CPN Scottish Pensions Workshop Actuarial Update Richard Warden - - PowerPoint PPT Presentation

CPN Scottish Pensions Workshop

Actuarial Update

• Richard Warden FFA
• Robert Bilton FFA
• 14 September 2016

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

2

Agenda

• Recap of the Scottish 2014 valuations

– Where we were – What’s happened since 2014

• Emerging themes from E&W 2016 valuations
• Pressures on employers
• Increase in scrutiny

3

Recap of the 2014 valuations

4

2014 Scottish valuation results

5

What’s happened since 31 March 2014?

Source: Hymans Robertson, sample Scottish LGPS fund

6

Strong asset returns since 2014

Expected investment return

7

Falling interest rates

• 3.00%
• 2.00%
• 1.00%

0.00% 1.00% 2.00% 31 Mar 2014 31 Mar 2015 31 Mar 2016 Yield (% p.a.) Index-linked gilts (FTSE over 15 years, 3% inf.)

8

Not the first time…

9

… and won’t be the last!

10

Themes emerging from E&W 2016 valuations

11

The North vs. The South

10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100

Published rank (1 = highest funding level) Like-for-like rank (1 = highest funding level)

Like-for-like comparison

10 20 30 40 50 60 70 80 90 100 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%

Like-for-like ranking (1 = highest like-for-like funding level) Required asset return p.a. for 20 years

Required asset return

12

Movement in financial assumptions

Long term assumption LONG TERM SINGLE ASSUMPTION Pre ‘14 liabilities only Public sector pay restraint Cost of living

Risk analysis of discount rate Recognising short term pay restraint Increased RPI/CPI gap

13

Are deaths on the rise?

14

Movement in non-financial assumptions

• Longevity
• Lower rates of withdrawal and ill health
• Sharp reduction in 50/50 assumption

15

Short term impact of Brexit

Brexit

Brexit caused a lot of volatility…but not anything exceptional

16

Lower growth for longer?

“Economic growth in the developed world

since the Financial Crisis has been slower than at any comparable period except the Great Depression GMO, 2016

Source: McKinsey Global Institute, May 2016

17

Key themes in E&W

• Improved solvency levels …
• … but pressure on contributions as cost of accrual rising
• Increased focus on employer risk e.g. colleges, charities
• Section 13 valuation in the background
• Austerity and affordability concerns

18

Pressures on employers

19

Pressures on employers

End of contracting out => Increased payroll costs Continuing Council Tax freeze => limited revenue Funds increasingly seeking more security

20

Increase in scrutiny

21

More stakeholders

Administering Authority Employers and members External bodies

Scottish Scheme Advisory Board Local Pension Board

22

Thank you

23

The material and charts included herewith are provided as background information for illustration purposes only. It is not a definitive analysis of the subjects covered, nor is it specific to circumstances of any person, scheme or organisation. It is not advice and should not be relied upon. It should not be released or otherwise disclosed to any third party without our prior consent. Hymans Robertson LLP accepts no liability for errors or omissions or reliance upon any statement or opinion.