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London Borough of Hillingdon Pension Fund
London Borough of Hillingdon Pension Fund
Funding Strategy Statement
April 2026
Effective date 1 April 2026
Previous valuation date 31 March 2025
Date approved
Next review March 2029
Prepared in accordance with SAB /
CIPFA / MHCLG guidance dated
January 2025
London Borough of Hillingdon Pension Fund
April 2026
Contents
London Borough of Hillingdon Pension Fund – Funding Strategy Statement Page
1 Purpose of the London Borough of Hillingdon Pension Fund and the funding strategy statement
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PART A – Key Funding Principles 4
2 How does the Fund calculate employer contributions? 4
3 What additional contributions may be payable? 8
4 How does the Fund calculate assets and liabilities? 9
PART B – Employer Events 10
5 What happens when an employer joins the Fund? 110
6 What happens if an employer has a bulk transfer of staff? 14
7 What happens when an employer leaves the Fund? 15
8 What are the statutory reporting requirements? 17
Appendices
Appendix A – The regulatory framework
Appendix B – Roles and responsibilities
Appendix C – Glossary
Appendix D – Risks and controls
Appendix E – Actuarial assumptions
Appendix F - Contribution review policy
Appendix G - Cessation policy
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1 Purpose of the London Borough of Hillingdon Pension Fund
and the Funding Strategy Statement
The Local Government Pension Scheme (LGPS) regulations require funds to maintain and publish a funding
strategy statement (FSS). According to the Ministry for Housing, Communities and Local Government (MHCLG)
the purpose of the FSS is to document the processes the administering authority uses to:
• establish a clear and transparent fund -specific strategy identifying how employers’ pension liabilities are
best met going forward
• support the desirability of maintaining as constant and stable primary contribution rate as possible, as
defined in Regulation 62(5) of the LGPS Regulations 2013
• ensure that the regulatory requirements to set contributions to ensure the solvency and long- term cost
efficiency of the fund are met
• explain how the fund balances the interests of different employers
• explain how the fund deals with conflicts of interest and references other policies/strategies.
You can find more information about the LGPS at www.lgpsmember.org and about the regulatory framework in
Appendix A.
This document sets out the FSS for London Borough of Hillingdon Pension Fund (the Fund). If you have any
queries about the FSS, contact pensions@hillingdon.gov.uk.
The London Borough of Hillingdon Pension Fund is part of the Local Government Pension Scheme (LGPS) and
is administered by the London Borough of Hillingdon, known as the administering authority. The administering
authority runs the Fund on behalf of participating employers, their employees and current and future pensioners.
You can find out more about roles and responsibilities in Appendix B.
London Borough of Hillingdon worked with the fund’s actuary, Hymans Robertson, to prepare this FSS which is
effective from 1 April 2026, and is expected to remain in force until 31 March 2029 at the latest, unless an
interim review is carried out prior to then. LGPS Regulations (specifically Regulation 62) require an actuarial
valuation to be carried out every three years, under which contribution rates for all participating employers are
set for the following three years. This FSS sets out the assumptions and methodology underpinning the 2025
actuarial valuation actuarial exercise.
1.1 What are the funding strategy objectives?
The funding strategy objectives are to:
• take a prudent long-term view to secure the regulatory requirement for long-term solvency, with
sufficient funds to pay benefits to members and their dependants
• use a balanced investment strategy to minimise long-term cash contributions from employers and meet
the regulatory requirement for long-term cost efficiency
• where appropriate, ensure stable employer contribution rates
• reflect different employers’ characteristics to set their contribution rates, using a transparent funding
strategy
• use reasonable measures to reduce the risk of an employer defaulting on its pension obligations.
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The Fund engages with employers when developing funding strategy in a way which balances the risk appetite
of stakeholders. The funding strategy therefore reflects the specific characteristics of its fund employers and its
own investment strategy.
1.2 Who is the FSS for?
The FSS is mainly for employers participating in the Fund, because it sets out how money will be collected from
them to meet the Fund’s obligations to pay members’ benefits.
Different types of employers participate in the Fund:
Scheduled bodies
Employers who are specified in a schedule to the LGPS regulations, including councils and employers like
academies and further education establishments. Scheduled bodies must give employees access to the LGPS
if they can’t accrue benefits in another pension scheme, such as another public service pension scheme.
Designating employers (otherwise known as Resolution bodies)
Employers like town and parish councils can join the LGPS through a resolution. If a resolution is passed, the
Fund can’t refuse entry. The employer then decides which employees can join the scheme.
Admission bodies
Other employers can join through an admission agreement. The Fund can set participation criteria for them
and can refuse entry if the requirements aren’t met. This type of employer includes contractors providing
outsourced services like cleaning or catering to a scheduled body.
Some existing employers may be referred to as community admission bodies (CABs). CABs are
employers with a community of interest with another scheme employer. Others may be called transferee
admission bodies (TABs), that provide services for scheme employers. These terms aren’t defined under
current regulations but remain in common use from previous regulations.
The Scheme Advisory Board refer to three different tiers of employers which may participate in the LGPS,
specifically:
• Tier 1 – Local Authorities (including contractors participating in the LGPS with Local Authority backing)
• Tier 2 – Academy Trusts and Further Education Institutions (Colleges).
• Tier 3 – Standalone employers with no local or national taxpayer backing. Include universities, housing
associations and charities.
1.3 How is the funding strategy specific to the London Borough of Hillingdon Pension Fund?
The funding strategy reflects the specific characteristics of the Fund employers and its own investment strategy.
1.4 How often is the Funding Strategy Statement reviewed?
The FSS is reviewed in detail at least every three years ahead of the triennial actuarial valuation and an annual
check is carried out in the intervening years.
Any amendments will be consulted on and approved by the Pensions Committee.
