The presentation of Ms Michelle Doman and Mr Mark Wilson, Mercer, is attached, marked 5.

Contact:  Vicky Jenks (01743 252192)

Ms Michelle Doman and Mr Mark Wilson, Mercer, were in attendance remotely and provided the Committee with a presentation on the 2025 Valuation and proposed updates to the Funding Strategy Statement.

Members were advised that the Fund’s financial position had improved significantly since the previous valuation with the provisional results showing a higher funding level / lower contributions as well as an increase in prudence levels.  This meant that the Fund was in an improved position to keep contributions stable in future (although significant risks still remain).  It was noted that as of 31 March 2025, the Fund had moved from a small deficit to a surplus of £335 million, equating to a funding level of around 115%.

Members were advised that average employer contribution rates were proposed to reduce, supported by the introduction of a new sustainability reserve to improve contribution stability and reduce the risk of future increases.  This would mean that the first 10% of surplus would be retained within the Fund as a buffer against future volatility.

Updates to employer related policies reviewed as part of the valuation were outlined.  These including those relating to employers without taxpayer backing – “lower risk” employers, the termination policy and academies.

Regarding the Funding Strategy Statement, it was reported that this had been significantly revised to reflect updated national guidance, with the draft version now including new sections on surplus and asset share policies.  Updated sections included the deficit recovery policy, admission and termination policies, employer risk management policy and the notifiable events framework and it was noted that the employer events policy was also now part of the Funding Strategy Statement document.  Members were informed that the draft Funding Strategy Statement was required to be circulated to all employers for consultation, with feedback to be considered by the Committee before final approval.

A question was asked about the Fund’s exposure to market downturns and whether contribution increases could coincide with periods of employer financial pressure.  In responding, Ms Michelle Doman explained that this systemic risk had been considered and that the sustainability reserve, together with prudent investment return assumptions, was intended to help absorb adverse experience and reduce the likelihood of immediate contribution increases during periods when employers might be least able to afford them.

The Fund’s cash flow position and liquidity, particularly the balance between pension payments, contributions and investment returns as well as the future prevention of optimism bias in assumptions, was queried.  In responding, Mercer advised that actuarial assumptions were long term in nature and deliberately prudent, with surplus held back via the sustainability reserve to provide protection.  The importance of linking investment strategy to liquidity needs was also highlighted.

Concern was expressed about the scale of the proposed reduction in employer contribution rates and Mercer acknowledged that the reductions were significant but reiterated that they were accompanied by increased prudence, particularly the 10% sustainability reserve.  This approach was intended to strike a balance between easing current affordability pressures on employers and maintaining the Fund’s ability to manage future risks in a sensible and controlled way.