2019 valuation update Royal Borough of Kingston-Upon-Thames Pension - - PowerPoint PPT Presentation

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2019 valuation update
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2019 valuation update Royal Borough of Kingston-Upon-Thames Pension - - PowerPoint PPT Presentation

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2019 valuation update Royal Borough of Kingston-Upon-Thames Pension Fund Peter MacRae FFA 19 December 2019 Hymans Robertson LLP is authorised and regulated by the Financial Conduct Authority What are we going to cover? 1. Introduction to the

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Hymans Robertson LLP is authorised and regulated by the Financial Conduct Authority

Royal Borough of Kingston-Upon-Thames Pension Fund Peter MacRae FFA 19 December 2019

2019 valuation update

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What are we going to cover?

  • 1. Introduction to the actuarial valuation
  • 2. Whole fund results
  • 3. Funding Strategy Statement
  • 4. National hot topics & next steps
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  • 1. Introduction to the

actuarial valuation

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How the Fund works

Investment returns Member contributions Pension Fund Benefits to members and dependants Determined by investment strategy & manager performance Determined by LGPS Regulations Determined by the fund actuary Employer contributions

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Employee Contributions Employer Contributions Investment Returns

Cost of Benefits

Putting a funding plan in place

Uncertain and volatile Fixed by regulations Must make up the balance of cost in the long term

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Why we do a valuation

  • Calculate employer contribution rates
  • Compliance with legislation
  • Analyse actual experience vs assumptions
  • Review Funding Strategy Statement
  • Part of continual ‘health check’ on fund solvency
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Who is interested in the valuation?

Actuary carries out valuation

Council/Taxpayers value for money and minimal inter-generation cross-subsidies Pension Panel formally sign off assumptions and valuation results Officers liaise closely throughout process with Actuary and other advisers, Pension Panel, and Employers Employers affordable, stable contributions Investment adviser considers valuation projections relative to Fund’s investment strategy Fund members benefits paid accurately and on time Local Pension Board

  • versees process ensuring good

governance and clear audit trails External regulators (TPR, GAD, MHCLG) want to ensure national standards are being met

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How we do the valuation

Actuarial valuation Benefit projections Total liability estimate Employer contribution rates Data for c16,000 members Financial assumptions Demographic assumptions Asset data

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Membership data received and validated

Source: Hymans Robertson, RBK Pension Fund 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

2016 2019

Membership of the RBK Pension Fund

Actives Deferred Pensioners Pensioners 50 100 150 200 250 300 350 400 450 2016 2019 Millions

Payroll of actives

20 40 60 80 100 120 2016 2019 Millions

Pension amounts

Deferred pensions Pensions

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Valuation begins at member level

Lump Sum

Dependant’s Pension

Member’s Pension

40 65 85

Recruitment

Contributions

Expenditure Income Retirement Death

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Valuation assumptions

Assumption 2016 valuation 2019 valuation Reason Pension increases RPI less 1.0% RPI less 1.0% No significant change observed CARE revaluation rate RPI less 1.0% RPI less 1.0% No significant change observed Salary increases RPI less 0.6% RPI less 0.6% Updated short/long term assumptions but overall combined rate unchanged Life expectancy

  • Baseline
  • Future

improvements VitaCurves CMI 2013 model VitaCurves CMI 2018 model Market leading approach Reflect latest trends Other demographic assumptions Observed national experience Observed national experience Updated to reflect latest national trends 50:50 take up 5% 0% Reflect low take up rate

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Life expectancy in retirement

High life expectancy Mid life expectancy Low life expectancy

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Data received + assumptions agreed = projected benefits

Source: Hymans Robertson, RBK Pension Fund

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Future assumed investment returns

Source: Hymans Robertson, RBK Pension Fund

Results: 50% likelihood of the Fund’s investments achieving at least an annual return of 5.4% p.a. 70% likelihood of the Fund’s investments achieving at least an annual return of 3.9% p.a. 80% likelihood of the Fund’s investments achieving at least an annual return of 2.9% p.a. Frequency

  • f outcome

Increasing prudence

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Projected benefits discounted back to today

Source: Hymans Robertson, RBK Pension Fund

Assumed impact of future returns

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  • 2. Whole fund results
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Whole fund funding position

£m 2016 valuation 2019 valuation Active liabilities 259 255 Deferred pensioner liabilities 176 210 Pensioner liabilities 359 417 Total liabilities 794 882 Assets 649 839 Surplus/(Deficit) (145) (42) Funding level 82% 95%

Source: Hymans Robertson, RBK Pension Fund

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What’s changed since 2016?