Amendments to the FSS may be in the following circumstances:
• material changes to the scheme benefit structure (e.g. HM Treasury-led)
• on the advice of the fund actuary
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• significant changes to investment strategy or if there has been significant market volatility which impacts
the FSS or goes beyond FSS expectation
• if there have been significant changes to the fund membership and/or Fund maturity profile
• if there have been significant or notable changes to the number, type, or individual circumstances of any
of the employing authorities to such an extent that they impact on the funding strategy (e.g
exit/restructuring/failure) which could materially impact cashflow and/or maturity profile and/or covenant)
• if there has been a material change in the affordability of contributions and/or employer(s) financial
covenant strength which has an impact on the FSS.
• recommendations from MHCLG/GAD.
In undertaking such reviews, the administering authority should consider:
• looking at experiences in relation to long-term funding assumptions (in terms of both investment income
and forecast contributions income) and consequences of actions taken by employers (e.g. pay awards
and early retirements)
• the implications for the funding strategy and, if significant, determine what action should be taken to
review the FSS
• the implications arising from the funding strategy for meeting the liabilities of individual employers and
any amendments required to the ISS
• consulting with individual employers specifically impacted by any changes as an integral part of the
monitoring and review process
A review won’t necessarily lead to rates changes for individual employers but could impact admissions,
terminations, approach to managing risk and employer risk assessment.
1.5 Links to Administration Strategy
The Fund maintains an Administration Strategy Statement which outlines the responsibilities, standards and
procedures for employers and the Fund. A copy of this can be found in the Documents and Policies section of
the Fund’s website here.
Adherence with the requirements of the Administration Strategy Statement is crucial to ensure the well-running
of the pension Fund and any failure to do so may lead to uncertainty around the value of an employer’s liabilities
and the need for prudent assumptions to fill any data gaps.
1.6 Actuarial valuation report
The actuarial valuation report sets out 1) the actuary’s assessment of the past service funding position, and 2)
the contributions required to ensure full funding by the end of the time horizon. The Rates and Adjustments
certificate shows the contribution rates payable by each employer (which may be expressed as a percentage of
payroll and/or monetary amounts).
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PART A – Key Funding Principles
2 How does the Fund calculate employer contributions?
2.1 Calculating contribution rates
Employee contribution rates are set by the LGPS regulations.
Employer contributions rates are determined by a mandatory actuarial valuation exercise and are made up of
the following elements:
• the primary contribution rate – contributions payable towards future benefits
• the secondary contribution rate – the difference between the primary rate and the total
employer contribution
The primary rate also includes an allowance for the Fund’s expenses.
The fund actuary uses a model to project each employer’s asset share over a range of future economic
scenarios. The contribution rate takes each employer’s assets into account as well as the projected benefits
due to their members. The value of the projected benefits is worked out using employer membership data and
the assumptions in Appendix E.
The total contribution rate for each employer is then based on:
• the funding target – how much money the Fund aims to hold for each employer
• the time horizon – the time over which the employer aims to achieve the funding target
• the likelihood of success – the proportion of modelled scenarios where the funding target is met.
This approach takes into account the maturing profile of the membership when setting employer contribution
rates.
The approach taken by the fund actuary helps the Fund meet the aim of maintaining as stable a primary
employer contribution rate as possible.
2.2 The contribution rate calculation
Table 1: contribution rate calculation for individual or pooled employers
Type of
employer
Scheduled bodies CABs and designating
employers
TABs
Sub-type Local
authorities
Academies,
Colleges
Other
Scheduled
Bodies
Open to
new
entrants
Closed to
new entrants
(all)
SAB Tier Tier 1 Tier 2 Tier 3 Tier 3 Tier 3 Tier 1
Funding
target*
Ongoing Ongoing Ongoing Ongoing, but may move to
low-risk exit basis
Ongoing
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Minimum
likelihood of
success
75% 75% 75% 75% 75% 75%
Maximum
time horizon
20 years 20 years 20 years 20 years 15 years 15 years
Primary rate
approach**
The contributions must be sufficient to meet the cost of benefits earned in the future with the required
likelihood of success at the end of the time horizon, expressed as a percentage of pensionable pay
Secondary
rate
The difference between the total contribution rate payable (determined as per 2.1) and the primary rate.
Negative adjustments are expressed as a percentage of payroll and positive adjustments can be
expressed as a percentage of payroll or monetary amounts (for mature closed employers).
Stabilised
contribution
rate?
Yes Yes No No No No
Treatment of
surplus
(assessed at
valuation
date)
Covered by stabilisation
arrangement
Total contribution rate must be set at least at the primary rate.
However, reductions may be permitted by the administering authority
subject to additional consideration of the low-risk exit basis position.
Phasing of
contribution
changes
Covered by stabilisation
arrangement
3 years
* See Appendix E or further information on funding targets.
** The Primary Rate for all employer has been calculated using an 80% likelihood of success.
The Primary Rate for the Whole Fund is the weighted average (by payroll) of the individual employers’ primary
rates
Employers participating in the Fund under a pass-through agreement will pay a contribution rate as agreed
between the contractor and letting employer, subject to administering authority approval. For pass-through
arrangements let by London Borough of Hillingdon, the contribution rate is set at 21% of pay.
The Fund manages funding risks as part of the wider risk management framework, as documented in the
Fund’s risk register. The funding-specific risks identified and managed by the Fund are set out in Appendix D –
Risks and Controls.
2.3 Making contribution rates stable
Making employer contribution rates reasonably stable is an important funding objective. Where appropriate,
contributions are set with this objective in mind. The Fund may adopt a stabilised approach to setting
contributions for individual employers, which keeps contribution variations within a pre-determined range
from year-to-year. Stabilisation criteria and limits are reviewed during each triennial valuation process.
