Agenda item


This paper provides an update on the Fund’s risk register and an opportunity for the Committee and Board to further review the risk score allocation.


The Head of Pensions and Treasury introduced the item and explained that the area of focus for review at this meeting was Investments. It was noted that the red/ high risk scoring range set out in section 6.4 of the report should include any risks rated 16-25 (rather than 15-25). It was clarified that risks were scored as follows: green/ low risk was less than 10, the amber/ medium risk was 10-15, and the red/ high risk was 16-25.


It was highlighted that the report set out some key risks in the short to medium term. It was noted that the invasion of Ukraine by Russia was a key issue and had been rated as a red/ high risk as several countries had announced sanctions against Russian companies and Russia had banned foreign entities from liquidating their assets. However, the Fund had a very small exposure of approximately 0.9% of total fund assets to Russian companies through its investment in an emerging markets index tracker fund. It was explained that this had resulted in the Fund experiencing a very small, negative impact on performance in the immediate term but that, if the situation changed, more guidance on the treatment of these investments would be issued. It was added that this might have further implications on the markets generally and this would be continually monitored.


It was also noted that high inflation had been identified as an amber/ medium risk as Consumer Price Index (CPI) inflation in January 2022 was 5.5% and the Bank of England expected this to peak at 7.25% in spring 2022. It was explained that the Fund’s investment portfolio provided some degree of protection through its investments in various inflation linked strategies. It was added that officers, in consultation with the Fund’s investment consultants and independent advisor, would continue to monitor the impact of sustained high inflation on the Fund’s investment portfolio.


Steve Turner, Mercer, noted that a watching brief would be maintained in relation to the geopolitical event in Russia and Ukraine. It was added that the relevant assets had been written down to 0. It was also recommended that a scenario analysis was undertaken, as part of the upcoming Investment Strategy review, to test how the strategy would perform in different environments. It was noted that the risk of a stagflationary environment, where there would be slow or negative economic growth, had increased fairly significantly.


Some members queried the actuarial calculations and suggested that a rise in inflation rates may result in an increased surplus. It was also noted that the report referred to CPI but that many people considered that both CPI and Retail Price Index (RPI) figures did not reflect the impact on the average person. It was enquired whether there were any plans for the government to use a more realistic measure of inflation. The Head of Pensions and Treasury noted that CPI was linked to pensions liabilities and confirmed that he was not aware of any planned changes.


The Pensions Committee and Board noted the report.

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