Assets Liabilities £m £m 2016 valuation 649 794 2016 valuation Contributions 105 96 Accrual of new benefits Benefits paid (90) (90) Benefits paid Other cashflows (35) (47) Other Investment return 210 100 Anticipated return 8 Membership experience (2) Demographic (20) Longevity Salary increases 24 Benefit increases 18 Future anticipated returns 2019 valuation 839 882 2019 valuation

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  • 3. Funding Strategy

Statement (FSS)

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Approach to setting contributions

Benefits earned to date Future Investment returns Future contributions

Managers

Liabilities Assets

Benefits earned in future Assets today

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Context for 2019 valuation

Factor Impact Investment outperformance assumption No change from 2016 Funding levels up Helps contain employer costs Longevity improvements Slowing down for some groups – reduces expected pension costs Future investment returns Outlook slightly worse than in 2016, puts pressure on rates McCloud court case Cost increase for employers Quadrennial valuations 2019 and 2022 valuations are going ahead – not clear beyond that

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All brought together in the Funding Strategy Statement (FSS)

  • Purpose

‒ clear & transparent fund-specific strategy, ‒ how contributions are set for different types of employer, ‒ how contributions vary in different circumstances, ‒ how employers are treated when they join/leave the fund.

  • Principles agreed by Pensions Panel
  • Details agreed between Officers & Actuary
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Proposed Changes to the FSS

  • LGPS (Amendment) Regulations 2018 – “exit credits”
  • Allowance for new regulations

Note that exit credit/surplus payments may be made

  • Risk sharing

If contractor bears no risk, then doesn’t get exit credit either

  • Assumptions for cessation calculations

No benefit to contractors trying to cease early

  • McCloud ruling (see later)

Add loading to liabilities for employers leaving the fund

  • Academies now paying their own rate (no link to RBK)
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  • 4. National hot topics

& next steps

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McCloud & cost cap

  • Transitional protections judged to be age discriminatory
  • HM Treasury & LGPS Scheme Advisory Board cost cap process paused
  • Mediation to agree form of ‘levelling up’
  • Costs will go up somehow, but no details yet on exactly how
  • Uncertainty about past and future LGPS benefit structure

2012 2014 2022 Age 55 or

  • lder

Still active in scheme Administrator will calculate:

  • Pension based on current benefit structure
  • Pension based on previous benefit structure

Member gets the better of the two

The ‘McCloud’ Case

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Valuation cycle

  • MHCLG published consultation on 8 May 2019*
  • Brings LGPS cycle into line with other public schemes
  • Permit interim valuations to help with risk management
  • Adverse impact on employer engagement and data quality?
  • Recently confirmed that 2022 valuation will go ahead

2020 Cost Cap Valn

2022 Triennial 2024 Biennial 2028 Quadrennial 2019 Triennial 2016 Triennial 2024 Quinquennial 2028 Quadrennial 2019 Triennial 2016 Triennial OPTION 1 OPTION 2

* https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/800321/LGPS_valuation_cycle_reform_consultation.pdf

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Next steps

Now 31 March 2020 Data sign off Data submission Assumptions modelling Whole fund results Funding Strategy Statement Council modelling Individual employer contribution rates Sign off results and R&A Employer consultation

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Thank you

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Professional notes

  • This presentation has been requested by, and is addressed to, the Royal Borough of

Kingston-Upon-Thames, in its capacity as Administering Authority to the Royal Borough of Kingston-Upon-Thames Pension Fund (“the Fund”), rather than as a participating employer in the Fund. It may be shared with the Pensions Panel.

  • The details and results contained in this presentation are a summary of the formal

valuation progress to date, to update the Committee on the long term funding strategy for the Fund. It should not be used for any other purpose, for instance in determining investment strategy.

  • The models used to carry out this modelling, and this presentation, comply with

Technical Actuarial Standards 100 (Principles for Technical Actuarial Work) and 300 (Pensions).