The administering authority believes a stabilised approach remains a prudent long-term strategy and the
robustness of this approach was once again tested by extensive asset liability modelling (ALM) carried out
by the Fund actuary at the 31 March 2025 funding valuation.
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Table 2: current stabilisation approach
Type of employer Local authorities, academies, colleges
Maximum contribution increase per year +1% of pay*
Maximum contribution decrease per year -1% of pay*
*The administering authority may exercise discretion over the phasing of annual contribution rate increases or
decreases subject to a maximum increase/decrease of 3% of pay over the 3-year inter-valuation period.
At the 2025 funding valuation only, some stabilised employers, in light of sustained past service funding
position improvements, may experience a 2026/27 total contribution rate change of greater than 3% of pay
when compared to their 2025/26 total contribution rate.
2.4 How does the funding strategy link to the investment strategy
The funding strategy sets out how money will be collected from employers to meet the Fund’s obligations.
Contributions, assets and other income are then invested according to an investment strategy set by the
administering authority. You can find the Fund’s investment strategy in its Investment Strategy Statement (ISS)
here.
The funding and investment strategies are closely linked. The Fund must be able to pay benefits when they are
due – those payments are met from a combination of contributions (through the funding strategy) and asset
returns and income (through the investment strategy). If investment returns or income fall short the Fund won’t
be able to pay benefits, so higher contributions would be required from employers.
The investment strategy is set considering the Fund’s long-term funding requirements and its investment risk
appetite. The fund’s current strategic investment strategy is summarised in the table, with full details available
set out in the ISS.
Asset class Allocation
Equities 57%
Index Linked Gilts 7%
Private Credit 8%
Property 8%
Infrastructure 8%
ESG Impact 5%
Multi Asset Credit 7%
Cash 0%
2.5 Does the funding strategy reflect the investment strategy?
The funding policy is consistent with the investment strategy. Future investment return expectations are set with
reference to the investment strategy, including a margin for prudence which is consistent with the regulatory
requirement that Funds take a ‘prudent longer-term view’ of funding liabilities (see Appendix A)
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2.6 Reviewing contributions between valuations
The Fund may amend contribution rates between formal valuations, in line with its policy on contribution reviews.
The Fund’s policy is available in Appendix F. The purpose of any review is to establish the most appropriate
contributions. A review may lead to an increase or decrease in contributions.
2.7 What is pooling for funding and contribution rate purposes?
A single contribution rate is payable by all employers in the pool and individual funding positions are not tracked.
All schools within a single multi-academy trust are pooled for funding and contribution rate purposes.
2.8 What is pooling for contribution rate purposes only?
A single contribution rate is payable by all employers in the pool and individual funding positions are tracked, by
the Fund actuary.
Contribution rates can be volatile for smaller employers that are more sensitive to individual membership
changes, pooling across a group of employers minimises this.
As individual funding positions are tracked, some employers may be better funded or more poorly funded than
the pool average. In this type of pooling arrangement, employers do not target full funding at exit. If an employer
leaves the Fund, the cessation valuation is based on their own funding position rather than the pool average.
CABs that are closed to new entrants aren’t usually allowed to enter a pool.
TABs are usually also ineligible for pooling (with other TABs). Where pass-through is in place, a TAB will be
pooled with the letting authority.
2.9 Administering authority discretion
Individual employers may be affected by circumstances not easily managed within the FSS rules and policies. If
this happens, the administering authority may adopt alternative funding approaches on a case-by-case basis.
Additionally, the administering authority may allow greater flexibility to the employer’s contributions if added
security is provided. Flexibility could include things like a reduced contribution rate, extended time horizon, or
permission to join a pool. Added security may include a suitable bond, a legally binding guarantee from an
appropriate third party, or security over an asset.
The Fund may, at its absolute discretion, permit the prepayment of employer contributions in specific
circumstances.
2.10 Non cash funding
The Fund will not accept any form of non-cash assets in lieu of contributions.
2.11 Managing surpluses and deficits
The funding strategy is designed to ensure that all employers are at least fully funded on a prudent basis at the
end of their own specific time horizon. The uncertain and volatile nature of pension scheme funding means that
it is likely there will be times when employers are in surplus and times when employers are in deficit. The
funding strategy recognises this by 1) including sufficient prudence to manage the effect of this over the time
horizon, and 2) making changes to employer contribution rates to ensure the funding strategy objectives are
met.
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Fluctuations in funding positions are inevitable over the time horizon, due to market movements and changing
asset values, which could lead to the emergent of deficits and surplus from time to time, and lead to changes in
employer contribution rates.
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3 What additional contributions may be payable?
3.1 Pension costs – awarding additional pension and early retirement on non-ill-health grounds
If an employer awards additional pension as an annual benefit amount, they pay an additional contribution to
the Fund as a single lump sum. The amount is set by guidance issued by the Government actuary’s
Department and updated from time to time.
If an employee retires before their normal retirement age on unreduced benefits, employers will be asked to pay
additional contributions called strain payments.
Employers typically make strain payments as a single lump sum, though strain payments may be spread over
an appropriate period if the administering authority agrees.
3.2 Pension costs – early retirement on ill-health grounds
If a member retires early due to ill-health, an additional funding strain will usually arise, which can be very large.
Such strain costs are the responsibility of the member’s employer to pay.
To mitigate this risk, individual employers may elect to use external insurance.
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4 How does the Fund calculate assets and liabilities?
4.1 How are employer asset shares calculated?
The Fund adopts a cashflow approach to track individual employer assets.
Each Fund employer has a notional share of the Fund’s assets, which is assessed yearly by the actuary. The
actuary starts with assets from the previous year-end, adding cashflows paid in/out and investment returns to
give a new year-end asset value. The fund actuary makes a simplifying assumption, that all cashflow and
investment returns have been paid uniformly over the year. This assumption means that the sum of all
employers’ asset values is slightly different from the Whole Fund asset total over time. This minimal difference
is split between employers in proportion to their asset shares at each valuation.
