Some of the points raised by Cllr Jarman in this article have been questioned by Cllr Andrew Garratt, a detailed response from Cllr Jarman has been added at the bottom of the article. Ed
Over the eleven months since the Alliance Group have been in power at County Hall, the Isle of Wight council’s Pension Fund has gone from being £32 million in the debt to now having a surplus of £22.9 million, says Cllr Chris Jarman from the Alliance Group.
It’s beyond doubt that this is something that the tens of thousands of Islanders who rely on IWC Pension Fund payments, or who will rely on in their retirement, will be pleased to hear.
Speaking to the councillor responsible
News OnTheWight’s Simon Perry recently managed to grab an hour in the busy diary of Isle of Wight council’s (IWC) cabinet member who is responsible for the IWC finances, Cllr Jarman, to find out more.
He told us how this massive turnaround has come about thanks to a number of factors covered below.
Cllr Jarman started off by explaining the structures of the Pension Fund:
“The Pension Fund is constructed with some of the money going off to a joint fund, which is called the Access Group.
“This is basically a collaboration between local authorities pooling of funds, some of which are administered by agents we appoint and we select.
“Within that, they have to be given guidance for what kind of things to invest in.”
Jarman: You have to have a certain appetite for risk
Continuing, Cllr Jarman explained the importance of having a certain appetite for risk. He said,
“We have to look at the risk appetite that we take on within the Pension Fund.
“If one was simply to invest in absolutely guaranteed instruments, investments, bonds and things like that – basically deposit accounts – you’d be lucky to get 0.01 per cent. When inflation is clearly higher, the real value of the capital that you’ve got will go down, and down, and down.
He added,
“So you have to have a certain appetite for risk in the market place. Largely investing in stocks and shares, equities and instruments like that to be able to give you a level of return which overcomes inflationary pressures, and which starts to build the value of the fund in real terms over time.”
Jarman: A balance to be played
Don’t worry, the Isle of Wight council are not about to starting investing in the likes of Bitcoin. Cllr Jarman was very conscious of just how many people will be relying on the Pension Fund in their retirements.
He said,
“One doesn’t want to have a very high appetite for risk, that would be regarded as somewhat reckless, particularly with pension funds, so putting all your money into Bitcoin might not be a favourite approach.
“There’s always a balance to be played in these things and remembering at the end of the day that you’re talking about thousands of people’s livelihoods in retirement.
Lots of people who are in retirement, lots of people who have deferred pensions and lots of people who are still earning their pension and contributing into it. They are all dependent on the decision that that fund takes.”
He explained that it was not only people who previously or still directly work for the council affected, but also included those affiliated into the scheme, such as staff who worked in the harbours, museums and schools.
Jarman: Your decisions affect tens of thousands of people’s livelihoods
Cllr Jarman added,
“At the end of the day it’s their future, their livelihood and the quality of their retirement that your decisions impact. It’s tens of thousands of people and each one of those probably doesn’t look at their pension portfolio in any detail.
“They simply rely on you to make the right decisions to give them a good pension. So there is a ton of responsibility in that and that’s why you have to balance this issue between ‘no risk, no return’, ‘high risk, high return, perhaps’ and somewhere in the middle is a good route forwards.”
What’s happened to the funds over the last year?
Simon next asked what the Pension Fund looked like when the Alliance Group took power at County Hall in May 2021 and how it was looking now.
Cllr Jarman explained,
“When we came in, we were in a position where the loading of the funds – that’s basically how much is in the fund versus what our future liability is – was down £32 million. Not a great situation.”
What’s the real world impact of a deficit?
Simon asked what the real world impact of that would be. Did it mean the council would have to take money from elsewhere to pay pensions?
Cllr Jarman replied,
“If that was a long-term sustainable issue you would have to look at levels of contribution into the scheme. There would be a number of markers that would kick off. You’d have to increase contribution rates over a long period of time.
“It’s rather like nationally, if the Government doesn’t have enough money to pay pensions it would have to raise income tax, for example, and so not a good situation to be in.”
Being in surplus means a degree of comfort
Thankfully for those relying on the Pension Fund, the picture is quite different at the moment as Cllr Jarman explained,
“The situation we are in now is that we’re almost £23 million in surplus.
“It’s a much better and healthier position to be in.”
He went on to explain that the Pension Fund being in surplus means that there’s greater potential to be more selective with what is done with the money. Adding,
“You can have a little bit of a higher appetite for risk, but the key thing is that it gives you a degree of comfort that instead of operating a fund that has 95 per cent of what it needs, it’s a fund which has got 103 per cent of what it needs.”
At an all time high
Cllr Jarman said he didn’t think the Pension Fund had ever been higher than it is at the moment -“It’s at an all time high,” he said.
However, although things are moving in the right direction, “It’s not a time to relax,” he said.
How did those changes come about?
It’s great to hear about the turnaround of the Pension Fund going from deficit to surplus, but what has changed in order for that to happen?
