As the Scottish Homes Pension Fund is relatively mature, it uses the proceeds of gilt coupons and redemptions to pay pensions. Cash or cash equivalents are held to enable pensions to be paid between the dates when gilts redeem. Being fully funded, the fund typically invests excess cash in short-dated bills and gilts. The cash balance as at 31 March 2023 was equivalent to slightly more than two and a half years’ pension payments, an increase on the prior year due to the run-off of maturing bonds.
The Fund's assets have declined in value over the year from £152.5m to £124.6m, due to higher discount rates as the BOE raised rates significantly to address high inflation. Secondly £7m was paid out in pensions over the year. Adjusted for cash flow movements, the underlying assets decreased in value by -13.8% over the year.
The Fund's last triennial valuation was dated 31 March 2020, at which point the actuary estimated Scottish Homes Pension Fund’s funding level to be 117.7%. The fund had, therefore, achieved its full funding objective ahead of the target originally agreed by the Scottish Government and the City of Edinburgh Council.
As the fund is closed to new entrants and relatively mature, it’s in a position to minimise the investment shortfall risk of assets relative to liabilities in line with Scottish Government guidance. The Pensions Committee reaffirmed the following objective in June 2021: "To match the cash flow from gilt income and redemption payments as closely as possible with the expected liability payments of the fund."
There was no change to the fund’s strategic allocation of 100% to bonds in the year to 31 March 2023, and the fund invests solely in cash and bonds, specifically UK gilts, which move proportionately with liability values.