If an employee moves one from one employer to another within the Fund, assets equal to the cash equivalent
transfer value (CETV) will move from the original employer to the receiving employer’s asset share. These are
calculated on an annual basis.
Alternatively, if employees move when a new academy is formed or an outsourced contract begins, the fund
actuary will calculate assets linked to the value of the liabilities transferring.
4.2 How are employer liabilities calculated?
The Fund holds membership data for all active, deferred and pensioner members. Based on this data and the
assumptions in Appendix E, the fund actuary projects the expected benefits for all members into the future.
This is expressed as a single value – the liabilities – by allowing for expected future investment returns.
Each employer’s liabilities reflect the experience of their own employees and ex-employees.
4.3 What is a funding level?
An employer’s funding level is the ratio of the market value of asset share against liabilities. If this is less than
100%, the employer has a shortfall: the employer’s deficit. If it is more than 100%, the employer is in surplus.
The amount of deficit or surplus is the difference between the asset value and the liabilities value.
Funding levels and deficit/surplus values measure a particular point in time, based on a particular set of future
assumptions. While this measure is of interest, for most employers the main issue is the level of contributions
payable. The funding level does not directly drive contribution rates. See section 2 for further information on
rates.
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PART B – Employer Events
5 What happens when an employer joins the Fund?
5.1 When can an employer join the Fund
Employers can join the Fund if they are a new scheduled body or a new admission body. New designated
employers may also join the Fund if they pass a designation to do so.
On joining, the Fund will determine the assets and liabilities for that employer within the Fund. The
calculation will depend on the type of employer and the circumstances of joining.
A contribution rate will also be set. This will be set in accordance with the calculation set out in Section 2,
unless alternative arrangements apply (for example, the employer has agreed a pass-through arrangement).
More details on this are in Section 5.3 below.
5.2 New academies
Academies converting from local authority status
For an academy converting from local authority status, only active members of the former local authority
school transfer to the new academy.
Liabilities for transferring active members will be calculated (on the ongoing basis) by the Fund actuary on
the day before conversion to an academy. Liabilities relating to the converting school’s former employees (ie
members with deferred or pensioner status) remain with the ceding council.
New academies will be allocated an asset share based on the estimated funding level of the ceding council’s
active members, having first allocated the council’s assets to fully fund their deferred and pensioner
members. This funding level will then be applied to the transferring liabilities to calculate the academy’s initial
asset share, capped at a maximum of 100%. The council’s estimated funding level will be based on market
conditions on the day before conversion.
New academies joining the Fund will fall into one of the below categories:
a) one of multiple academies within the Fund who are part of a multi-academy trust (a “MAT”);
b) be a single academy trust (a “SAT”); or
c) a standalone employer where they are the only academy within the Fund who are a part of a MAT (and
the other academies in the MAT do not participate within the London Borough of Hillingdon Fund).
If the academy joins an existing MAT in the Fund, the assessed assets and liabilities are added to the MAT
funding pool, and the academy will pay the MAT contribution rate. This approach represents full risk-sharing
of past and future service costs.
If the new academy is a SAT or standalone employer, then the actuary will need to calculate the contribution
rate to be paid on conversion.
If an academy leaves one MAT and joins another, all active, deferred and pensioner members transfer to the
new MAT.
Newly set up academies (including free schools and studio schools)
Free schools do not transfer active members from a converting school but must allow new active members
(non-teaching staff) to transfer in any eligible service.
Newly set up academies (including free schools and studio schools) will fall into one of the below categories:
London Borough of Hillingdon Pension Fund
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• if the academy joins an existing MAT in the Fund, becomes part of the MAT funding pool and will pay the
MAT contribution rate.
• if the academy is sponsored by another employer within the Fund, it becomes part of the sponsoring
employer’s funding pool and will pay the sponsoring employer’s contribution rate.
• if the academy is standalone, the actuary will calculate the contribution rate to be paid.
The Fund’s academy policy can be found in the Documents and Policies section of the Fund’s website here.
5.3 New admission bodies as a results of outsourcing services
New admission bodies usually join the Fund because an existing employer (usually a scheduled body like a
council or academy) outsources a service to another organisation (a contractor). This involves TUPE
transfers of staff from the letting employer to the contractor. The contractor becomes a new participating
Fund employer for the duration of the contract and transferring employees remain eligible for LGPS
membership. At the end of the contract, employees typically revert to the letting employer or a replacement
contractor.
Liabilities for transferring active members will be calculated by the fund actuary on the day before the
outsourcing occurs.
New contractors will be allocated an asset share equal to the value of the transferring liabilities. The admission
agreement may set a different initial asset allocation, depending on contract-specific circumstances.
There is flexibility for outsourcing employers when it comes to pension risk potentially taken on by the
contractor. You can find more details on outsourcing options from the administering authority or in the
contract admission agreement.
5.4 Other new employers
There may be other circumstances that lead to a new admission body entering the Fund, e.g. set up of a
wholly owned subsidiary company by a local authority. Calculation of assets and liabilities on joining and a
contribution rate will be carried out allowing for the circumstances of the new employer.
New designated employers may also join the Fund. Contribution rates will be set using the same approach as
any other designated employers in the Fund.
5.5 Risk assessment for new admission bodies
Under the LGPS regulations, a new admission body must assess the risks it poses to the fund if the
admission agreement ends early, for example if the admission body becomes insolvent or goes out of
business. In practice, the fund actuary assesses this because the assessment must be carried out to the
administering authority’s satisfaction.
After considering the assessment, the administering authority may decide the admission body must provide
security, such as a guarantee from the letting employer, an indemnity or a bond.
