Royal Borough of Kingston Upon Thames Pension Fund Connell Boyle - - PowerPoint PPT Presentation

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Royal Borough of Kingston Upon Thames Pension Fund

Connell Boyle Kameel Kapitan 9 September 2014

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Agenda

• 1. The role of the actuary
• 2. 2013 Valuation Results
• 3. LGPS Like for Like Analysis
• 4. Funding Update

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The role of the Fund Actuary

Fund Actuary

Risk management Individual member calculations New employer calculations Cessation valuations Accounting standards (FRS17/ IAS19) Outsourcing and bulk transfers Triennial valuation Funding strategy statement Other ad hoc advice

......... all on behalf of administering authority

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The pensions promise – valuing a single member

Recruitment Retirement Death Death

25 65 85 95

Contributions

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Fund valuation - assumptions

Financial Assumptions Inflation Pay increases Pension increases Investment return Consider: Economic outlook Actual Fund assets Historical pay growth Demographic Assumptions Life expectancy Retirement age and cause Withdrawals Marriage statistics Consider: Population trends Members’ lifestyle factors Past Fund experience Amounts paid and probability of payment

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Valuing all members

200 400 600 800 1,000 1,200 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100

Benefit Payments (£m) Years from valuation Future Benefit Payments (Past Service)

Pensioners Deferred Pensioners Actives

Source: Sample LGPS fund

But we don’t need all this money today!

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Agenda

• 1. The role of the actuary
• 2. 2013 Valuation Results
• 3. LGPS Like for Like Analysis
• 4. Funding Update

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Why do we do a valuation?

Compliance with legislation Recommend contribution rates

Common rate Individual employer rates

Determine money needed to meet accrued liabilities Calculate solvency (“funding level”) Monitor experience vs. assumptions Manage risks to Fund Review the Funding Strategy Statement (FSS)

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2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 31 Mar 2010 31 Mar 2011 31 Mar 2012 31 Mar 2013 UK gilt yields since 31 Mar 2010 Fixed interest gilts (FTSE over 15 years) Implied Inflation

Market conditions

Discount rate: 6.8% Salary Increases: 5.3% Pension increases: 3.3% Discount rate: 4.6% Salary Increases: 4.3% Pension increases: 2.5%

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Index Returns

80 90 100 110 120 130 140 31 Mar 2010 31 Mar 2011 31 Mar 2012 31 Mar 2013 Sterling total returns of major asset classes (rebased to 100 at 31 Mar 2010) UK equities (FTSE All Share) Overseas equities (FTSE World ex-UK) Expected benchmark return on Plan assets Discount rate unwinding

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Assets & Liabilities

£0m £200m £400m £600m £800m Liabilities Assets Liabilities Assets Assets Pensioner Deferred Active

Deficit £145m Deficit £210m

2010 2013

Funding Level: 72.6% 70.5%

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Deficit Progression

• £210m

£50m

• £143m

£11m £12m £28m £10m

• £32m
• £145m
• £300m
• £200m
• £100m

£0m £100m £200m 2013 valuation Experience Change in financial assumptions Change in demographic assumptions Change in mortality assumption Contributions greater than cost of accrual Investment returns more than expected Interest on surplus/(deficit) 2010 valuation

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Common Contribution Rate

14.7% 20.5% 7.5% 10.9%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 2010 2013 Past Service Adjustment Employer Future Service Rate

22.2% 31.4%

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Employer Future Service Rate Progression

20.5%

• 2.1%

1.9% 7.6%

• 1.4%
• 0.2%

14.7%

• 10.0% -5.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 2013 valuation Impact of LGPS 2014 Experience Change in financial assumptions Change in demographic assumptions Change in mortality assumption 2010 valuation

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5,000 scenarios gives a distribution of outcomes

Source: Hymans Robertson LLP, comPASS, sample fund

0% 25%

50% 75%

100% 125% 150% 175%

200%

3 6 9 12 15 18

Funding Level (%) Years from valuation date Median 1 in 6 chance 1 in 6 chance

More than 50% chance meet funding objective

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Agenda

• 1. The role of the actuary
• 2. 2013 Valuation Results
• 3. LGPS Like for Like Analysis
• 4. Funding Update

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How do the published 2013 valuation results compare between Funds?

