URL: https://worcestershire.moderngov.co.uk/ieDecisionDetails.aspx?ID=109

Decision Maker: Pensions Committee

Outcome: Recommendations Approved

Is Key Decision?: No

Is Callable In?: No

Purpose:

Content: The Committee considered the Valuation Update.   The Committee received a presentation from Steven Scott from Hymans Robertson, the Pension Fund’s actuary.   In the ensuing debate, the following points were made:   ·         It was queried whether Hymans Robertson’s approach to the Fund Valuation differed from the approach adopted by other actuaries and whether Hymans Robertson would have taken a different approach to the 2022 Valuation from that taken by Mercers. Had Hymans Robertson adopted a more prudent approach? Steven Scott advised that the Fund’s Valuation had risen from 101% in 2022 to 127% in 2026. This was due to assets increasing and liabilities reducing. The key reason that liabilities were reducing was because the Fund had made greater allowance for asset returns. He could not envisage that Mercers would have taken a different approach to the Valuation this year. If Hymans Robertson had undertaken the Valuation in 2022, the same conclusion would have been determined. He did not consider that Hymans Robertson had been any more prudent in its advice compared to other actuaries. The level of prudence had been increased because of concerns about market volatility and geopolitical risks. ·         It was queried how and why the agreed discount rates for funds differed nationally following actuarial valuations. Steven Scott explained that discount rates varied considerably but it depended more on the approach of individual funds in relation to a number of factors including the investment approach adopted and resultant returns as well as the risk appetite rather than the approach adopted by the actuary. Comparable information would be provided in due course but a more important factor for funds to understand was the underlying assumptions made to determine the discount rate. Sherief Loutfy, Head Of Pension Investments, Treasury Management & Banking added that the Fund had prepared an actuarial statement which had been audited by the external auditor. Discussions had been held with the external auditor to ensure everyone was comfortable with the actuarial assumption. ·         Steven Scott stated that it was anticipated that employer contribution rates would fall post valuation but not by much because a bigger reduction would not be sustainable in the longer term. After a period of consultation, an agreement had been reached with employers over the level of reduction that they were comfortable with. ·         The reduction in employer contribution rates was smaller compared to other funds, had major employers resisted this proposal? Steven Scott advised that a constructive dialogue had been held with major employers. They understood the proposed prudent long-term strategy in relation to contribution rates. Phil Rook, Chief Financial Officer added that it was important for the Fund to take a long term approach to contribution rates to avoid a situation where excessive increases in contribution rates might be necessary in the future. ·         It was queried whether the future calculation of individual employer contribution rates had taken account of the impact of LGR. Steven Scott replied that the impact had not been considered in the Valuation report. However, separate advice regarding LGR had been provided to the Pension Fund. A formal review of the impact of the LGR on contribution rates would be undertaken. Phil Rook, Chief Financial Officer added that the impact would be assessed when the Government determined which form of devolution would be appropriate for Worcestershire. ·         In response to a query, Steven Scott explained that the life expectancy referenced in the report related to Worcestershire, not the national average. ·         In response to a query, Steven Scott indicated that discount assumptions were not linked to gilt yields. If they had been then an increase of 3.5% would have been recommended. ·         In response to a query about the increase in salaries by 2% over 3 years, Steven Scott explained that that higher LGPS inflation had been recorded over this period which therefore resulted in higher salary increases ·         In response to a query about the 48% growth in global equities, Steven Scott advised that different funds had different strategies and styles for global equity investment. It was appropriate for the Fund to monitor future investment in the global equity markets. Sherief Loutfy added that there was considerable short-term volatility in global equities. The Fund had employed an equity protection strategy which protected the Fund against market volatility and enabled officers to act immediately to protect the Fund’s investments. Philip Hebson, the Fund’s Independent advisor added that it had been evidenced from the market’s reaction to the recent US action in Iran that markets were less concerned with geopolitics but more focussed on economic threats such as oil price rises. ·         The Chair thanked Steven Scott for his thorough report which reminded the Fund of its key obligations and duties. The satisfactory agreement that had been reached with employers about contribution rates was welcomed albeit recognising that employers would always wish to see lower rates.   RESOLVED that the 2025 Valuation Update and its appendices be noted.  

Date of Decision: March 18, 2026