Local Government Pension Scheme
PENSION LIAISON OFFICERS’
GROUP (PLOG)
24 March 2010
Local Government Pension Scheme
WELCOME / INTRODUCTIONS
•
David Anthony – Head of Pensions
•
Martin Summers – Pensions Manager
•
Andy Cunningham – Employer Relationship Manager
Local Government Pension Scheme
AGENDA
1.
2.
3.
4.
5.
6.
7.
8.
Welcome/Attendance
Valuation data requirements (Andy Cunningham)
Valuation outlook and potential outcomes (David Anthony)
AVCs (Martin Summers)
FRS17 update (David Anthony)
Regulation changes and final pay protection (Martin Summers)
AOB
Dates/venue of forthcoming meetings
Local Government Pension Scheme
2. VALUATION DATA REQUIREMENTS
- General data requirements
• Valuation will use data and accounting position as at 31st March
2010 to determine funding levels for all employers.
• Fund has until June to resolve all data issues up to 31st March.
• Out of date or incorrect records on our system have a direct
effect on contribution rates (although the smaller the employer,
the more significant one discrepancy will have)
Local Government Pension Scheme
2. VALUATION DATA REQUIREMENTS
- End of year requirements
• End of year contributions spreadsheet sent out on 12/03/10 to
be returned as soon as possible after 1st April 2010 (but no later
than 19/05/10.
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
2010 Valuation
• Outlook
• Where are we now?
• Potential outcomes?
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Outlook
•
•
•
•
Not good! – Funding Levels or Contribution Rates
Political Pressure / Employer Affordability
Remember long term game for most
Longer term outlook:
–
–
–
–
Economy
Markets and returns
Future benefit changes
Further mortality improvements
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
CLG Consultations
• Consultations on valuations
– Review of financing plans (short, medium and long term)
– Local funding targets
– Revised employee contributions
• Consultations on benefits and administration
– Cost Sharing?
– Revised benefits?
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Wiltshire – 2007 Results – Whole Fund
Liabilities
Assets
Deficit
Funding Level
£
£
£
1335.0m
1131.3m
203.8m
85%
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Wiltshire – 2007 Results – Whole Fund
(% of payroll)
Future Service Rate
Deficit Recovery
Net employer rates
15.1%
4.4% (over 20 years)
19.5%
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Inter-Valuation Monitoring
Hymans Robertson – Navigator Report
Picks up 3 things (mechanically)
• Asset returns
• Contributions paid
• Yields available
…simply an early warning system
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
What Assumptions have changed since 2007?
Real Discount Rate
Inflation
Salary Inflation
FTSE All Share
Mar 2007
Dec 2009
2.8%
3.3%
4.7%
3,283
2.2%
3.8%
5.2%
2,761
Local Government Pension Scheme
Hymans Robertson – Navigator Report
Extract from Navigator Report – approximation of changes in
overall funding levels since 2007 Valuation based only on
changes in financial assumptions (not experience of
liabilities)
March 2007
84.7%
December 2009
62.5%
Local Government Pension Scheme
Hymans Robertson – Navigator Report
Extract from Navigator Report – approximation of changes in
the theoretical common contribution rate since 2007
Valuation based only on changes in financial assumptions
(not experience of liabilities)
Overall Rate
=
Future Service Rate + Deficit Funding
March 2007
19.5%
15.1%
4.4%
December 2009
32.5%
18.2%
14.3%
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Valuation Approaches
• Political interference
• Review assumptions and approach including
– Deficit recovery periods
– Levels of prudence in assumptions
• Formal stabilisation and modelling
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Stabilisation Modelling
• Undertaken by Actuary
• No longer rely on single set of assumptions
• Range of Long Term outcomes over range of Financial
Conditions
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Over long term, a range of outcomes is possible
E
200%
175%
L
1 in 3 chance
Median
P
125%
100%
M
75%
50%
0%
0
3
A
25%
S
Funding Level (%)
150%
6
1 in 6 chance
9
12
15
18
Years from valuation date
5000 scenarios, 5000 potential outcomes
Source: Hymans Robertson LLP , sample fund, based on conditions at 31 October 2008
33
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Contribution strategy for long term stability
Contributions % pay
30
20
Theoretical contributions
10
Actual contributions paid
0
2007
2010
2013
2016
2019
Underpay in bad times, overpay in better times
66
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Stabilisation Policy
• WPF needs to be comfortable 100% Funding Level
achieved over Long Term (24 years)
• Avoid ‘knee-jerk’ increases in Contribution Rates
• Stable contributions over time (e.g. max +1% / -1% p.a.)
• Set Contribution rates for next 6 years
• Review every 3 years validity of assumptions
Local Government Pension Scheme
STEWARDSHIP – Funding Level over 24 Years
Contributions stabilised
(Maximum of 1%
increase/decrease p.a.)