This must cover some or all of the:
• strain costs of any early retirements, if employees are made redundant when a contract ends prematurely
• allowance for the risk of assets performing less well than expected
• allowance for the risk of liabilities being greater than expected
• allowance for the possible non-payment of employer and member contributions
• admission body’s existing deficit.
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Where an academy is the letting employer, the Fund will expect academies to ensure and confirm that the
outsourcing complies with the requirements set out in the DfE Academy Trust LGPS Guarantee policy before
permitting an admission body in the Fund. Where this requirement is met, no additional risk assessment or
security will typically be required for the admitted body as the pension liabilities will be covered by the DfE
Academy Guarantee.
Please contact the Fund for future details on admission policy and guidance.
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6 What happens if an employer has a bulk transfer of staff?
Bulk transfer cases will be looked at individually, but generally:
• the Fund won’t pay bulk transfers greater in value than either the asset share of the transferring
employer in the fund, or the value of the liabilities of the transferring members, whichever is lower
• the Fund won’t grant added benefits to members bringing in entitlements from another Fund, unless the
asset transfer is enough to meet the added liabilities
• the Fund may permit shortfalls on bulk transfers if the employer has a suitable covenant and
commits to meeting the shortfall in an appropriate period, which may require increased
contributions between valuations.
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7 What happens when an employer leaves the Fund?
7.1 What is a cessation event?
Triggers for considering cessation from the Fund are:
• the last active member stops participation in the Fund
• insolvency, winding up or liquidation of the admission body
• a breach of the agreement obligations that isn’t remedied to the Fund’s satisfaction
• failure to pay any sums due within the period required
• failure to renew or adjust the level of a bond or indemnity, or to confirm an appropriate alternative guarantor
• termination of a deferred debt arrangement (DDA).
The administering authority, at its discretion, can defer triggering a cessation for up to three years by issuing a
suspension notice. That means cessation won’t be triggered if the employer takes on one or more active
members during the agreed time.
If no DDA exists, the administering authority will instruct the fund actuary to carry out a cessation valuation to
calculate if there is a surplus or a deficit when the Fund leaves the scheme.
7.2 What happens on cessation?
The administering authority must protect the interests of the remaining Fund employers when an employer
leaves the scheme. The actuary aims to protect remaining employers from the risk of future loss. The funding
target adopted for the cessation calculation is below. These are defined in Appendix E.
(a) Where there is no guarantor, cessation liabilities and a final surplus/deficit will usually be calculated
using a low-risk basis, which is more prudent than the ongoing participation basis.
(b) Where there is a guarantor, the guarantee will be considered before the cessation valuation. Where the
guarantor is a guarantor of last resort this will have no effect on the cessation valuation. If this isn’t the
case (i.e. if the guarantee continues to apply in respect of the former employer’s obligations post
cessation), cessation may be calculated using the same basis that was used to calculate liabilities (and
the corresponding asset share) on joining the Fund.
(c) Depending on the guarantee, it may be possible to transfer the employer’s liabilities and assets to the
guarantor without crystallising deficits or surplus. This may happen if an employer can’t pay the
contributions due and the approach is within guaranteed terms. This is known as ‘subsumption’ of the
assets and liabilities.
If the Fund can’t recover the required payment in full, unpaid amounts will be paid by the related letting
authority (in the case of a ceased admission body) or shared between the other Fund employers. This may
require an immediate revision to the rates and adjustments certificate or be reflected in the contribution rates
set at the next formal valuation.
The fund actuary charges a fee for cessation valuations and there may be other cessation expenses. Fees and
expenses are at the employer’s expense.
The cessation policy is in Appendix G.
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7.3 What happens if there is a surplus?
If the cessation valuation shows the exiting employer has more assets than liabilities – an exit credit – the
administering authority can decide how much (if any) will be paid back to the employer based on:
• the surplus amount
• the proportion of the surplus due to the employer’s contributions over the employer’s period of participation in
the Fund
• any representations (like risk sharing agreements or guarantees) made by the exiting employer and any
employer providing a guarantee or some other form of employer assistance/support
• any other relevant factors.
The exit credit policy is covered in the cessation policy in Appendix G.
7.4 What happens if there is a deficit?
If there is a deficit, full payment will usually be expected in a single lump sum or:
• spread over an agreed period, if the employer enters into a deferred spreading agreement (DSA)
• if an exiting employer enters into a deferred debt agreement (DDA), it stays in the Fund and pays
contributions until the cessation debt is repaid. Payments are reassessed at each formal valuation.
The employer flexibility on exit policy is covering in the cessation policy in Appendix G.
7.5 What if an employer has no active members?
When employers leave the Fund because their last active member has left, they may pay a cessation debt,
receive an exit credit or enter a DDA/DSA. Beyond this they have no further obligation to the Fund and either:
a) their asset share runs out before all ex-employees’ benefits have been paid. The other Fund
employers will be required to contribute to the remaining benefits. The fund actuary will portion the
liabilities on a pro-rata basis based on each employer’s share of overall liabilities at each formal
valuation.
b) the last ex-employee or dependant dies before the employer’s asset share is fully run down. The
fund actuary will apportion the remaining assets to the other Fund employers based on each
employer’s share of overall liabilities at each formal valuation.
London Borough of Hillingdon Pension Fund
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8 What are the statutory reporting requirements?
8.1 Reporting regulations
The Public Service Pensions Act 2013 requires the Government actuary’s Department to report on LGPS
Funds in England and Wales after every three-year valuation, in what’s usually called a section 13 report. The
report includes advice on whether the following aims are achieved:
• Compliance
• Consistency
• Solvency
• Long term cost efficiency
8.2 Solvency
Employer contributions are set at an appropriate solvency level if the rate of contribution targets a funding
level of 100% over an appropriate time, using appropriate assumptions compared to other Funds. Either:
(a) employers collectively can increase their contributions, or the Fund can realise contingencies to
target a 100% funding level; or
(b) there is an appropriate plan in place if there is, or is expected to be, a reduction in employers’
ability to increase contributions as needed.
