The Westminster Pension Fund's funding level has dropped to 126% as of March 31, 2026, a decrease from 140% the previous year. This decline is primarily attributed to a reduction in the funding discount rate, a consequence of revisions to the actuarial model used by Hymans Robertson.
The revisions to Hymans Robertson's Economic Scenario Service (ESS) model shifted how expected asset returns are calculated. Historically, the model relied more heavily on the observed gilt yield curve as a proxy for future interest rate expectations. However, the revised model now derives expected asset returns from a combination of expected future cash rates and asset-specific risk premia.
Significant volatility and negative sentiment in global investment markets, driven by geopolitical and economic uncertainty, were identified as the primary risk to the Pension Fund. Specific uncertainties include the US election, the potential impact of trade tariffs, and ongoing conflicts involving Ukraine, Russia, Israel, Gaza, and Iran. These factors are contributing to tightened financial conditions, a reduced risk appetite, and raised credit risks.
Other key risks include investment managers failing to meet targets, potential deterioration in funding levels, and inflation exceeding expectations. To mitigate the risk of inflation exceeding expectations, the strategy involves diversifying across asset classes with implicit inflation hedges, such as renewable energy infrastructure, which can uplift energy contracts with inflation. Investments in fixed income with a real coupon are also being made to offset inflation risk. Should this risk materialise, potential implications include a deterioration in funding levels and increased contribution requirements from employers, although higher inflation also increases discount rates, which can offset liability growth.
Discussions also touched upon the London CIV (LCIV), the pooled investment vehicle for London local government pension funds. The value of Westminster Pension Fund investments managed by LCIV was £503.9 million, representing 23% of total assets directly, and £1,457.9 million when including passive assets. Further details can be found in the Public reports pack.