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Like-for-like reveals the true picture….

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Like-for-like vs Published

15 30 45 60 75 90 15 30 45 60 75 90

Published rank (1 = highest funding level) Like-for-like rank (1 = highest funding level)

Like-for-like comparison

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Like-for-like funding level versus contributions in payment

13.0% 18.0% 23.0% 28.0% 33.0% 38.0% 60% 70% 80% 90% 100%

Average contribution rate in payment p.a. Like-for-like funding level

Funding level by contribution levels

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Required asset return

10 20 30 40 50 60 70 80 90 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%

Like-for-like ranking (1 = highest like-for-like funding level) Required asset return p.a. for 20 years

Required asset return

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Summary of Like-for-like Results

Strong position relative to other LGPS Funds Credible funding plan in place

Not overly reliant on future asset returns Relatively short “implied” deficit recovery period

Not likely to come under scrutiny from DCLG/SAB

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Agenda

• 1. The role of the actuary
• 2. 2013 Valuation Results
• 3. LGPS Like for Like Analysis
• 4. Funding Update

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Market conditions

2.00% 2.20% 2.40% 2.60% 2.80% 3.00% 3.20% 3.40% 3.60% 3.80% 4.00% 31 Mar 2013 30 Jun 2013 30 Sep 2013 31 Dec 2013 31 Mar 2014 UK gilt yields since 31 Mar 2013 Fixed interest gilts (FTSE over 15 years) Implied Inflation

Discount rate: 4.6% Salary Increases: 4.3% Pension increases: 2.5% Discount rate: 5.1% Salary Increases: 4.5% Pension increases: 2.7%

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Index returns

90 95 100 105 110 115 120 31 Mar 2013 30 Jun 2013 30 Sep 2013 31 Dec 2013 31 Mar 2014 Sterling total returns of major asset classes (rebased to 100 at 31 Mar 2013) UK equities (FTSE All Share) Overseas equities (FTSE World ex-UK) Expected benchmark return on Plan assets Discount rate unwinding

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Funding Update – March 2014

£0m £200m £400m £600m £800m Liabilities Assets Liabilities Assets Assets Pensioner Deferred Active

Deficit £162m Deficit £210m

2013 2014

Funding Level: 70.5% 76.9%

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Deficit Progression – 2013 to 2014

• £162m

£5m £36m £17m

• £10m
• £210m
• £300m
• £200m
• £100m

£0m £100m £200m 31 March 2014 update Contributions greater than cost of accrual Change in yields and inflation Investment returns more than expected Interest on surplus/(deficit) 31 March 2013 valuation

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2.00% 2.50% 3.00% 3.50% 4.00% 31 Mar 2013 30 Sep 2013 31 Mar 2014 UK gilt yields since 31 Mar 2013 Fixed interest gilts (FTSE over 15 years) Implied Inflation 31 Aug 2014

A word of caution …

Discount rate: 4.6% Salary Increases: 4.3% Pension increases: 2.5% Discount rate: 5.1% Salary Increases: 4.5% Pension increases: 2.7% Discount rate: 4.5% Salary Increases: 4.3% Pension increases: 2.5%

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… but perhaps not all bad news

90 95 100 105 110 115 120 31 Mar 2013 30 Sep 2013 31 Mar 2014 Sterling total returns of major asset classes (rebased to 100 at 31 Mar 2013) UK equities (FTSE All Share) Overseas equities (FTSE World ex-UK) Expected benchmark return on Plan assets Discount rate unwinding 31 Aug 2014

Any questions?

Thank you