8.3 Long-term cost efficiency
Employer contributions are set at an appropriate long-term cost efficiency level if the contribution rate makes
provision for the cost of current benefit accrual, with an appropriate adjustment for any surplus or deficit. To
assess this, the administering authority may consider absolute and relative factors.
Relative factors include:
1. comparing LGPS Funds with each other
2. the implied deficit recovery period
3. the investment return required to achieve full funding after 20 years.
Absolute factors include:
1. comparing Funds with an objective benchmark
2. the extent to which contributions will cover the cost of current benefit accrual and interest on any deficit
3. how the required investment return under relative considerations compares to the estimated future
return targeted by the investment strategy
4. the extent to which contributions paid are in line with expected contributions, based on the rates
and adjustment certificate
5. how any new deficit recovery plan reconciles with, and can be a continuation of, any previous
deficit recovery plan, allowing for Fund experience.
These metrics may be assessed by GAD on a standardised market-related basis where the Fund’s actuarial
bases don’t offer straightforward comparisons. Standard information about the Fund’s approach to solvency
of the pension Fund and long-term cost efficiency will be provided in a uniform dashboard format in the
valuation report to facilitate comparisons between Funds.
London Borough of Hillingdon Pension Fund
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Appendices
Appendix A – The regulatory framework
A1 Why do Funds need a funding strategy statement?
The Local Government Pension Scheme (LGPS) regulations require Funds to maintain and publish a funding
strategy statement (FSS). The purpose of the FSS was set out in Section 1.
To prepare this FSS, the administering authority has used guidance jointly prepared by the Scheme Advisory
Board (SAB), MHCLG, and by the Chartered Institute of Public Finance and Accountancy (CIPFA) dated January
2025.
The Fund has a fiduciary duty to scheme members and obligations to employers to administer the scheme
competently to keep employer contributions at an affordable level. The funding strategy statement sets out how
the Fund meets these responsibilities.
A2 Consultation
Both the LGPS regulations and most recent CIPFA guidance state the FSS should be prepared in consultation
with “persons the authority considers appropriate”. This should include ‘meaningful dialogue… with council tax
raising authorities and representatives of other participating employers’.
In practice, for the Fund, the consultation process for this FSS was as follows:
a) A draft version of the FSS was issued to all participating employers and the Local Pensions Board in
December 2025 for comment.
b) Comments were requested by 19/12/2025
a) Following the end of the consultation period the FSS was updated where required and then published, in
MMYY
The fund also shared the draft FSS with the Department for Education.
A3 How is the FSS published?
The FSS is published on the Fund’s website at www.hillingdon.gov.uk/pension-fund-documents and copies are
made available on request.
A4 How does the FSS fit into the overall Fund documentation?
The FSS is a summary of the Fund’s approach to funding liabilities and isn’t exhaustive. The Fund publishes
other statements like the Investment Strategy Statement and the Fund’s annual report and accounts also includes
up-to-date Fund information.
You can see all Fund documentation at www.hillingdon.gov.uk/pension-fund-documents.
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Appendix B – Roles and responsibilities
B1 The administering authority is required to:
1. operate a pension Fund
2. collect employer and employee contributions, investment income and other amounts due to the pension
Fund as stipulated in LGPS Regulations
3. have an escalation policy in situations where employers fail to meet their obligations
4. pay from the pension Fund the relevant entitlements as stipulated in LGPS Regulations
5. invest surplus monies in accordance with the relevant regulations
6. ensure that cash is available to meet liabilities as and when they fall due
7. ensure benefits paid to members are accurate and undertake timely and appropriate action to rectify any
inaccurate benefit payments take measures as set out in the regulations to safeguard the Fund against
the consequences of employer default
8. take measures as set out in the regulations to safeguard the fund against the consequences of employer
default
9. manage the valuation process in consultation with the Fund’s actuary
10. prepare and maintain an FSS and associated funding policies and ISS, after proper consultation with
interested parties
11. monitor all aspects of the Fund’s performance and funding, and amend the FSS/ISS accordingly
12. establish a policy around exit payments and payment of exit credits/debits in relation to employer exits
13. effectively manage any potential conflicts of interest arising from its dual role as both Fund administrator
and scheme employer
14. enable the local pension board to review the valuation and FSS review process and as set out in their
terms of reference
15. support and monitor a Local Pension Board (LPB) as required by the Public Service Pensions Act 2013,
the Regulations and the Pensions Regulator’s relevant Code of Practice
B2 Individual employers are required to:
1. ensure staff who are eligible are contractually enrolled and deduct contributions from employees’ pay
correctly after determining the appropriate employee contribution rate (in accordance with the
Regulations),
2. provide the Fund with accurate data and understand that the quality of the data provided to the Fund will
directly impact on the assessment of their liabilities and their contributions. In particular, any deficiencies
in their data may result in the employer paying higher contributions than otherwise would be the case if
their data was of high quality
3. pay all ongoing contributions, including employer contributions determined by the actuary and set out in
the rates and adjustments certificate, promptly by the due date
4. develop a policy on certain discretions and exercise those discretions as permitted within the regulatory
framework
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5. make additional contributions in accordance with agreed arrangements in respect of, for example,
augmentation of scheme benefits and early retirement strain
6. notify the administering authority promptly of all changes to active membership that affect future funding
7. Pay any exit payments on ceasing participation in the Fund timely provide the Fund with accurate data
and understand that the quality of the data provided to the Fund will directly impact on the assessment of
their liabilities and their contributions. In particular, any inaccuracies in data may result in the employer
paying higher contributions than otherwise would be the case if their data was of high quality.
