The Committee is asked to note the report.
The Head of Pensions explained that the risk register was a live document and therefore it was important for it to reflect the discussion carried out by the Committee.
Members were informed that since the risk register was last considered by the Pension Committee in December 2020, a number of changes had been made, these were highlighted in yellow and the new narrative was shown in bold red.
It was noted that in December the residual risk ratings for risks F1, F2 and F4 relating to the Pension Fund investment strategy and deficit position, were increased due to the impact of COVID-19. Members noted that these risks had now returned to their previous levels based upon the current overall funding level, as determined by the Actuary and the completion of the review of the Fund Equity Strategy as part of its Strategic Asset Allocation.
The residual risk rating for F6 had also been increased, as this related to pay and inflation exposure. It was recognised that we may enter a more inflationary environment as a result of coming out of the Covid pandemic, but also that Officers undertake a review of how the Fund can mitigate that inflation risk appropriately through its investment strategy and its risk management strategies. That proposed review would be undertaken over the next few quarters and then brought back to Committee with any recommendations for consideration.. The Head of Pensions explained that inflation exposure was one of the greatest risks that the Fund faced.
The Independent Advisor informed the Committee that over the past few quarters he’d been raising the issue of inflation with the Committee. He explained the real issue was that the Covid pandemic had been devastating from a health and financial point of view for many people but actually the majority of people had got through unscathed and may well actually have been forced savers over the period. He continued to give the Committee a detailed analogy of the impact of inflation on the global market.
During the discussion it was suggested that perhaps there should be a separate risk about pension inflation exposure across all elements of the Fund, as opposed to just on the investment side. The Head of Pensions agreed to take this point away for review and potential inclusion in the Risk Register. (MT Action)
It was reported that the G5 Risk had remained at a medium risk as the agreed additional team resources had yet to be recruited. It was noted that the recruitment of the agreed resources also applied to the maintaining of Risks A/R 1.1 and 1.2 at a medium level at this time.
G7 related to the loss of experience on the Pension Committee/Board and/or the lack of adequate training, resulting in a negative impact on governance arrangements within the Gloucestershire Fund. As a result of these factors, G7 & G5 would be monitored due to the forthcoming elections in May 2021.
In response to a question, the Actuary explained that it was a bit early to give a clear view, as on one hand life expectancy had shortened and the impacts of long term Covid were unclear, however there was also the other school thought that it could do the opposite due to increased hand washing measures, people worked at home more often, so to that extent there was less transmission of any disease, for example rates of flu this year were historically low.
The Actuary reviews the life expectancy assumptions at each valuation and there were two parts to that, in what life expectancy was expected to be right now and what could happen if in the future.
That the Committee noted the risk register, and supported the increase and proposed review in relation to F6 and the reduction in residual risk ratings for risks F1, F2 & F4 and the continued increased position relating to residual risk ratings for risks G5, A/R 1.1 & 1.2.