Agenda item

To approve the assumption setting for the Gwynedd Pension Fund's 2025 valuation.

DECISION:

·        To approve the assumptions setting for the Gwynedd Pension Fund’s 2025 Valuation.

·        The information sharing session with Hymans was welcomed

A report was submitted by the Pensions Manager outlining the assumptions setting for the Gwynedd Pensions Fund's 2025 valuation. It was explained that the report provided details on the financial, life expectancy and other demographic assumptions that the Fund is required to make, and that these assumptions had been set by the Fund's Actuary following discussions and a training session with Officers and Committee Members. It was highlighted that the relevance of the current assumptions had been considered before introducing changes that would reflect the Fund's specific characteristics and take a very long-term view. It was elaborated that the assumptions also kept to the LGPS guidelines requiring prudence in the discount rate, whilst the other assumptions were the best possible estimates.

In the context of financial projections, it was highlighted that there had been significant changes in economic conditions since the 2022 valuation, which included higher interest rates, higher than expected inflation, and more volatility in the market. It was noted that political and climate risk had also been mentioned as influential factors. It was reiterated that the discount rate (which represented the average annual rate of future investment return), had seen a significant change in the economic environment since 2022, which consequently led to higher expected investment returns in the future, and funding levels, but also increased uncertainty. It was highlighted that the recommendation of the Actuary was to increase the prudence level for the discount rate from 75% to 80%.

In the context of increases to benefits and the revaluation of the Career Average Scheme, which were linked to CPI, it was noted that the method remained the same as the 2022 valuation but reflected the current inflation expectations. It was reported that the average level of future inflation on 30 November 2024 was 2.3% per annum (compared with 2.7% per annum in March 2022) and therefore it was recommended to offer salary increases at CPI + 0.5%, to reflect the uncertainty despite the current inflation expectations.

Reference was made to life expectancy assumptions, noting that the recommendation was to adopt an overall assumption of 'default' future improvement, and with other assumptions such as demography assumptions, the intention to adopt assumptions based on analysing information from the Fund, together with the actual membership experience of the Fund, was noted.

The members expressed their thanks for the report.

In response to an observation that the funding level of the fund was now 200% and whether there was a point or a level where it would have to stop, it was noted that there was no maximum level as long as the Fund remained prudent. It was elaborated that recent observations in the Press had challenged what was reasonable for taxpayers to pay to fund the Fund (in the context of some of the Fund's principal employers who received public funding – Cyngor Gwynedd, Môn, Conwy and Eryri National Park). As a result, discussions would need to be held to respond to these pressures to ensure balance.

During the ensuing discussion, the following observations were made by Members

·        The training session had been useful with clear presentations

·        A suggestion to host similar sessions in the future when making decisions

·        The Fund was in a healthy situation

·        There was a vast range of assumptions and robust figures to support them

RESOLVED:

·        To approve the assumptions setting for the Gwynedd Pension Fund’s 2025 Valuation.

·        To welcome the information sharing session with Hymans