The Director presented the report to agree the framework for setting contribution rates and associated actuarial assumptions to be consulted on with employers as part of the 2025 valuation process. 

Members queried whether any significant economic events could take the adjusted funding level of 120% below 100%. 

The Director expressed that a significant economic event could impact the funding level but that the Authority needed to remain in a risk-taking position to maximise returns while monitoring the market and managing risk as necessary. 

Members acknowledged the positive funding level and queried whether SYPA could go further in the planned reduction of employer contributions, especially given that Local Authorities, a major employer in the scheme, were experiencing increased financial demands. 

The Director recognised the financial difficulties faced by Local Authorities and explained there was scope for adjustment and nuance in the final contribution rates set, as well as the possibility of differentiating contribution rates to different employers. The Director advised a cautious approach adding that if contribution rates were cut too far, they may then need to be raised again and this would be harmful to employers and their budget management. 

Members asked whether employee contribution rates might change. The Director explained that the LGPS set national employee contribution rates which are reviewed every 4 years and could only be changed with Government intervention so SYPA regarded employee contributions as fixed when making plans. 

Members queried whether the positive funding level of the Authority might allow it to strengthen its Responsible Investment policies, for example by divesting from companies with low ESG scores. 

The Director explained that the Authority’s priority remained maximising returns and servicing benefits but that Responsible Investment would continue to remain part of the Investment Strategy. 

Members referenced the recent decision made by the Kensington and Chelsea London Borough Council to reduce employers’ contributions rate to zero with the reasoning that it was believed this would not materially affect the pension fund's position and asked whether this may lead to a similar decision in South Yorkshire. 

The Director explained that the pension fund in question was currently over 200% funded so the temporary reduction of contributions would have a negligible effect, but that SYPA was not in the same position. It was also explained that the actuary to the aforementioned fund had not certified the reduction and that SYPA had taken legal advice and been advised not to set a rate that the actuary would not approve. The Director explained that pressure from Local Authorities to reduce rates was expected but that all recommendations in the report were made with all aspects taken into account. 

Members referenced the South Yorkshire Mayoral Combined Authority consultation on bus franchising and the resultant potential changes that would open up the LGPS to more people and queried whether this could affect calculations made in the report. The Director explained that this would not affect the position of the Authority but would need to be looked at in more detail to gain data and determine any potential impact due to that particular employer. 

RESOLVED: Members approved the framework set out in the body of the report for consultation with employers as part of consultation on the revised Funding Strategy Statement required as part of the valuation process.