The Wandsworth and Richmond Joint Pension Committee met to discuss the Pension Fund's external audit report, approve the pension fund accounts and annual report, review the quarterly investment performance, and consider initial valuation results. The committee approved the pension fund accounts, noted the quarterly investment performance, and discussed the initial valuation results, including a potential decrease in employer contribution rates. They also agreed to further explore divestment from companies that supply arms to Israel.

Pension Fund External Audit Report

The committee reviewed the draft audit results report from Ernst & Young (EY), presented by Ben Lazarus from EY, for the 2024/25 pension fund accounts. EY anticipates issuing an unqualified audit opinion, indicating a clean audit. The audit focused on level three assets¹, and EY concluded that the internal methodology used to value these assets was appropriate. There was one audit difference regarding a timing difference in valuation, but it was below the materiality threshold.

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, regarding climate-related disclosures. Ben Lazarus explained that EY is assessing the validity and substance of the objection, and will update the committee. Paul Gelotti, Director of Finance, added that the management team does not think there is any merit to what's been put forward, but it has been referred over for somebody else to look at. Councillor Judi Gasser, Cabinet Member for Children, suggested that the committee should be informed when the objection has been dismissed. Councillor Norman Marshall, Chair of the Joint Pensions Committee, confirmed that he would be the point of liaison on this matter.

Councillor Kuldev Sehra asked for background on the criteria and process used in valuing level three assets. Ben Lazarus explained that these assets are the hardest to value, and that his specialist team would look at the third-party valuation and the methodology used.

The committee then:

• Noted the draft audit results report and agreed the materiality and performance levels.
• Approved the published statement of the pension funds accounts for the financial year ending March 2025.
• Authorised the chair to sign the pension fund accounts letter of representation once the outstanding audit work is completed.

Pension Fund Accounts and Annual Report

The committee reviewed and approved the Pension Fund Accounts and Annual Report for 2024/25. Paul Gelotti explained that the report consolidates information from previous committees, including accounting information and data on administration from Martin Dawson. He highlighted that the cost to run the fund per scheme member is £31.51, which is good value for money compared to other London funds. He also noted that the team is meeting 94% to 100% of their target dates.

Councillor Mrs. Kim Caddy asked if the cost per member took into account issues like the Goodwin and McLeod issues². Paul Gelotti confirmed that it was broader than that, but linked to that.

Councillor Andree Frieze, substituting for Councillor Nikki Crookdake, asked about investment in companies that might be supplying arms to Israel, and whether a letter had been written to the Treasury about this. Paul Gelotti explained that the London Civ provided an update at the last committee, but that the Pension Service Bill has further restricted the decisions that an individual fund can make. He stated that all investments must be undertaken by the pool by 31 March 2026, and that any action must have a three-point test: appropriate advice, analysis that the impact of any decision would not be significant, and evidence that scheme members would support that.

Councillor Judi Gasser stated that her colleagues are very insistent that the committee explore divestment, and that it is a movement across London. Paul Gelotti responded that as an officer, all that he can do is advise what the regulations stipulate the requirements are for people to undertake and carry out and do.

Councillor Mrs. Kim Caddy congratulated the team on the administration KPIs, and asked how the £31.51 cost per member compared to other councils. Martin Dawson responded that for London, the average is about £50. Councillor Mrs. Kim Caddy also asked about the communications and engagement figures, and why only 50% of employers submitted monthly data on time. Martin Dawson explained that a lot of it is because of the schools and other areas and challenges and stuff. He added that there had been a particular provider, an external third-party provider, who worked along with a lot of schools, who I think they, in their own right, were probably contributed to a reasonable number of those issues, not just for this fund, but obviously, as you'll probably recall, the Pension Shared Service undertakes this provision for several other funds as well and the similar sort of issues were occurring. That provider is no longer in the market going forward, so hopefully that will help boost.

Quarterly Investment Performance Report

The committee reviewed the quarterly investment performance report for the first quarter of 2025/26. Paul Gelotti stated that it was a positive quarter for the fund, with a 4.3% return versus the average of 3.3%. He added that underlying funds operate differently, and that some managers have done particularly well, while others less so.

