Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Services Authority Hertfordshire County Council Pension Fund Employing Bodies Meeting 2009 Alison Murray, Partner Barry McKay, FFA 20 March 2009

2 Agenda Summary of 2007 valuation Funding update Outlook for 2010 ComPASS Cost sharing

Valuation Results 3 33 Liabilities £2,540m Assets £2,152m Deficit £388m Funding Level of 85% for whole fund Past service position

Common Contribution Rate 44 % of pay Employer cost of accrual 16.1% Past service cost (20 years) 4.9% Common contribution rate 21.0% Changes phased over 3 years

5 U pdated funding position 45% 55% 65% 75% 85% 95% 31 March 07 Funding level Ongoing Basis 1 July 071 Nov 071 Mar 081 July 081 Nov 081 Mar 09

6 FTSE Headlines Credit Crunch, property markets first to suffer Northern Rock seeks Government support FTSE falls over 700 points as fall out of credit crunch bites Northern Rock nationalised Bear Sterns sold to JP Morgan Oil price reaches record high Banking losses escalate, dramatic reversal in commodity prices and Sterling starts to fall Lehmans bankruptcy, AIG, Freddie Mac and Fannie May bailed out, HBOS taken over by Lloyds RBS seeks more Government funding Commodities and Sterling Continue to struggle 01 April Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb 09

7 Updated contribution rate 10% 15% 20% 25% 30% 35% 40% % of Pensionable Payroll Total contribution rate on ongoing basis including past service adjustment 31 March 071 July 071 Nov 071 Mar 081 July 081 Nov 081 Mar 09

8 Investment experience -20%-15%-10%-5%5%10% 15% - Required return Actual return Relative investment underperformance -25%-30%

9 Funding strategy : conflicting objectives Stability Affordability Prudence Solvency

10 Stable in the past? 0% 5% 10% 15% 20 % 25 % LGPS average rate of 20% in % of pay Common contribution rate

11 Affordability “Current Strategy” no stabilisation 0% 10% 20% 30% 40% 50% 60% Ongoing Employer Rate (% of payroll) Years from valuation date “Current Strategy” with stabilisation +1%p.a. 0% 10% 20% 30% 40% 50% 60% Ongoing Employer Rate (% of payroll) Years from valuation date

12 Does Stabilisation Threaten Stewardship? No material impact on funding levels Investment impact dominates 0% 20% 40% 60% 80% 100% 120% 140% 160% Ongoing Funding Level (%) Year 0% 20% 40% 60% 80% 100% 120% 140% 160% Ongoing Funding Level (%) Year

13 Demographic risks Maturing of membership Longevity

14 Increasing contribution rate sensitivity ,000 1,500 2,000 2,500 3, Ratio of Accrued Liabilities to Payroll £m Accrued LiabilitiesPayroll 2025

15 Longevity VitaBank data Year of exposure Period expectations of life derived from calculated crude mortality rates Expected age at death of a 65 year old, based on crude mortality rates in year of exposure MenExtra Years for Women

16 Cost sharing FactorTreatment in “notional” fund Life expectancy changesShared* Pay increasesShared* Pension increasesShared* Ill-health, withdrawal profit/loss, etcShared* Changes in financial assumptionsEmployer Investment performanceN/A *Shared up to employer cap of 14%

17 Implications Data to be provided within tight timescales Calculations by GAD using model fund Monitor variation in “cost” (also cap!) …. …and so revised employee contribution levels will be determined (or benefit levels) Past service is included in notional fund for all members Intergenerational equity issues

18 Will cost sharing work in LGPS? Similar schemes for NHS, CSPS Employer contributions capped Main impact from improvement in life expectancy Impact on employee contributions: modest slow to take effect? Unlikely to provide employers with much relief?

Thank You Any questions?