Agenda item

To consider the report

A report was presented by the Pensions Manager outlining the assumptions setting for the Gwynedd Pensions Fund's 2025 valuation. It was clarified that the report detailed the financial life expectancy, life expectancy, and other demographic assumptions that the Fund must make, and that these assumptions were set by the Fund's Actuaries following discussions and a training session with Officers, Committee Members and Board 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 reiterated that the assumptions also adhered to LGPS guidelines which required prudence in the discount rate, while the other assumptions were best 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 emphasised that the discount rate (representing the average
annual rate of future investment return), had seen a significant change in the economic environment since 2022, leading to higher expected future investment
returns and funding levels, but also increased uncertainty.  It was highlighted that the Actuary's recommendation was to increase the prudence level for the discount rate from 75% to 80%.

In the context of benefits increases and revaluation of the Career Average Scheme, linked to CPI, it was noted that the approach remained the same as the 2022 valuation, but reflected current inflation expectations. It was reported that the average level of future inflation on 30 November 2024 was 2.3% per annum (compared to 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 a general assumption of 'default' improvement in the future, and with other assumptions such as demographic assumptions, the intention was to adopt assumptions based on an analysis of information from the Fund along with the Fund's actual membership experience

It was reported that the Pensions Committee, at a meeting on 17 March 2025, had adopted the forecasts.

Thanks were expressed for the report.

In response to a question about 'payment / contribution holiday' and whether this should be considered as a risk, it was noted that the Legislation was now being amended to prevent this. It was added that if any accepted assumptions needed to be reviewed in response to any situation that arose, that this was actionable and would be considered as prudent behaviour

A question was asked regarding the current market volatility and whether an interim valuation could be allowed; it was noted that this has been allowed in exceptional cases, but again, the intention was to amend the Act to prevent this.

Comments arising from the ensuing discussion,

·        As the Fund was adequately funded, would it be wise to retain the current situation rather than reducing shares? In case things went wrong?

·        The three-year valuation retained control over the employer's contribution – it was important to be aware of the situation and try to avoid a position of fluctuation.

·        Important to hold discussions with major employers

·        Request for the risk register to be submitted/updated by the next meeting

·        Accept that these were forecasts and that it was difficult to have clarity without accurate figures - yet a balance needed to be struck

The information was accepted.