The Joint Pensions Committee of Wandsworth Council met on Thursday, 11 September 2025, to review the Pension Fund's external audit report for 2024/25, approve the Pension Fund Accounts and Annual Report for the same period, and discuss quarterly investment performance. The committee received an unqualified audit opinion, noting a minor unadjusted difference related to asset valuation. Discussions also covered the ongoing actuarial valuation process and the revised Funding Strategy Statement.

Pension Fund External Audit Report 2024/25

The committee received the draft audit results report for the 2024/25 Pension Fund accounts from external auditors EY. Ben Lazarus from EY presented the findings, stating that an unqualified audit opinion is anticipated. He noted that all procedures were complete, with only minor ongoing work related to internal quality reviews and finalising accounts. A single unadjusted audit difference of £1.69 million was identified concerning the valuation of LCIV Renewable Infrastructure assets, which was marginally above EY's reporting threshold but considered immaterial.

Councillor Mrs. Kim Caddy (Deputy Leader of the Opposition) raised a question about an objection received by the auditor on the last day of the inspection period, concerning the quality and detail of climate-related disclosures. EY confirmed the objection was from a local elector and received within the appropriate timeframe. The auditor is currently assessing the substance of the objection and expects to provide a clear steer by the end of the month, with no anticipated impact on the audit opinion. Councillor Judi Gasser (Cabinet Member for Children) suggested that the committee be informed of the outcome of the objection assessment, even if dismissed, to ensure transparency.

The committee also discussed the valuation of Level 3 assets – those hardest to value due to a lack of easily observable market data. EY explained their specialist team reviews the methodology and assumptions used by the fund managers, confirming that the internal methodology and third-party consultations were appropriate.

Pension Fund Accounts and Annual Report 2024/25

The committee reviewed and approved the Pension Fund Accounts and Annual Report for 2024/25. Paul Guilliotti, Director of Finance, highlighted that the report consolidates information previously seen in other committees, with new data on administration work from Martin Doyle's team. He noted the cost per scheme member remained at £31.51, which is considered good value for money compared to other London pension schemes, despite increased workload due to regulatory changes. The performance of the administration team was reported as hitting between 94% and 100% of target dates.

Councillor Andree Frieze, substituting for Councillor Nikki Crookdake, raised concerns about investments in companies supplying arms to Israel. Mr. Guilliotti explained that decisions on investments are now managed by the London pool, and any disinvestment would need to be undertaken collaboratively. He outlined a three-point test for any such action: seeking appropriate advice, ensuring the impact is not significant, and having evidence of member support.

Councillor Mrs. Caddy congratulated the team on their excellent administration KPIs and inquired about the cost per member compared to other councils. Mr. Guilliotti stated that the average for London is around £50, placing Wandsworth at the lower end.

Councillor Mrs. Caddy also asked about the communications and engagement figures, and the performance of online portals. Martin Doyle explained that this was the first year all pension funds had to provide these KPIs, allowing for better benchmarking in the future.

Regarding employer performance, Councillor Mrs. Caddy questioned why only 50% of employers submitted monthly data on time. Martin Doyle attributed this to challenges with schools and other areas, and explained the admin strategy includes charges for non-compliance. He also noted that a third-party provider working with schools had contributed to issues, but is no longer in the market.

Councillor Judi Gasser reiterated the Labour Group's insistence on exploring divestment, particularly concerning investments in companies supplying arms to Israel. Mr. Guilliotti clarified the distinction between council investments and pension fund investments, and the regulatory framework within which the pension fund operates, including the requirement for all investments to be managed through the London pool by March 2026.

Quarterly Investment Performance Report - 2025/26 Q1

The committee received a report on the Fund's investment performance for the first quarter of 2025/26. The overall performance was positive, with the Fund returning 4.3% compared to a local authority average of 3.3%. However, it was noted that the Fund's benchmark return was 4.4%, indicating a slight underperformance against the benchmark. This was attributed to the performance of some active equity managers, particularly within the LCIV sub-fund managers.

Councillor Ian Craigie (Deputy Chair) questioned the extent to which the Fund's strong financial position allows for a more conservative investment strategy. Mr. Guilliotti explained that a well-funded position reduces the need for aggressive asset allocation aimed at recouping underperformance. He also noted that direct comparisons between funds' benchmarks can be misleading without understanding their specific strategies.

The committee also discussed the significant cash holding, which was above the higher benchmark threshold. Mr. Guilliotti explained this was partly due to currency hedging and drawdowns in private markets, but that the cash would be redeployed following an asset allocation review.

The committee noted that the London CIV Global Focus Fund was above 15% of the Fund's value, and that cash holdings were above the higher benchmark threshold.

Initial Valuation Results Based on Current FSS

The committee received a presentation from Chris Morton of Barnett Waddingham LLP, the Fund's actuaries, on the initial results of the 2025 actuarial valuation. Mr. Morton explained that the valuation process is ongoing, with initial results expected in early October. He focused on the process rather than definitive results, highlighting that the valuation is a tool to manage costs, not determine them.

The projected value of promised benefits is estimated to increase by 15-25% from the previous valuation, potentially reaching between £6 and £7 billion over the next 100 years. The current funding level is estimated to be in the low 120s to mid 130s , though these are preliminary figures.

Key assumptions for the valuation include a proposed net discount rate of 2.4% (5.1% discount rate minus 2.7% inflation), which is higher than the 2022 valuation's net rate of 1.5%. Mr. Morton explained that a higher discount rate means future liabilities are discounted more heavily, reducing their present value.

The committee discussed the implications of these assumptions, particularly the increase in the net discount rate, which is expected to contribute to a reduction in the primary employer contribution rate from the current 18-20% range to an indicative 15%. Mr. Guilliotti added that the final contribution rate will depend on the Fund's approach to managing any surplus or deficit, considering economic uncertainties and the desire for stable contributions.

The revised Funding Strategy Statement (FSS) is expected to be between 55-60 pages long, incorporating new guidance for greater consistency and transparency. A draft will be circulated for consultation in November.

Investment Strategy Training

Mercer provided a presentation on setting the Fund's Investment Strategy.

The meeting concluded with the committee noting the minutes and approving the recommendations from the presented papers. The press and public were excluded for the remainder of the meeting to consider exempt information.