B3 The fund actuary should:
1. prepare valuations including the setting of employers’ contribution rates at a level to ensure Fund
solvency and long-term cost efficiency based on the assumptions 26 set by the administering authority
and having regard to the FSS and the LGPS Regulations
2. provide advice so the Fund can set the necessary assumptions for the valuation • prepare advice and
calculations in connection with bulk transfers and the funding aspects of individual benefit-related matters
such as pension strain costs, ill health retirement costs, compensatory added years costs, etc
3. provide advice and valuations to the Fund so that it can make decisions on the exit of employers from the
Fund
4. provide advice to the Fund on bonds or other forms of security against the financial effect on the Fund of
employer default
5. assist the Fund in assessing whether employer contributions need to be revised between valuations as
permitted or required by the regulations
6. ensure that the Fund is aware of any professional guidance or other professional requirements that may
be relevant in the role of advising the Fund.
7. identify to the Fund and manage any potential conflicts of interest that may arise in the delivery the
contractual arrangements to the Fund and other clients.
B4 Local Pension Boards (LPB):
Local Pension Boards have responsibility to assist the administering authority to secure compliance with the
LGPS regulations, other legislation relating to the governance and administration of the LGPS, any
requirements imposed by the Regulator in relation to the LGPS, and to ensure the effective and efficient
governance and administration of the LGPS. It will be for each Fund to determine the input into the development
of the FSS (as appropriate within Fund’s own governance arrangements) however this may include:
1. Assist with the development and review the FSS
2. Review the compliance of scheme employers with their duties under the FSS, regulations and other
relevant legislation
3. Assist with the development of and review communications in relation to the FSS.
B5 Employer guarantors
1. Department for Education - To pay cessation debts in the case of academy cessations (where the
obligations are not being transferred to another MAT) and to consider using intervention powers if an
academy is deemed to be in breach of the regulations.
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2. Other bodies with a financial interest (outsourcing employers)
3. Any other guarantor
B6 Other parties:
1 internal and external investment advisers ensure the investment strategy statement (ISS) is consistent
with the funding strategy statement
2 investment managers, custodians and bankers play their part in the effective investment and dis-
investment of Fund assets in line with the ISS
3 auditors comply with standards, ensure Fund compliance with requirements, monitor and advise on
fraud detection, and sign-off annual reports and financial statements
4 governance advisers may be asked to advise the administering authority on processes and working
methods
5 internal and external legal advisers ensure the Fund complies with all regulations and broader local
government requirements, including the administering authority’s own procedures
6 the Ministry for Housing, Communities and Local Government, assisted by the Government actuary’s
Department and the Scheme Advisory Board, work with LGPS Funds to meet Section 13 requirements.
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Appendix C – Glossary
Actuarial certificates
A statement of the contributions payable by the employer (see also rates and adjustments certificate). The
effective date is 12 months after the completion of the valuation.
Actuarial valuation
An investigation by an actuary, appointed by an Administering Authority into the costs of the scheme and the
ability of the Fund managed by that authority to meet its liabilities. This assesses the funding level and
recommended employer contribution rates based on estimating the cost of pensions both in payment and those
yet to be paid and comparing this to the value of the assets held in the Fund. Valuations take place every three
years (triennial).
Administering Authority (referred to as ‘the Fund’)
A body listed in Part 1 of Schedule 3 of the regulations who maintains a Fund within the LGPS and a body with
a statutory duty to manage and administer the LGPS and maintain a pension Fund (the Fund). Usually, but not
restricted to being, a local authority.
Admission agreement
A written agreement which provides for a body to participate in the LGPS as a scheme employer
Assumptions
Forecasts of future experience which impact the costs of the scheme. For example, pay growth, longevity of
pensioners, inflation, and investment returns,
Code of Practice
The Pensions Regulator’s General Code of Practice.
Debt spreading arrangement
The ability to spread an exit payment over a period of time
Deferred debt agreement
An agreement for an employer to continue to participate in the LGPS without any contributing scheme members
Employer covenant
The extent of the employer’s legal obligation and financial ability to support its pension scheme now and in the
future.
Funding level
The funding level is the value of assets compares with the liabilities. It can be expressed as a ratio of the assets
and liabilities (known as the funding level) or as the difference between the assets and liabilities (referred to as a
surplus or deficit).
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Fund valuation date
The effective date of the triennial Fund valuation.
Guarantee / guarantor
A formal promise by a third party (the guarantor) that it will meet any pension obligations not met by a specified
employer. The presence of a guarantor will mean, for instance, that the Fund can consider the employer’s
covenant to be as strong as its guarantor’s.
Local Pension Board
The board established to assist the Administering Authority as the Scheme Manager for each Fund.
Non-statutory guidance
Guidance which although it confers no statutory obligation on the parties named, they should nevertheless have
regard to its contents
Notifiable events
Events which the employer should make the Administering Authority aware of
Past service liabilities
The cost of pensions already built up or in payment
Pension committee
A committee or sub-committee to which an administering authority has delegated its pension function
Pensions Administration Strategy
A statement of the duties and responsibilities of scheme employers and Administering Authorities to ensure the
effective management of the scheme
Primary and secondary employer contributions
Primary employer contributions meet the future costs of the scheme and Secondary employer contributions
meet the costs already built up (adjusted to reflect the experience of each scheme employer). Contributions will
therefore vary across scheme employers within a Fund.
Rates and adjustments certificate
A statement of the contributions payable by each scheme employer (see actuarial certificates)
Scheme Manager
A person or body responsible for managing or administering a pension scheme established under section 1 of
the 2013 Act. In the case of the LGPS, each Fund has a Scheme Manager which is the Administering Authority.
