Mercer Limited is authorised and regulated by the Financial Services Authority Registered in England No Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU Lancashire County Pension Fund 2007 Actuarial Valuation 7 November 2007 Chris Hull FIA Pension Fund Committee Appendix ‘A’ 23 November 2007

1 Mercer Valuation Financial Drivers Real Yields and Inflation applying at each 31 March Long-dated index-linked gilt yield Implied inflation

2 Mercer Approximate Progression of funding level (31 March 2004 to 31 March 2007) Like for Like Assumptions 80% 82% 88% 90%

3 Mercer Growth in life expectancy since 1841 ‘Calendar year’ life expectancy at age 65

4 Mercer 2007 Valuation results (2004) Including LGPS 2008, 50% commutation, LG aggregate mortality £m Assets3,688.8(2,449.2) Liabilities - Actives2,081.3(1,421.1) - Deferred pensioners476.3(269.2) - Pensioners (incl deps)1,842.8(1,387.2) Total4,400.4(3,077.5) Deficit711.6(628.3) Funding level83.8%(79.6%)

5 Mercer 2004 to 2007 Analysis of Change Analysis£m Deficit as at 31 March Investment Gain/(Loss) versus valuation assumptions Change in gilt yields Change in demographic assumptions (including mortality and commutation) Other factors e.g. membership movements 38.9 Deficit as at 31 March

6 Mercer 2007 Valuation results (2004) Including LGPS 2008, 50% commutation, LG aggregate mortality Funding level83.8%(79.6%) Future service rate (ees average conts 6.5%) 13.3%(10.0%) Deficit recovery rate (over 22 years) 4.5%(5.0%) Average target employer rate17.8%(15.0%)

7 Mercer Increased Recognition of Expected Investment Returns  Allow for actual investment strategy  Central return expectations  Investment return “offset” to deficit contributions  Greater reliance on investment outturn  Increased risk of future increase in contributions  Assumes investment strategy returns over full duration of recovery period  Option only for High Covenant bodies

8 Mercer Criteria for applying investment return offset  Strong covenant employer Administering Authority determines sufficient covenant to support the anticipation of investment returns, based on the current investment strategy, over the duration of the recovery period.  Only applicable as part of deficit recovery plan No investment return adjustment for bodies with a funding surplus.  Minimum contribution requirements Adjusted required contributions subject to minimum of both the current contributions from 2004 valuation, and the future service cont rate.  Long term time horizon Not generally applicable for closed bodies, or with otherwise limited duration.

9 Mercer Additional Investment Return Offset Illustration for whole fund results Overall AoA for Recovery Plan (relative to liability gilt yields) 2.5% pa2.75% pa3.0% pa Future service rate 13.3% Deficit recovery rate (22 years) 4.5% Average target employer rate 17.8% Illustrative additional IR offset -0.8%-2.1%-3.4% Adjusted required rate 17.0% (min 15.0%) 15.7% (min 15.0%) 14.4% (min 15.0%)