PENSIONS FORUM 23 FEB 2010

EQUITY MARKETS

FUND VALUE

How extreme are current conditions? Median 1 in 20 chance 1 in 100 Funding levels within range modelled Source: Hymans Robertson comPASS system

Long Term Longevity Assets Liabilities Different Employing Bodies VALUATION 2010 Long Term Longevity Assets Liabilities Different Employing Bodies

Profile of emerging expenditure Funded schemes like LGPS have investment income too Source: sample LGPS Fund; new entrants for 50 years

Contributions alone cover benefit payments for 12 years or more but picture different for individual employers

Two years of improvement per decade Period expectations of life derived from calculated crude mortality rates. Source: Club VITA LLP, part of the Hymans Robertson group

Vita’s lifestyle effect (postcode based) High life expectancy Mid life expectancy Low life expectancy PH1 2AF PH1 2AE Source: Club Vita research based on VitaBank as at 2 October 2008 9

Vita’s lifestyle effect (postcode based) High life expectancy Mid life expectancy Low life expectancy PH1 2AF PH1 2AE Source: Club Vita research based on VitaBank as at 2 October 2008 10

What has changed since 2007 Negatives Investment experience since 2007 Government bond yields lower (inflation linked) Higher inflation expected over the long term Expectation of future improvements in life expectancy Positives Pay increases may be lower than assumed? Cost sharing or “cap and share”?? LT 11

Funding level (solvency) since last valuation Assets Liabilities Funding Level

Progress of employer contribution rate since 31 March 2007 13 13 13 13

VALUATION 2010 6 year Stabilisation for strong covenant remains in place Doesn’t cover Contractors, HA’s other smaller bodies

Other employers including contractors and CABS Possible Options; Seek stronger backing - guarantee - additional security Current Contracts difficult - Actuary willing to assess risk New Contracts may need to limit risk e.g. pass back 15

CLG financing plan for 2010 valuations Achieve stability for long term, secure employers Test contribution strategy meets long-term funding objective Generate cashflows for future benefit expenditure Risk assessment Staffordshire Pension Fund has been doing all of this since 2007

VALUATION 2010 Large funding deficit Longevity – Club Vita Potential LARGE increase in contribution rates for contractors, CAB’s etc. 6 year stabilisation deal OK but reviewed going forward All – relies on accurate data

Tenders out for; Actuary Investment Consultant Performance Measurer FUND CHANGES Tenders out for; Actuary Investment Consultant Performance Measurer

FUND CHANGES Move balance from UK to overseas (now 40:60) Move from Regional to Global managers Move bond mandate to Corporate bond only – passive gilts exposure

5 new global managers Aberdeen Bankinvest J P Morgan Longview Sarasin FUND CHANGES 5 new global managers Aberdeen Bankinvest J P Morgan Longview Sarasin

FUND ALLOCATION Target Actual Equity 74% 74.5% Bonds 13% 12.9% Property 10% 6.5% Hedge 2% 2.3% Cash 1% 4.0%

REGULATIONS UPDATE Management of cash – separate bank account Explicit power to borrow Policy on stock lending Compliance with Myners – Gov guidance? Further consideration to prudential approach ‘in due course’