200%
200%
180%
180%
160%
160%
Ongoing Funding Level (%)
Ongoing Funding Level (%)
No stabilisation
140%
120%
100%
80%
60%
140%
120%
100%
80%
60%
40%
40%
20%
20%
0%
0%
0
3
6
9
12
Years from valuation date
15
18
0
3
SAMPLE FUND
6
9
12
Years from valuation date
15
18
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Stabilisation Policy applicable to which Employers?
• Long term stable employers
–
–
–
Tax raising powers
Most Scheduled bodies
But will still need to take a case by case view
• Other Employers
–
–
–
All different (covenants? contract length? open / closed? maturity? experience?)
Individually asses funding level & contribution rate
Early dialogue to discuss affordability issues
Local Government Pension Scheme
3. VALUATION OUTLOOK AND POTENTIAL OUTCOMES
Summary
• Difficult valuation – contributions key area of concern!
• Prudence v Affordability
• Stabilisation policy
– Reduce contributions volatility
– Provide budgetary certainty
– Applicable to long term secure employers
• More challenging for Admitted Bodies
– Pragmatic approach where possible
Local Government Pension Scheme
4. Additional Voluntary Contributions (AVC’s)
• Current provider - Clerical Medical
• Prudential from 1st April 2010 (Launch day 8th April 2010)
• Why a change?
–
–
–
–
Pro-active
Improved service to members
Service to other authorities
In depth knowledge of LGPS
Local Government Pension Scheme
4. Additional Voluntary Contributions (AVC’s)
• What will employers need to do?
– Additional payroll set up
– Pay AVC’s to Prudential each month
– Presentations
Local Government Pension Scheme
4. Additional Voluntary Contributions (AVC’s)
• Current Clerical Medical contributors
–
–
–
–
Continue with current arrangement
Stop contributing (Leave funds with Clerical Medical)
Stop contributing (Transfer)
Letter from Pension Fund
Local Government Pension Scheme
5. FRS17 UPDATE
•
Commission reports of behalf of Employers (24 p.a)
–
–
–
•
Standardised Reports
–
–
–
•
Prescribed format
Compare pension obligations of employers
Different from Valuation
Economies of scale
Standardised Financial / non financial assumptions
Standard Discount Rates
Quotes for additional work
–
–
–
FRS17 projections
Non-standard reports
New employers
Local Government Pension Scheme
5. FRS17 UPDATE
• March 2010 Reports
– Earlier delivery of reports (w/c 19th April)
– Based on 31 December 2009 data
– Notify WPF of any material changes post 31/12/09 (e.g. bulk
transfers / redundancy programmes)
•
Outlook
– Expect larger deficits this year!
– ‘Real’ discount rates 3.7% (2009) 1.7% (Nov 2009)
Local Government Pension Scheme
6. REGULATIONS CHANGES AND FINAL PAY PROTECTION
• LGPS Miscellaneous (Regulations) 2009
• Pay Protection
• Additional Survivor Benefits Contributions (ASBC’s)
Local Government Pension Scheme
6. REGULATIONS CHANGES AND FINAL PAY PROTECTION
• Pay Protection
• Reduction in pay
– Single Status
– Job Evaluation
Local Government Pension Scheme
6. REGULATIONS CHANGES AND FINAL PAY PROTECTION
• Pay Protection*
• Member can elect to use average 3 consecutive year’s pay
to the 31st March in the last 13 years
• Member must make an election “no later than one month
prior to the date that they cease membership of the scheme”
• *Currently the best year of the last 3 is provided to WPF
Local Government Pension Scheme
6. REGULATIONS CHANGES AND FINAL PAY PROTECTION
• Pay Protection - Challenges
• Getting notification from members before they leave/retire
• Pensionable Salary information for member to make
decision
• Employers access to payroll/pension information for 13
years
Local Government Pension Scheme
6. REGULATIONS CHANGES AND FINAL PAY PROTECTION
• Additional Survivor Benefit Contributions (ASBC’s)
• LGPS Regulations 2008
– Co-habiting partners
– Post 6th April 1988 service
Local Government Pension Scheme
6. REGULATIONS CHANGES AND FINAL PAY PROTECTION
• Additional Survivor Benefit Contributions (ASBC’s)
• 2009 Regulations
–
–
–
–
Purchase service Pre 6th April 1988
Election to pay ASBC’s before 31st March 2011
Additional percentage of pay (GAD factors)
Medical clearance from member
Local Government Pension Scheme
6. REGULATIONS CHANGES AND FINAL PAY PROTECTION
• What will employers need to do?
– Additional payroll set up
– Pay AVC’s to Wiltshire Pension Fund each month with normal
contributions
– Notifications of members wishing to pay ASBC’s will be sent
from Wiltshire Pension Fund
Local Government Pension Scheme
7. ANY OTHER BUSINESS
Any Questions?
Local Government Pension Scheme
8. DATES OF FORTHCOMING MEETINGS
Final Valuation Results Meeting:
2:30pm, Thursday 30th September 2010 at County Hall, Trowbridge