The Harrow Pension Fund has reported a significant improvement in its funding position, reaching 108% funded, an increase from 96% at the previous valuation in 2022. This positive development, largely driven by higher assumed future investment returns, is anticipated to result in a decrease in employer contribution rates.

The triennial valuation for 2025, presented to the Pension Fund Committee on March 16, 2026, indicated that the average total employer contribution rate is projected to fall from approximately 22% of pay to around 17.5% of pay. This adjustment is set to be implemented from April 1, 2026.

Councillor David Ashton, Portfolio Holder for Finance & Highways, acknowledged the positive outcome of the valuation. The committee has approved the draft Funding Strategy Statement (FSS), which details the fund's approach to ensuring its long-term liabilities are met. This statement underwent consultation with employers, and no significant objections were received.

Drivers of Improved Funding

The improved funding position is primarily attributed to higher assumed future investment returns at 2025 compared to 2022. The fund has made allowance for these increased returns, which have been bolstered by benign conditions in global equity markets, with drawdowns being limited. While some markets, such as India, Japan, and China, have experienced impacts due to their reliance on oil imports, they are taking steps to manage the situation. Furthermore, rising gilt yields have also positively contributed to the funding ratio, while long-term inflation expectations have remained relatively stable.

Waterfall chart illustrating the changes in the Harrow Pension Fund's surplus or deficit from the 2022 valuation to the projected 2025 valuation, broken down by various factors.
Waterfall chart showing surplus/deficit changes

However, prudence has been maintained within the assumptions due to ongoing geopolitical tensions, financial market volatility, and uncertainty surrounding future long-term UK inflation levels and global financial markets.

Funding Strategy Statement Details

The Funding Strategy Statement (FSS) outlines how the fund will ensure its liabilities are met over the long term. It details policies on cessations, contribution reviews, and pass-through arrangements. The FSS also specifies funding strategy criteria for each employer, which must be satisfied for a given employer contribution to be deemed acceptable. These criteria are defined by the target funding level, time horizon, funding basis, and likelihood of success.

Bar chart showing the likelihood of the Harrow Pension Fund being 100% funded under various scenarios over a 25-year projection period.
Likelihood of being 100% funded

Employer Consultation

The FSS was consulted on with employers, with an employers' meeting held in January 2026. An updated version of the FSS was issued to employers in January 2026, providing an opportunity to feed back comments or ask questions by the end of February 2026. No substantial questions or queries were received, and the consultation feedback has been reflected in the updated FSS now presented for approval.

Financial Health and Stability

The strengthened funding position, with the fund now at 108% funded, is expected to lead to reduced employer contribution rates, from approximately 22% of pay to around 17.5% of pay. This reflects a strengthened funding position and reduced contribution rates for many employers. The financial health of the Pension Fund directly affects the level of employer contribution, which in turn impacts the resources available for the Council's priorities. This improved funding position is viewed as a good outcome for the fund with stakeholders have also seen some contribution rate reductions.

Assumptions and Risks

The projected decrease in employer contribution rates is underpinned by the aforementioned higher assumed future investment returns, alongside assumptions on investment returns, inflation, and life expectancy. However, risks exist if these assumptions are not met. For instance, if future inflation were 0.1% per annum higher than assumed, the funding level would reduce by approximately 2% (a £14m fall in the surplus). Similarly, if salary increases were 0.5% per annum higher than assumed, the funding level would decrease by about 1% (a £4m fall in the surplus). Should investment returns or income fall short, the fund may be unable to pay benefits, necessitating higher contributions from employers.

A line graph illustrating the relationship between assumed future investment return and funding level for the Harrow Pension Fund.
Assumed future investment return vs. funding level

Further details on the valuation and the Funding Strategy Statement can be found in the Triennial Valuation 2025 Final Report and the Draft Funding Strategy Statement.