Councillor Questions Proposed Pension Contribution Rate Cut Amidst Economic Uncertainty

Councillor Barbara Arzymanow has voiced concerns over a proposed reduction in employer contribution rates for the Westminster Pension Fund, questioning the rationale behind the decrease in light of potential economic challenges and the need for council savings.

During a Pension Board meeting on Thursday, March 26, 2026, Arzymanow specifically challenged the actuarial valuation results. These results indicated an improved funding level of 140% for the fund, leading to employer contribution rates being set to average 20.5% of pay for the period April 1, 2026, to March 31, 2029. This represents a reduction from the previous valuation.

Phil Triggs, Tri-Borough Director of Treasury and Pensions, explained that the rates were determined by actuarial modelling and a prudent approach to assumptions, with the aim of ensuring stability and affordability. He noted that while the fund's overall funding level was strong, the modelling indicated that reductions were justifiable. Councillor Arzymanow's concerns about potential economic challenges are understood to relate to geopolitical uncertainty and market volatility, as well as investment returns and inflation. The discussion around inflation and the Iran war (likely a typo for a current conflict) suggests concerns about rising inflation, which could lead to higher interest rates and potentially a recession, impacting asset values and the fund's financial position.

The actuarial valuation, presented by Steven Scott, Actuary to the Westminster Pension Fund, showed assets of £2,104 million against liabilities of £1,506 million. This improvement was largely attributed to higher assumed future investment returns. The previous employer contribution rate, based on the 2022 valuation, was 17.5% of pay. The 2025 actuarial valuation set the new primary rate at 20.5% of pay, with secondary rates varying from -9.2% to -6.8% for the period 2026/27 to 2028/29. On average, employer total contribution rates have reduced, primarily due to higher assumed future investment returns at 2025 compared to 2022. However, a specific projected monetary saving for employers due to this reduction is not explicitly calculated in the provided documents.

The actuarial valuation as at 31 March 2025 assumed a discount rate of 5.3% per annum for the ongoing participation basis, with an 86% likelihood of success. This is an increase from the previous valuation's assumption of 4.8% per annum with a 67% likelihood of success. The models used for these assumptions reflect correlations between asset classes and wider economic variables, such as inflation. In the short-term, current financial market expectations are used, while over the longer-term, fundamental economic parameters are applied. The report does not detail the historical basis for these assumptions beyond the monthly recalibration of models.

The Funding Strategy Statement indicates that the next formal valuation of the Fund is due to be carried out as at 31 March 2028, which will set contribution rates payable from 1 April 2029. The statement is reviewed in detail every three years, ahead of the triennial actuarial valuation, with an annual check conducted in the intervening years. Amendments to the Funding Strategy Statement may occur in circumstances such as material changes to the scheme benefit structure, significant changes to the investment strategy, significant market volatility impacting the statement or exceeding its expectations, or notable changes to the employing authorities. These factors could potentially trigger an earlier review of the funding strategy, which might inform the need for an earlier actuarial valuation or adjustments.

Despite the strong funding position, Arzymanow's concerns highlight a broader debate about the balance between ensuring fund solvency and managing employer affordability, particularly in the context of wider economic uncertainties. The meeting documents do not provide a typical range of employer contribution rates for similar pension funds, though Councillor Arzymanow did question the proposed rates in comparison to other local authorities. The Rates and Adjustments Certificate for the City of Westminster Pension Fund shows a combined employer contribution rate for Westminster City Council of 9.3% for 2026/27 and 2027/28, and 12.8% for 2028/29.

The Performance of the Council's Pension Fund report provides a breakdown of the Fund's target asset allocation as of 31 December 2025, with 55% in global equities, 19% in fixed income, 11% in renewable infrastructure, 5% in infrastructure, 5% in property, and 5% to affordable and socially supported housing. The Actuarial Valuation Report also details the investment strategy allocation used for calculating employer contribution rates, including global equities, property, infrastructure equity, credit, multi-asset credit, and private lending. However, a detailed breakdown of assets and liabilities by maturity is not provided.