes were progressing through Parliament. Fund officers were working with LCIV to establish a new investment management agreement to facilitate the pooling of assets by March 2026. As of 30 June 2025, approximately 83.6% of the Fund's assets were allocated to pooled investments, including commitments to LCIV Infrastructure and Renewables Infrastructure funds. The report also touched upon proposed changes to LGPS regulations aimed at addressing historic gender inequities in pension benefits, which are expected to increase future benefit accrual costs. The committee was asked to note this report.

Pension Board Minutes

The committee received the minutes from the Pension Board meeting held on 31 July 2025. The minutes covered discussions on pensions administration performance, including a dip in overall task completion rates to 52%, with particular concerns raised about transfers in and out. Updates were provided on the annual benefits statements, the McCloud deadline, and the pension dashboard project. The Board also reviewed matters considered by the Pension Fund Committee, noting disappointment with the fund's performance over the past decade and the ongoing underperformance of equity managers. The committee was asked to note these minutes.

Draft Responsible Investment Policy

A draft Responsible Investment (RI) Policy was presented for the committee's consideration and approval. The policy aims to integrate environmental, social, and governance (ESG) considerations into the Fund's investment processes and stewardship activities. Key principles include the financial materiality of ESG factors, a long-term investment outlook, and a commitment to managing assets in line with a net-zero 2050 target. The policy outlines expectations for investment managers and the London CIV regarding ESG risk monitoring, engagement, and voting. The committee was recommended to consider the report and draft policy, and subject to any adjustments, approve the policy and any consequential amendments to the Investment Strategy Statement.

Investments & Managers Performance Review June 2025

This report provided an update on the Pension Fund's investment performance for the quarter ending 30 June 2025. The Fund returned 3.8% net of fees over the quarter, underperforming its benchmark by 0.8%. The market value of investments decreased by £20.37m to £1.11bn during the quarter. Over a 12-month period to 30 June 2025, the Fund underperformed its benchmark by 2.3%, returning 5.6%, largely attributed to the performance of LCIV active equity funds. Longer-term performance figures also showed underperformance against benchmarks over 3, 5, and 10 years. The report also detailed the asset allocation at 30 June 2025, noting an overweight position in risk control and equity assets, and an underweight position in diversifying assets. Updates were provided on the wind-down of the LaSalle Property Fund of Funds and the progress of commitments to LCIV Infrastructure and Renewables Infrastructure funds. The committee was asked to note and comment on the performance reports and the independent adviser's and Mercer's reports.