Agenda item

Report of the City Treasurer.

6.1       Peter Carpenter presented the report and advised that the actuarial valuation report set out the final position of the Fund. He advised that the Fund overall was 80% funded as of March 2016 compared to the previous valuation of 74% in 2013 and it was anticipated that this would rise to around 84% in the next three years. The increase in funding levels also meant that the overall deficit had been reduced from £297m to £264m. Members noted the comparisons between the funds to be published by the Government Actuary Department, which used a discount rate of 6.2%, compared to 5.1% used by the Fund’s actuary, Barnett Waddingham. Peter Carpenter advised that the number of pension scheme members had increased as more admitted bodies and scheduled bodies had joined the Fund, and also because of members being admitted through auto enrolment that had taken place over the last three years.

6.2       Peter Carpenter referred to the contribution rates for each organisation in the Fund as set out in the report and it was noted that the Council was presently 70% funded, however through a combination of three £10m cash injections and increasing contributions in the next three years, it was expected that the funding level would increase to 75%. This would also help reduce the anticipated time taken to repay the deficit from 25 years to 19 years. Members noted that the Fund was unusual in that the Housing Communities Agency, which was fully funded accounted for approximately 25% of all scheme members, was atypically large for an admitted body.

6.3       During Members’ discussions, it was queried whether a subsidiary company that was to be set up under CityWest Homes would join the Fund. The Chairman sought a further explanation of the graph illustrating changes to deficit levels for the valuation between 2014 and 2017 and also the reasons why deaths before retirement was still at the same level, even though life expectancy was increasing. He commented that the contributions for some admitted bodies seemed quite high and he asked why this was the case. The Chairman also sought further clarification that an increase of the funding level to 75% for the Council’s Fund could be achieved in three years. Members also asked what the implications would be if the London Borough of Hammersmith (LBHF) was to withdraw from tri-borough arrangements in respect of the Pensions and Treasury Service.

6.4       In reply to the issues raised, Peter Carpenter advised that factors affecting the valuation included the returns made on existing assets, the 1% reduction in the discount rate since the last valuation and because scheme members were living longer. In respect of deaths before retirement remaining the same despite longer life expectancies, Peter Carpenter stated that it was likely that this was due to a statistical figure being taken over a longer period of time, although he would check to confirm whether this was the main reason. Members noted that the graph on page 28 of the report that explained the differences between the assumptions used in 2013 valuation and those in the 2016 valuation.

6.5       With regard to admitted bodies contributions, Peter Carpenter advised that some contained a relatively small number of pension scheme members, so leavers or joiners would have a larger impact on contributions. The anticipated increase in funding levels to the City Council’s Fund to 75% in three years would be achieved through increased contributions, whilst the Investment Strategy Statement would also consider use of other City Council resources to reduce the deficit more quickly as this would save the City Council money in the long term by reducing interest rate costs.

6.6       Peter Carpenter stated that if LBHF were to withdraw from the tri-borough Pensions and Treasury Service, this could affect resilience, particularly as this team was small and a staffing restructure may need to be considered if this occurred.

6.7       RESOLVED:

            That the Acturial Report for 2016 which summarises the process that has taken place and the final contribution rates for future and past service contributions for Westminster City Council and all Admitted and Scheduled Bodies be noted and agreed.