1. Hot topics around the LGPS
Richard Warden, Partner & Fund Actuary
24 October 2018

2. Lots happening (as ever!)
National oversight
Cost management process
Section 13 valuation
New regulations - Exit credits
Life expectancy trends
And in brief …

3. What is cost management?
Secondary
contribution
Aim is to ensure affordable and sustainable public sector pensions

4. How does cost management work?
E’er
13%
E’ee
6.5%
31 March 2014
31 March 2016
??%
21.5% of pay
17.5% of pay
19.5% of pay
Benefits are amended if 2% of pay buffer is breached.
Asset returns and market movements are ignored.
Initial results in E&W LGPS suggest that cost has reduced.

5. Long term cost efficiency
Section 13 valuation
“Section 13 provides an independent review (by GAD) of the valuation and employer contribution rates to check that they are appropriate, and requires remedial action to be taken where that review identifies a problem.”
Have valuations been completed in accordance with the Regulations?
Compliance
Has a Fund’s valuation been completed on a basis “not inconsistent” with other Funds ?
Consistency
Will certified contributions accumulate enough assets to meet liabilities over an “appropriate” period?
Solvency
Are certified rates “enough”?
Are employers kicking the contribution can down the road?
Long term cost efficiency
A high level health check on funding in the LGPS

6. Overview of 2016 Local Valuations in E&W
Monday, 29 April 2019
Overview of 2016 Local Valuations in E&W
Funding levels have improved
% => % (SAB standardised basis)
Mostly due to better than expected asset returns
Also reduced life expectancy a factor
Actuaries more cautious about economic outlook => for many funds average employer contribution rates have increased
Source “Public service pensions: actuarial valuations and the employer cost cap mechanism”
(report prefacing the directions)
Another key objective of public service pension reform is to ensure a fair balance of risks between scheme members and the taxpayer. To achieve this, the government will establish an employer cost cap mechanism in the new public service pension schemes.
Changes in costs which arise from technical or financial changes will not affect the cost cap. Only those which relate to members – such as changing expectations about life expectancy, salary growth or career paths – will be included in the cap mechanism.
Report on Scottish funds due next year
Government Actuary’s Department

7. “Pass-through” is becoming increasingly popular
Exit credits
Affects all Scottish cessations triggered from 1 June 2018
Ceasing employers entitled to receive any funding surplus via an “exit credit”
Implications for both funds and employers:
no transitional arrangements
refund is not taxable (in E&W at least..)
is funding risk truly symmetrical?
communication and documentation
“Pass-through” is becoming increasingly popular

8. Will we keep living longer?
What does this mean for the LGPS?

9. Observed life expectancies in Scotland
High life expectancy
Mid life expectancy
Low life expectancy
Small reduction in recent years

10. Future improvements stalling
Most LGPS liabilities
Slowdown in improvements
Slowdown in life expectancies should reduce liabilities and employer contributions

11. And in brief … 4 yearly valuations in the LGPS
E&W SAB “separation project”
Unfunded schemes – employer contribution rate rises
Data quality and the TPR