Agenda item

Tom Morrison, Head of Investments, introduced the report and highlighted the following points.

·         The one outstanding activity on the 2025/26 Business Plan was noted.

·         It was reported that significant activity was anticipated in 2026–27 in relation to investment pooling, changes to governance arrangements, and the continued development of self-service functionality. In relation to the forthcoming regulatory changes, officers indicated that they expected the regulations to be in place by 1 April 2026 and had a reasonable understanding of the likely content. It was noted that the changes would generate a substantial volume of work.

·         It was reported that the budget for 2026/27 was broadly in line with the 2025/26 budget and aligned with expectations. It was noted that manager fees had been removed from the budget because most of these costs were now deducted directly from investment values within Border to Coast and were therefore outside the Fund’s direct control. Officers were considering how best to report these fees separately to allow comparison with the market, and further information would be brought back to the Committee in due course.

·         The overspend on Pooling costs relating to the acquisition of a data platform required by Border to Coast to comply with the Fit for Future requirements was noted and had been discussed at the Committee meeting in November 2025.

·         It was reported that the forecast indicated a growing negative cashflow position for operational purposes, estimated at between £60 million and £80 million per year. It was noted that this represented just over 1% of the Fund and was therefore not significant in the wider context. Officers informed the Committee that they had been exploring opportunities with Border to Coast to draw income from investments if required, taking account of the Fund’s cash position and income received from other sources. It was confirmed that sufficient income was expected to be available to meet the shortfall for the foreseeable future.

During the discussion, the following points were made:

·         Following a query relating to the forecasted worsening cashflow position, it was confirmed that there was sufficient income available but there was also sufficient flexibility to liquidate assets if required, to ensure continued pension payments. Officers highlighted that an increasing negative operational cashflow was part of the natural maturity of any pension fund. Arrangements for Border to Coast’s public market investments typically allow trades to be placed with less than one week’s notice. It was also noted that the increased allocation to index linked gilts following the recent strategy review would provide a hedge against short term inflationary pressures.

·         Following a question about the removal of investment manager fees from the budget, it was explained that excluding them provided a clearer picture of controllable expenditure. It was confirmed that the fees are deducted from investment values and therefore are not in the Fund’s direct control. Officers clarified that these costs would be separately reported to the Committee.

·         A question was asked about the reduction in ‘Other Admin Expenses’ on page 55 of the papers. It was reported that this related to licensing costs for the pension software, which had been front loaded. Costs were now reducing but would increase again upon renewal in 2030.

Resolved

That the Committee:

a)    Notes the progress made against the 2025/26 Business Plan.

b)    Approves the draft 2026/27 Business Plan.

c)    Approves the draft 2026/27 Budget.

d)    Notes the 3-year cashflow projection for the Fund.