The Chief Accountant and Actuary on behalf of Hymans Robertson presented the results of the triennial evaluation of London Borough of Tower Hamlets Pension Fund.  By way of background they advised the Committee that the triennial valuation:

• was a legal requirement and necessary for the recalibration of the fund and assessment of funds needed to continue to pay its members
• set out the fund’s investments against its likely liabilities
• served to indicate any deficit required in order to meet its obligations
• informed the contribution rate required to be set

Members were informed that:

• the evaluation had been completed giving an indication of the sums needed to pay past and future members
• the last three years, the Fund had been required to perform in an environment of low gilt yields, uncertain markets, poor global economic performance and a reduction in membership. 
• the Fund had been stable
• the Fund had outperformed by 20 points since the previous actuarial assessment in 2010
• the Government was looking for credible strategies for funding and funding plans
• although the Fund was in deficit, the position of the Fund was good
• the Government was looking to Councils to establish credible strategies for funding and credible funding plans
• since pension funds were of a long term nature, it was necessary to project their likely returns.  Periodic valuations were a recalibration tool with which to address short term volatilities in financial markets and assess sums need to pay members of the fund
• liabilities were assessed over short terms and inform contribution rates which are measured on 20-year terms
• prudent projections of investment returns had been calculated.

The following results were also noted:

• the long-term pay growth evaluation,
• prudent projection on investment returns,
• key assumptions made which were specific to the members
• prudent assumptions and the allowance for improvements in the future.

The Actuary offered his actuarial opinion that:

·         the funding policy was consistent with the current funding strategy of the fund.  The asset outperformance assumption contained in the discount rate was within the range that would be considered acceptable funding purposes and was also considered to be consistent with the requirement to take a prudent long-term view of the funding liabilities as required by the UK Government

·         in the short term, there was scope for considerable volatility and there was a material chance that, in the short – medium terms, asset returns would fall short of target.  Therefore stability measures were proposed to dampen down the effect on employers contributions

·         the fund did not hold a contingency reserve to protect it against the volatility of equity investments.  Modelling had been carried out which indicated that by retaining the present investment strategy together with constraining employer contribution rate changes would enable the fund to strike a balance between minimising the long-term cost and retaining stable contribution rates.  It was recommended that the current stabilisation mechanism remain in place until 2017 and reviewed at the next triennial evaluation.

The Actuary also noted that, since March 2013, there had been more favourable economic conditions and, were the fund to be valued at the present time, it would have delivered better results: this was to the benefit of the fund as its value was presently greater.  He reminded members that a new local government pension scheme would be effective from 1 March 2014

A Member enquired about the impact of demographic assumptions on the evaluation and fund projection and Members were advised that membership pro files were typical in the context of the staff changes that had taken place since the last actuarial review.

RESOLVED

1.         That the funding strategy statement set out in appendix A of the report to be adopted

2.         That the recommendations arising from the actuarial review of the pension fund be approved