Agenda item

A report from Barnett Waddingham on approach to setting the key assumptions for the triennial valuation. This includes training on assumption setting.

Lucy Byrne and Melanie Durrant (Barnett Waddingham) introduced a report on the approach to setting the key assumptions for the triennial valuation.

A presentation was provided, which included but was not limited to the following points:

·       An explanation of a funding valuation was provided including how liabilities, assets and employer results are used.

·       The process of valuing liabilities for each employer was outlined as well as how assumptions were used to calculate the probabilities of benefits being paid.

·       Contribution rates and affecting factors were outlined as well as how this linked to employer covenant.

·       Employer covenant analysis was provided with organisations ranked as low, medium or high risk.

·       Detail was provided on actuarial assumptions and how these were generally categorised as financial or demographic assumptions.

·       An explanation of discount rate was provided.

·       The funding methodology used by Barnett Waddingham was outlined.

·       The possible impact on the 2025 valuation results was discussed with it anticipated there would be a small overall improvement in the funding position under the 2025 provisional approach.

·       A timeline of the work being conducted by Barnett Waddingham was provided.

The Committee discussed the report with attention drawn to the employer covenant analysis and why Parish and Town Councils had been considered to be a high risk. Clarity was provided that though these had initially been graded as a high risk, this had now been reduced to medium with it noted that this had been the case due to Parish and Town Councils being pooled together, with singular decisions having the ability to affect the whole pool. It was noted that the risk referenced in this analysis was the risk that employers posed to the Fund. It was also suggested that if the smaller bodies referenced within the analysis did not have indemnity or guarantors then this would pose a risk to the Fund as the cost would have to be picked up by all employers within the Fund and that one way to mitigate this risk might be to increase contribution rates to cover the risk. Assurance was also provided on the monitoring of the organisations within the analysis, with it suggested that the high-risk organisations would be monitored and that organisations could move classifications at any point, therefore emphasising the need to have as much up to date information as possible for audit.

Clarity was sought as to which direction prudence might be adjusted, to which it was suggested that prudence may remain in a similar position to last time, however there was a general theme of expected return increasing as well as prudence. Further clarity was also provided in regard to the assumptions around increased prudence.

An explanation was provided on the potential effects of raising or lowering the discount rate with it noted that generally if discount rate is increased, the total contribution rate is likely to decrease. The notion of using benchmarks to work out assumed returns was discussed, with it noted that by focusing on individual assets, Barnett Waddingham would be more able to remove underlying volatility in the market, with reference made to the smoothing method used. The potential impact of geopolitical events were referenced, with assurance provided that the assumptions had not yet been set so could be changed, however greater market volatility was anticipated.

Detail was sought on mortality assumption, with it explained that this was ultimately based on life expectancy and how long Members would expect to live for in receipt of pensions. It was also questioned whether there was anything specific about the Wiltshire Pension Fund which impacted the approach to valuation, to which assurance was provided that the same approach was used for all funds though they were different.

Further questions were also raised in regard to assumptions, with clarity provided that all assumptions start at CPI +1% with national analysis conducted using ONS data and that the assumptions used were consistent with other actuaries. It was also noted that there was no industry body guidelines for assumptions, however the government actuary conducted reviews to consider consistency.

At the conclusion of debate, it was,

Resolved:

The Committee agreed:

a)    To note the Triennial Valuation 2025 update and where necessary sought from Officers and Actuaries such clarifications or further information as they required.

b)    To approve the overall approach to the 2025 Triennial Valuation which allowed flexibility for some reduction in employer contribution rates without prematurely causing the Fund moving into a cashflow negative position.