London Borough of Hillingdon Pension Fund
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Appendix D – Risks and controls
D1 Managing risks
The administering authority has a risk management programme to identify and control financial, demographic,
regulatory and governance risks.
Details of the key Fund-specific risks and controls are set out in the Fund’s Risk Management Policy, which
can be found on the Fund’s website at www.hillingdon.gov.uk/pension-fund-documents.
The local pension board assists the Fund its managing its risks and the full role of the local pension board in
is set out in the London Borough of Hillingdon constitution which can be found at
www.hillingdon.gov.uk/article/2513/Council-constitution-and-delegations.
D2 Employer covenant assessment and monitoring
Many of the employers participating in the Fund, such as admitted bodies (including TABs and CABs), have
no local tax -raising powers. The Fund assesses and monitors the long-term financial health of these
employers to assess an appropriate level of risk for each employer’s funding strategy.
Type of employer Assessment Monitoring
Local Authorities Tax-raising or government-backed,
no individual assessment required
n/a
Colleges Government-backed, covered by DfE
guarantee in event of failure
Check that DfE guarantee continues,
after regular scheduled DfE review
Academies Government-backed, covered by DfE
guarantee in event of MAT failure
Check that DfE guarantee continues,
after regular scheduled DfE review
Admission bodies (CABs) No change since 2022 valuation Regular ongoing dialogue
Admission bodies (TABs) No change since 2022 valuation Regular ongoing dialogue
Designating employers No change since 2022 valuation Regular ongoing dialogue
Any change in covenant over the inter-valuation period may lead to a contribution rate review.
D3 Climate risk and TCFD reporting
The Fund has considered climate-related risks when setting the funding strategy. The Fund has carried out
climate scenario analysis incorporating both stress testing, and narrative-based scenario analysis for the local
authority employers at the 2025 valuation. The narrative approach explores the complex and interrelated risks
associated with climate change by defining a specific extreme, downside risk (in this instance a food shock)
and constructing narratives around potential policy and market responses, noting these may be sub-optimal.
This approach allows consideration to be given to the impact of sudden, severe downside risks in the short
term, the interdependencies that arise and potential immediate actions. Coupling this approach with stress
testing (to better understand the impact of possible climate scenarios) has allowed the Fund to assess a range
of outcomes that may arise, and assess the resilience of the Fund under these scenarios.
The results show that:
1. When considering climate scenario stress tests, the Fund appears to be generally resilient to different
climate scenarios, with generally modest impacts versus the base case modelled
London Borough of Hillingdon Pension Fund
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2. The results of the downside, narrative analysis suggest that the Fund is likely to be resilient in the face of
some severe downside risk events (in comparison to the base case), but not all.
Climate scenario analysis helps assess risks and tests the resilience of current and long-term strategies under
various scenarios. This helps to identify vulnerabilities across both assets and liabilities. Identification of these
vulnerabilities can inform risk management processes (see figure 1), helping the Fund ensure appropriate
controls and mitigations are in place. Scenario analysis therefore supports informed decision making, and may
be used in future to assist with disclosures prepared in line with Task Force on Climate-Related Financial
Disclosures (TCFD) principles.
This climate analysis was not applied to the funding strategy modelling for smaller employers. However, given
that the same underlying model is used for all employers and that the local authority employers make up the
vast majority of the fund’s assets and liabilities, applying the climate analysis to all employers was not deemed
proportionate at this stage and would not be expected to result in any changes to the agreed contribution plans.
The Fund’s Responsible Investment beliefs are included in its Investment Strategy Statement.
November
024
London Borough of Hillingdon Pension Fund
Appendix E – Actuarial assumptions
The Fund’s actuary uses a set of assumptions to determine the strategy, and so assumptions are a fundamental
part of the Funding Strategy Statement.
E1 What are actuarial assumptions?
Actuarial assumptions are required to value the fund’s liabilities because:
• There is uncertainty regarding both the timing and amount of the future benefit payments (the actual cost
can’t be known until the final payment is made). Therefore to estimate the cost of benefits earned to date
and in the future, assumptions need to be m ade about the timing and amount of these future benefit
payments
• The assets allowed to an employer today are a known figure. However, the future investment return
earned on those assets and future cashflows into the fund are uncertain. An assumption is needed about
what those future investment returns will be
There are two types of actuarial assumptions that are needed to perform an actuarial valuation: financial
assumptions determine the expected amount of future benefit payments and the expected investment return
on the assets held to meet those benefits, whilst demographic assumptions relate primarily to the expected
timing of future benefit payments (i.e. when they are made and for how long).
All actuarial assumptions are set as best estimates of future experience with the exception of the discount rate
assumption which is deliberately prudent to meet the regulatory requirement for a ‘prudent’ valuation.
Any change in the assumptions will affect the value that is placed on future benefit payments (‘liabilities’), but
different assumptions don’t affect the actual benefits the fund will pay in future.
E2 What funding bases are operated by the Fund?
A funding basis is the set of actuarial assumptions used to value an employer’s (past and future service)
liabilities. The fund operates two funding bases for funding valuations: the ongoing participation basis and the
low-risk exit basis. All actuarial assumptions are the same for both funding bases with the exception of the
discount rate – see further details below.
E3 What financial assumptions are used by the fund?
Discount rate
The discount rate assumption is the average annual rate of future investment return assumed to be earned on
an employer’s assets from a given valuation date. The fund uses a risk-based approach to setting the discount
rate which allows for prevailing market conditions on the valuation date (see ‘Further detail on the calculation of
financial assumptions’) and the Fund’s investment strategy.
The discount rate is determined by the prudence level. Specifically, the discount rate is calculated to be:
The average annual level of future investment return that can be achieved on the Fund’s assets over a 20 year
period with a x% likelihood.
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