The Kingston upon Thames Council's Pension Fund Panel met to discuss the fund's triennial valuation, administration, governance, and investment performance. The panel approved the draft funding strategy statement, noted the pension administration performance update, and approved the pensions dashboard matching policy. They also discussed and agreed to review the responsible investment policy, consider options for divestment from companies on the UN list, and publish an annual stewardship report.

Divestment from Companies with Alleged Human Rights Violations

Following a public petition titled Divest for Palestine, the panel discussed the report from the Pension Fund Task and Finish Group, which was formed to review pension fund investments and identify holdings in companies allegedly complicit in violations of international law and human rights in Palestine and throughout the world.

Councillor James Giles addressed the panel, stating that the recommendations were insufficient and failed to honour the mandate of the cross-party motion passed by the full council. He argued that engagement is not a substitute for divestment and that the policy review lacked specific changes. Councillor Giles urged the panel to adopt a framework in line with global best practice, such as the Norwegian sovereign wealth fund's divestment model.

Councillor Mark Beynon acknowledged the public interest in the matter, particularly concerning the situation in Israel and Gaza. He noted the complexity of determining responsibility and the interconnectedness of companies, making complete divestment challenging. Councillor Beynon emphasised the importance of a robust responsible investment strategy and working with the London CIV¹ and other councils to exert influence.

A representative from the London CIV explained that they monitor lists of companies with potential exposure in the region, assess their activities, and engage with them to push for increased transparency and human rights due diligence. They also mentioned using votes to push for change and considering human rights screens.

The panel discussed the need for clear information about investments and potentially problematic areas. There was also discussion about the definition of arms companies and the potential implications for investing in UK companies.

Sue Curden, Executive Director of Corporate Services, cautioned against divesting from individual companies without considering the significant financial impact on the fund, as investments are primarily in pooled funds. She suggested strengthening the wording of the responsible investment policy.

Councillor Richard Thorpe stated that the panel had recommended divesting in one direct investment immediately and then looking more widely at the funds.

The panel agreed to:

• Note the report summarizing the findings of the task and finish group, including the current exposure held within the fund.
• Review the responsible investment policy for the fund, in particular whether the current preference for engagement over divestment is still the most appropriate approach, and consider expanding on the engagement priorities for the fund, including the order of ESG² priorities, reporting the outcome of the review and any resultant updates to the pension panel meeting in February 2026.
• Note the four identified investments on the United Nations Office for the High Commission of Human Rights list and seek to understand whether these companies' corporate responsibility policies are and whether these companies have taken action to change their own behaviours and activity in relation to the violations of international law in Palestine.
• Agree to consider options to divest from and actively not investing companies on the UN OHCHR list, noting at the current time that only Motorola investment is held outside of a pooled fund arrangement where the entire holding and that pooled fund would need to be sold in order to divest from a particular company which would likely be cost prohibitive.
• Agree to publish an annual stewardship report to provide further details of how the fund's responsible investment policy is implemented in practice, with the first report to be presented to the 11th of February 2026 pensions panel meeting.
• Agree to report back to the next appropriate corporate resources committee with the outcome of the review and the steps being taken by the fund as a result.

Triennial Valuation and Funding Strategy

The panel received an update on the triennial valuation and funding strategy statement. Tom, Head of Pensions Administration, explained that every three years, the fund undergoes a valuation to assess its assets and liabilities, which determines employer contribution rates.

Key updates included:

• Discount Rate: Increased from 4.2% to 5.6% since 2022. The discount rate is used to determine the present value of future benefit payments.
• CPI Inflation: Decreased from 2.7% to 2.3% since the 2022 valuation. Benefits in the LGPS³ are linked to inflation.
• Longevity: No material change to longevity assumptions.

The funding strategy statement has been updated to reflect new government guidance from the Scheme Advisory Board and the Chartered Institute of Public Finance and Accountancy (CIPFA). The funding level has increased due to an improved economic outlook.

Councillor Richard Thorpe raised concerns about the discount rate being influenced by the assets held, suggesting that a risk-free discount rate should be used if cash flows are well-understood. An actuary from Hyman's Robertson responded that using a risk-free rate would make the LGPS unaffordable, as funds invest in riskier assets to generate higher returns.

Leslie Diston from Kingston University asked about the circumstances in which the authority would seek an immediate additional employer contribution for ill-health retirements. Tom explained that it would depend on the employer's funding position and long-term viability.

