1. Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Services Authority Cambridgeshire County Council Pension Fund Employers’ Forum Peter Summers and Geoff Nathan 8 December 2010

2. 2 Agenda 1.2010 valuation results 2.Major risks and uncertainties 3.Ill Health Insurance 4.Next steps

3. 3 2010 valuation results 3 33 Why do we do a valuation? What happened between 2007 and 2010? The 2010 valuation results

4. 4 Why do we do a valuation? We have to! Recommend employer contribution rates Assess how well pension promises are covered Monitor experience vs. assumptions

5. 5 Valuation data: fund membership

6. 6 Source: Hymans Robertson, Navigator, 2007 valuation assumptions, RPI not CPI Assets stumbled, liabilities grew

7. 7 Funding level (solvency) fell Source: Hymans Robertson, Navigator, 2007 valuation assumptions, RPI not CPI

8. 8 Outlook for contributions Results differ for individual employers Source: Hymans Robertson, Navigator, Staffordshire Pension Fund, 2007 valuation assumptions, RPI not CPI

9. 9 Falling yields on inflation proof bonds Lower interest rates => increase value placed on liabilities

10. 10 Better news (for the pension fund) this year.. Investment markets – strong year to 31 March 2010 Emergency budget on 22 June 2010 Lower pension increases (CPI, not RPI) Lower revaluation for deferreds Pay restraint Hutton review of public service pensions

11. 11 Whole fund results: balance sheet Deficit has grown

12. 12 Before the Budget..

13. 13 Why has deficit grown? Upwards pressure on contributions Investment market underperformance Low interest rates on inflation proof bonds People living longer Factors that helped contain contributions CPI (in payment and deferment) Pay restraint Later retirement Net effect? Bigger deficit, higher contributions

14. 14 Main changes to assumptions since 2007 Main changesDetailsEffect Pension increasesCPI, not RPI Revaluation of deferredsCPI, not RPI Pay freeze1% for two years Longevity improvementsBigger allowance Retirement patternRetiring later Long term CPI/RPIHigher

15. 15 Analysis of increase in deficit NegativesPositives

16. 16 Impact on theoretical contribution rates Individual employer results will vary

17. 17 Before the Budget..

18. 18 Stabilisation for long term secure employers Contributions % pay 2007 30 20 10 0 2010201320162019 Theoretical contributions Actual contributions paid Underpay in bad times, overpay in better times Sample Fund Results

19. 19 Test range of potential long term outcomes Source: Hymans Robertson LLP, sample fund, based on conditions at 31 October 2008 0% 25% 50% 75% 100% 125% 150% 175% 200% 0369121518 Funding Level (%) Years from valuation date Check long term objective (full solvency) can be achieved Median 1 in 6 chance

20. 20 Impact of reduction in workforce Early retirements – additional pension costs More deferred members Amount of contributions falls PayrollContributionsCash (% pay) £10020% pay£20 £10015% pay + £5pa£15 + £5 = £20 (20%) £8015% pay + £5pa£12 + £5 = £17 (21%) £5015% pay + £5pa£7.50 + £5 = £12.50 (25%) Better to express deficit repayments as cash amounts

21. 21 Whole Fund Contributions covers expenditure until 2025 Crossover 15 years Sample Fund Results

22. 22 Whole Fund: 20% reduction in workforce Contributions cover expenditure only until 2015 Crossover Sample Fund Results

23. 23 Mature employer: “cashflow negative” Contributions not enough to cover benefit payments: need to cash in investments to pay benefits

24. 24 Mature employers: fewer contributors 40% contributing60% non-contributing 50% contributing50% non-contributing Less mature employer More mature employer Similar deficit, smaller payroll, bigger % of pay contributions needed Payroll Liabilities = 5 x payroll Liabilities = 8 x payroll £100 £20 £12.50

25. Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Services Authority RISKS AND OTHER UNCERTAINTIES

26. 26 Risks and other uncertainties Long term pension fund risks Inflation, life expectancy, investments, maturity Spending cuts / reduction in workforce Accelerates maturity, reduced contributions, early retirements Government policy in public service delivery? E.g. More outsourcing? Hutton review of public sector pension schemes Nature of changes and timescale uncertain Spending review: increase in employee contributions in short term

27. 27 Hutton commission Aims dispel myths reform public sector pensions Short-term Employee contribution rates? Setting boundaries for part 2 – final call for evidence by 17 December 2010 Long-term CARE? Raise retirement age? Full recommendations in part 2 of review What does it mean for the valuation?

28. Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Services Authority ILL HEALTH INSURANCE

29. 29 Employer’s problem- Case study Tier 1 ill health pension £20,000pa Before the changes £129,000 cost to employer New rules £364,000 40 years old 15 years service Salary £30,000

30. 30 Ill-health retirement budgets Example Total contribution rate = 15% of pay Payroll = £1,000,000 Allowance for ill-health costs = 2% of pay = £20k Ill-health retirement 1 costs £15k (within budget) Ill-health retirement 2 costs £170k (exceed budget) Amount over budget = £185k less £20k = £165k

31. 31 The Solution Covers tier 1 and tier 2 benefits Sum assured = ill-health strain payment Same premium rate for all employers in the Fund In event of claim, strain cost payment made to employer Employer then pays Fund

32. 32 What does it cost? % of payroll per annum Rate set at £x.xx per £100 of payroll for 1 year period initially Premium quoted today depends on minimum take up across the fund Cost effective Could take Ill Health costs out of certified contributions so no additional cost Flexible payment terms Monthly or annual payments what suits you best?

33. 33 Things you should know Premium annually reviewed Premium each year based on experience Start date 6/4/11 – 3 month window for all employers to join All actives covered All active members automatically covered if 40% of total fund active members covered Actively at work declaration If less than 40% of membership covered -Who was absent at date the cover started? Cover starts when employee returns to work

34. 34 How application process works Interest ResearchQuote Proposal form Payment

35. 35 The benefit to you Removes uncertainty Improve ill health management Cost effective Simple to put in place

36. 36 Further information This presentation is for information only and does not constitute specific advice. Where specific advice is provided on FSA-regulated insurance products it will be provided by Hymans Robertson Financial Services LLP, which is authorised and regulated by the Financial Services Authority to give such advice. Hymans Robertson Financial Services LLP is an independent adviser able to provide advice across the whole of the market. Hymans Robertson LLP is also authorised and regulated by the Financial Services Authority. The exact terms and conditions of any policy will be governed by the provider literature, which will be issued to employers.

37. Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Services Authority NEXT STEPS

38. 38 Next steps Individual employer results Consider taking out ill health insurance Final valuation report (by end March 2011) New rates for 3 years take effect 1 April 2011

39. 39 Reliances and limitations This document is provided to our client, Cambridgeshire County Council, in its capacity as Administering Authority to the Cambridgeshire County Council Pension Fund (the “Fund”). It has been prepared by Hymans Robertson LLP to provide preliminary results of the formal valuation and asset liability modelling, and describe potential options for changes to Funding Strategy Statement (FSS). The methodologies and assumptions are documented separately. Individual employer results will differ from whole Fund results. This document should not be released or otherwise disclosed to any other party without our prior consent, in which case it should be released in its entirety. Hymans Robertson LLP accepts no liability to any party unless we have expressly accepted such liability in writing. Whilst the results are based on Fund specific information as provided by the Administering Authority and based on the 2010 valuation data, there may be some elements of the analysis which are based on a sample fund (which are highlighted as such).