Cllr Jarman explained that as well as a change to the appetite of risk from the council, it was a result of lots of different things,
“Part of it is the way that the investors have dealt with the money and part of it is the policies and the recommendations [by the council]. Part of it is to do with the access pooling. Part of it is to do with the general recovery in the stock markets and some of it is to do with demographics. It’s lots of different issues and I don’t think you can’t put your finger in the air and say ‘ah, this is why it has changed’.
“What you can say is that there are a whole raft of things, all of which are moving in the right direction, happily, bolstered by changes that are happening in terms of recovery from Covid. Changes that are happening in the stock markets generally. Although all those things go up and down quite a bit, generally we’ve been tracking very successfully. We have targets with our investors, which are above the general tracking index for the markets.”
Building a rapport with Fund Managers
He added that what the council are focused on is a risk profile which gives them a return that is ‘greater than the market’.
“So the target is ‘market plus’, which requires a higher level of risk, it requires a different appetite from the people who are managing those funds on a day-by-day basis.
“We have to get to know those companies and have a rapport and a trust with them and to be able to give them some direction.”
The Pension Fund Committee
The Fund Managers attend the Pension Committee, which has around six meetings a year.
They explain where they are in the portfolio and how they are managing that portfolio and the council has the ability to then decide what they do about that.
Jarman: Understanding the detail of it is very important
Cllr Jarman added,
“I think making sure we have a very sound fiscal management process and procedure is very important. Understanding the detail of it is very important, and having a very good team of people there who can deliver on it is equally important.
“I spend very little time worrying about decisions that previous administrations have made. I much more focused on what we do about them now and the decisions we make in the future, those are the ones that affect Island businesses and Islanders.”
What impact will this news have on the Island economy?
Simon’s final question was what impact will the Pension Fund now being in a healthy position have on the Island economy.
Perhaps a boost for the Isle of Wight economy Cllr Jarman said,
“I think there are different levels, one is that people who are beneficiaries of the Pension Fund today, will hear that information and take some comfort from it.
“Those on deferred pensions will be feeling a great deal more comfortable about what the future holds for them. That comfort, one would hope, would manifest itself in perhaps a more relaxed attitude in life generally – which is good for all our stress levels – but also perhaps in their willingness to spend money into the local economy.”
More confidence from Islanders about what goes on
For those still contributing to the scheme, Cllr Jarman said it may raise a small smile, more comfort and perhaps greater confidence in the Pension Fund and its administration going forwards.
“All of those in some small measure are less stress, more comfort and more confidence from Islanders in what goes on.”
More to come
Signup for the News OnTheWight newsletter if you haven’t already – as there’ll be more to come from our time chatting to Cllr Jarman about issues that impact all Islanders.
Challenged by Cllr Garratt
Following publication Cllr Andrew Garratt (LibDem) raised questions about the timings of the new position of the Pension Fund. He said,
“To what do these figures (-£35m, +£23m) relate in terms of things that happened since the elections and formation of Alliance group?
“Trying to square these with this extract from the fund’s statement of accounts last year, referring to a position at 31 March 2021.”
This extract from page 29 of the report that went to the 28th July 2021 committee meeting reads:
The actuary’s interim funding projection report at 31 March 2021 showed that the notional funding level had risen to 103.7% since the last triennial valuation at 31 March 2019, with a resulting surplus of £25 million at 31 March 2021 compared to the deficit of £32 million at the valuation date of 31 March 2019.
In response, Cllr Jarman told News OnTheWight,
“The figures always take some time at the end of every account period to be calculated and reported.
“As I said it’s never one thing that makes all the difference but always a combination of many small but important things – and these do take time to have an effect on the overall performance.
“I would also give credit to the IWC team and fully acknowledge that some of the benefits were baked into the numbers prior to our administration.
“On starting the role last Spring the numbers I had available were for the quarter ending 31 Dec 2020. Those showed a valuation of the fund at £684 million equating to around 96% of what was required.
“After our administration came in and the figures for the financial year 2020-2021 were reported, they showed that the fund had increased to £695 million. The figures are not reported exactly on the change of administration but on calendar quarters and so performance during the present administration is approximate but reflects the scale of continuing improvement.
“Over the last nine months there have been three quarterly reporting cycles showing the improving nature of the fund:
- 30 Jun 2021 – £730 million
- 30 Sep 2021 – £733 million
- 31 Dec 2021 – £765 million (which we believe to be the highest ever it has reached)
“The recovery over the 12 months to 31 Dec 2021 was £684 to £765 = +£81 million, and a healthy 103% of that required equating to the circa £20 million surplus. The recovery over the first nine months of this financial year (mostly within the present administration) was £695 to £765 = +£70 million
“A significant change for the better and good news indeed for the present, deferred and future pensioners.”
Article edit
9.02am 25th Mar 2022 – Added editor’s note
6pm 29th Mar 2022 – Update from CJ added