Councillor Farshid Sadr-Hashemi asked about the mechanisms in place to adjust the pension in response to abrupt changes in markets or inflation. The actuary explained that the fund has increased the level of prudence within the assumptions and that valuations are conducted every three years to review the market position.

The panel approved the draft funding strategy statement and noted the initial whole fund results, proposed valuation assumptions, and other related factors.

Pension Administration Performance

Tom provided an update on pension administration performance, noting that the backlog of outstanding cases overdue by three months or more has been resolved. The focus is now on cases overdue by 41 to 90 days.

Regarding breaches of the law, there is an outstanding open IDRP⁴ case, and a Pensions Ombudsman determination was not upheld. A breach of the law related to the McLeod remedy⁵ has been reported to the pension regulator.

In response to a question from the panel, Tom stated that there are no shocking quantifiable issues expected in the future. He mentioned the access and fairness consultation and the Virgin Media case as potential areas of interest. He also noted that the current software expires on 30 August 2026, and the council is looking at procuring a new system.

The panel noted the update and congratulated the team on resolving the overdue items.

Pension Administration Projects

Tom provided an update on key projects, including annual benefit statements, the pensions dashboard, and the McLeod remedy.

All annual benefit statements have been issued in accordance with the statutory deadline. However, six statements from Kingston University were incorrect due to an administration error, which has been resolved.

The fund is on track to connect to the government-wide pensions dashboard by the statutory deadline of 31 October.

The fund has reported itself to the pension regulator regarding the McLeod remedy, as it has not been able to fully comply with the requirements due to issues with the software provider. The plan is to be back on track by June 2026.

Councillor Richard Thorpe asked if the risks related to the government dashboard and the McLeod remedy are reflected in the council's risk register. Tom responded that they would be noted as a service risk but not as a corporate risk.

The panel approved the pensions dashboard matching policy and noted the update.

Governance and Risk

Tom presented the governance and risk update, highlighting the software and provider as a red risk. The fund is reliant on its software provider to provide compliant software, and issues experienced over the past 12 to 18 months have maintained the risk at a high level.

The access and fairness consultation is underway, looking at making the scheme more accessible to all members. The Local Government Association (LGA) has responded on behalf of the LGPS as a whole, supporting the proposals but raising concerns about the timing.

The government has agreed to step in and remedy the situation in the Virgin Media case.

The state pension age review may impact when members can receive their pensions.

No additional charges have been raised over the last quarter for underperforming employers, and all previous charges have been recovered.

In response to a question from Councillor Mark Beynon, Tom stated that the fund is undertaking its own review of cyber security and has a robust process in place to manage any cyber concerns.

The panel noted the governance and risk update.

Annual Report and Statement of Accounts

Catherine Gray, Head of Pensions, Investments and Treasury, presented the draft annual report and accounts for the year ended 31 March 2025. The audit is in progress and expected to be completed in October.

Key highlights included:

• Membership numbers have been stable at 19,719.
• Benefits paid out exceeded contribution income for the first time by about £1 million.
• The council prepays their deficit contributions up front for three years.
• A section on responsible investment has been added to the annual report.
• Cumulative fee savings from investing through the London CIV have been £1.5 million.

Councillor Richard Thorpe asked if there was any reason to assume that the fund would not get a clean audit opinion at this stage. Catherine responded that there was nothing so far to suggest any issues or significant changes to the draft.

The panel agreed that the annual report 24-25 be published in draft format, to delegate to the Section 151 officer⁶ in consultation with the chair of the pension fund panel authority to approve the annual report 2024-25 and pension statement of accounts 2024-25 included within it following completion of the audit to note that the final annual report 2024-25 will be presented to the panel following the completion of the audit.

Work Programme

The panel noted the draft work programme for the municipal year 2025-2026.

Investment Performance

Catherine presented the investment performance report for the period ending 30 June 2025. The report covered investment performance and strategic asset allocation, funding and cash flow, and an update from the London CIV.

The market value of the fund is now £1.33 billion, an increase of £46 million (3.2%). Three-year returns are 8.5%, and five-year returns are 7.5%. The performance has been heavily influenced by the bounce back of equities following the Trump tariff announcements.

One area of the fund that has not performed well over the long term is the Janet Henderson absolute bond fund.

The fund is still underweight in impact and property.

Sandy from Mercer, the Investment Consultant of the Fund, explained that the fund's assets have outperformed the discount rate over the long term, contributing to a strong funding level. He noted that equity returns have been strong since liberation day and that he expects another positive return in the next quarter. He also suggested that the panel consider whether the absolute return bond mandate still has a place in the fund.