Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Services Authority Leicestershire Pension Fund Annual General Meeting John Wright Barry McKay 15 January 2013 LGPS up-date

Some topical issues 2013 Valuation Pensions Reform: LGPS 2014, Governance, Cost Control Auto-enrolment New flat-rate state pension Other issues: Infrastructure and local investment

2013 Valuation

Investment performance since 2010 valuation Actuarys long term assumption Bonds Shares

But interest rates have fallen Government bond yields and inflation March 2010

Deficits have increased Lower funding levels, higher contributions Source: Sample LGPS Fund, 30 September 2012 Navigator Report

Summary Investment returns in line with long term assumption But interest rates down and liability values up Deficits have grown Savings from new scheme modest – increase in contributions at 2013 less than would otherwise have been the case Continuing upwards pressure on contributions Contributions likely to stay at current levels or above for longer

Changing LGPS scheme membership Active liability: 51% in 2007 to 42% in 2010 to 36%? in 2013 Employee membership falling, more pensioners ActiveDeferredPensioner Source: Hymans Robertson, based on a sample County Council pension fund – not Leicestershire.

Why is LGPS scheme membership changing? Redundancies Early retirements Fewer new recruits More outsourcing Council payroll shrinking e.g. transfers of staff to academies Admission agreements often closed to new recruits 50/50 option in LGPS 2014 What impact will auto-enrolment have?

Cashflow worsening? Cashflow OK now small reductions in members changes picture But most Funds have enough investment income Source: Hymans Robertson, based on a large LGPS fund.

Reform: LGPS 2014

New LGPS from 2014 Existing SchemeProposed New Scheme Benefit TypeFinal SalaryCARE with CPI revaluation Accrual Rate1/60 th 1/49 th Retirement Age65State Pension Age Member Contribution Rate Average 6.5% Full-time equiv. pay Average 6.5% Actual pay Accrued rights protected (NRA, Rule of 85, final salary link) Protection for members within 10yrs of NRA at 1 April 2012 New 50/50 option to bolster LGPS participation

How much pension is enough? Good design? Chart based on CARE scheme with 1/60 th accrual and allows for Basic State Pension of £140 per week. Assumes the member has a full public service career (45 years in this example) and remains in the scheme throughout. Sources: Hymans Robertson (2011) and Turner (2004)

Public Sector Pensions Bill Covers LGPS & unfunded (all parts of the UK) Design changes common to all schemes CARE (no future Final Salary DB), SPA link Cost control measures Cap and collar on employer contributions Stronger governance and arms length oversight: High regulatory hurdle to prevent further reform within 25 yrs Implement by 2015 (2014 for LGPS in E&W) Scheme specific details in secondary legislation

LGPS cost control

Life expectancy increasing faster than SPA Population life expectancy vs State Pension Age LGPS costs could continue to increase

Cap and collar cost control Employee contributions Employer cost 6.5%13% 19.5% total Employee contributions Employer cost 6.5%16% 22.5% total Trigger breached, reduce benefits and cost Employee contributions Employer cost 6.5%13% 19.5% total CeilingCap

Threats to sustainability Benefits still generous and savings modest? Will SPA keep up with life expectancy? Cost management (caps/collars etc) effective? Envy (continuing decline in private sector pensions) Economy underperforming over long term Politics (either lack of will or too much interference)

Auto-enrolment

Workers confused? Thousands baffled over compulsory pensions Express, 10 December 2012 Need for good communication

Auto-enrolment and LGPS employers Many have staging dates in first half of 2013 Many employers will defer until 2018? To save money? To avoid implementation cost and effort? Still need to comply for new joiners, birthdays, pay changes

Other topical issues

Other topical issues Local investment & infrastructure but... Responsibilities of pensions committee Sufficient diversification? Best available investment of its type? Availability of suitable investments? Riskiness of currently available investment opportunities? Excessive fees? Consultation on investment regulations (LLPs) Fund mergers and shared services

Any questions? Thank you