Agenda item

The Acting Assistant Head of Finance presented the draft Statement of Accounts for 2020/21.  Following presentation of the report, Committee Members were invited to comment and ask questions.

A Member thanked the Officer and staff for preparing the document especially during the pandemic, and Member queried the considerable deficit on the pensions reserve.  It was clarified that there is a significant increase in the pension fund liability (projected to be an increase of £74.6m) which has negatively impacted the balance sheet.  It was noted that this arises from a mid-triannual valuation of the pension fund undertaken by the Actuary.  The consequent increases in pension liability will not occur until the next valuation is undertaken. There will be no requirement to pay overcontributions to the fund until the valuation is complete.  The key drivers include the discount rate used by the Actuaries and the inflation factor.  In March 2020, the discount rate used to calculate the liability was based on an economy and market in turmoil due to the pandemic. Part of the effect is a year on year movement where Government Yields have stabilised over 15 months and assets held by the pension fund are forecast to return less than in March 2020.  The biggest impact is from the inflation factor used due to the requirement for the fund to base inflation on CPIH (Consumer Price Index with Housing costs) from 2030 onwards which increases the rate of inflation on the payments made from the fund, and the liability.  This was a new regulation from December 2020 that was not known when the 2019/20 accounts were prepared. The authority is in discussion with the pension fund to understand if it will result in a requirement to increase contributions annually from 2022/23 onwards.

The Member asked if there was any indication of the likely effect on the budget in terms of increased contributions.  It was confirmed that there is no forecast available.  The tri-annual valuation is very detailed and until completed it would not be possible to predict the impact.   Members were reassured that if there was any movement in liability, the intention is to recoup the liability over a significant number of years.

A Member asked if changes to investments affected the liability e.g. green and eco decisions within the investment portfolio of the pension fund.  [Action: This query will be directed to the pension fund and will be reported back to Committee Members.]

The Deputy Chief Executive and Chief Officer for Resources confirmed that if there is a need to increase employer contribution rates, this would be managed over an extended period. It was highlighted that, as has previously happened, contributions can be increased gradually to manage the deficit.  Advance notification would be received to enable arrangements.  The increased liability will apply UK wide and it is likely there will be pressures on the Government to act.

It was explained that there is a responsible and ethical investment group that reports to the Greater Gwent/Torfaen Pension Fund to assure a sustainable fund (20%) which is bound to meet specific benchmark returns.  The investment assets of the funds have recovered well from March 2020 but not to a level to offset the increases in pension liability.

Regarding ethical and responsible investment, market capitalisation in response to the climate emergency was predicted to attract a lot of investment in those sectors including pension funds.

A Member queried school budget balances (only two schools hold deficit budgets as at the end of March 2021) and asked about plans to reduce the surpluses noting the late grants received for maintenance costs and recovering educational standards.  It was explained that schools with substantial surpluses have been requested to prepare investment plans in line with Welsh Government guidance.  These plans have been received and will be implemented subject to the grant amounts being used for the purposes for which they were awarded.

The Chair commented that the accounts are clearer and easier to read than previous and particularly welcomed the inclusion of the CIPFA understanding local authority financial statements and the summary of 2020/21 primary statements.

The Chair asked for clarification about differing amounts recorded for capital receipts in the report (£7.4m) and table (£1m). The Acting Assistant Head of Finance explained that the table shows the amount of capital receipts (£1m) used during the year to finance capital expenditure.  The report records that £7.4m has been received during the year with a net difference of £6.4m which represents the increase in capital receipts for the year.

As per the recommendations, the Governance and Audit Committee:

1)    Noted the 2020/21 draft Statement of Accounts and highlighted any queries and comments.

2)    Noted that the audited Statement of accounts for 2020/21 will, prior to being presented to Council, be reviewed by this Committee during the autumn.