Councillor Ian Craigie asked about data that appeared to show the fund lagging slightly on its peers, and to what extent it would be true to say that because the pension fund is in a very strong situation, that this gives it a greater degree of ability to set a conservative investment strategy to hit its discount rate. Paul Gelotti responded that if a fund is below 100% funding level, it will need to have a more aggressive stance in its asset allocation. He added that the fund is in a positive position, so the need to try to recoup and recover under performance is simply not there.

Councillor Norman Marshall asked why there was so much cash at the moment, and whether the fund could try to put more money into equity. Paul Gelotti responded that the fund had put £50 million extra in since the last meeting, but more has come back through redemptions, private markets hedging, and other aspects.

The committee noted the performance and two technical points: that the London CIV Global Focus Fund is above 15% of the fund, and that cash is above the higher benchmark threshold.

Initial Valuation Results

Chris Morton from Barnett Waddingham, the fund's actuaries, presented the initial valuation results based on the current Funding Strategy Statement (FSS). He explained that the actuarial valuation happens once every three years, and helps to review and analyse the current position of the fund. He noted that the valuation is still in progress, and that the initial results will follow in October.

Chris Morton stated that the funding valuation does not determine the cost of the LGPS, but is just a tool to help manage those costs. He explained that the primary risk to the fund is that the assets that you have will fall short and that you won't be able to pay the promised benefits. He added that the funding valuation is useful to work in partnership with the investment consultants to make sure that the funding approach and the investment approach are working hand in hand.

Chris Morton explained that the key aspects of the funding model are that they use a smooth approach, looking at market conditions over a six-month period, and that they use a best estimate minus approach when deriving the discount rates. He added that the model used to assess the funding level is the same model that they use to assess future contributions.

Chris Morton touched on the topic of surpluses in the LGPS, and cautioned against the commentary about funding levels being very high and there being too much money in the LGPS. He added that most funds will be looking at their own situation and basing their decisions on their own specific circumstances, and in particular on their own funding strategy.

Chris Morton stated that the proposed discount rate that they're using for this valuation is going to be a net rate of 2.4%, which is higher than the discount rate that was assumed at the 2022 valuation. Councillor Norman Marshall asked whether a higher discount rate is good or bad. Chris Morton responded that it's a little more complicated than that, and that the approach they take is that they set expected returns and then allow for prudence.

Chris Morton stated that the roll forward estimate is that the funding level is at 120%, but that this number could be 5% or 6% different to what a full valuation would produce. He added that the primary rate is the rate of contributions that you set in order to pay for future benefits, and that they're thinking it might be slightly lower than it had been, maybe of the order of 15%.

Councillor Ian Craigie asked about the smoothed evaluation, and whether the six-month window is fixed or whether it could be adjusted. Chris Morton responded that they try and make sure that they communicate the reason why they did it in the first place, and that they have seen times where the smoothing approach has been very useful. He added that the approach that they take allows for enough movement, and that they've not really had the challenge or the requirement to then try and tweak that for different funds.

Councillor Mrs. Kim Caddy stated that it seems from this report like there'll be a recommendation to go from an employer contribution rate of around 18 to 20% to a rate of 15%. Chris Morton responded that what he's put in here is the primary rate, and that whether that's what the total contribution contribution rate is going to change to will very much depend on the funds approach to how much you want to give back surplus immediately. He added that the 15 is a direct comparator to the 18 to 20, and that the 18 to 20 is also the primary weight rate which has then had those factors applied to it in previous years. He stated that the headline probably comes from the financial assumptions that they're adopting, and that because the net discount rate is increasing, that is going to be one of the driving factors that is reducing the primary rate.

Paul Gelotti added that even within the core main three employers there's three separate ones, Richmond, Wandsworth, and the Better Service Partnership, and all three will have different funding levels and have different contribution rates.

The committee noted and approved these comments.

Exclusion of the Press and Public

The committee resolved to exclude the press and other members of the public from the meeting while item 9 was being considered, because it was likely that exempt information would be disclosed.