London Borough of Sutton Pension Fund Page 29 2019 valuation - - PowerPoint PPT Presentation

▶
london borough of
SMART_READER_LITE
LIVE PREVIEW

London Borough of Sutton Pension Fund Page 29 2019 valuation - - PowerPoint PPT Presentation

Feb 01, 2024 12 likes •296 views

London Borough of Sutton Pension Fund Page 29 2019 valuation initial results and assumptions Agenda Item 10 Melanie Durrant FIA CERA, Principal Julie Baillie FFA, Actuary 19 November 2019 Executive summary key questions Strategic

slide-1
SLIDE 1

London Borough of Sutton Pension Fund

2019 valuation initial results and assumptions

Melanie Durrant FIA CERA, Principal Julie Baillie FFA, Actuary 19 November 2019

Page 29

Agenda Item 10

slide-2
SLIDE 2

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Executive summary – key questions

2

  • What are the initial

results and indicative contribution rates?

  • How do the

assumptions fit together?

  • How do we manage

all the risks including regulatory risks (McCloud)

Strategic support

  • When should we

review our investment strategy?

  • What’s next? How do

we communicate results to our employers?e

  • What documentation

do we need to consider? (Valuation documents and FSS, ISS..)

!

Page 30

Agenda Item 10

slide-3
SLIDE 3

Assumptions

Page 31

Agenda Item 10

slide-4
SLIDE 4

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Our key assumptions

Financial

Discount rate Salary increases Pension increases (CPI)

4

Demographic

Mortality Retirement

Commutation

Page 32

Agenda Item 10

slide-5
SLIDE 5

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

RPI Inflation

5

3.6% CPI = 2.6%

3.0% 3.2% 3.4% 3.6% 3.8% 4.0% Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19

BoE 20 Year Inflation Curve

Smoothed Spot

Source: Bank of England

3.3% CPI = 2.4% 2016 2019 Page 33

Agenda Item 10

slide-6
SLIDE 6

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Discount rate – BW economic model

6

  • Weighted expected future investment

returns from long-term investment strategy (top down approach)

  • Assumptions assessed over six month

period spanning valuation date (smoothed)

  • Specifically designed for LGPS
  • Smoothed returns help stability
  • Expenses allowance included here

rather than primary rate Page 34

Agenda Item 10

slide-7
SLIDE 7

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS 7

Discount rate – prudence allowance

Allowance for uncertainties Employer covenant Attitude to risk Investment strategy

Prudence

0.7% 0.7%

2016 2019 Page 35

Agenda Item 10

slide-8
SLIDE 8

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Asset class 2019 allocation Neutral assumption (p.a.) Equities 50.0% 6.7% Gilts 6.0% 1.7% Property and infrastructure 15.0% 6.1% Pooled multi asset fund 24.0% 3.8% Private debt 5.0% 6.7% Less expenses 0.2% Neutral return 5.4% Less prudence adj. 0.7% Prudent discount rate assumption 4.7% Relative to CPI 2.1%

Discount rate – combining returns

8

4.6 %

4.7% 5.2%

2016 2019

2.1% real discount rate

Page 36

Agenda Item 10

slide-9
SLIDE 9

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

  • Base mortality assumptions
  • What is our best estimate of the

mortality of the membership today?

  • Future changes in mortality
  • How do we expect the current

experience to change in future?

  • Necessarily uncertain!

9

Key assumptions: mortality

2019 valuation

Adjusted CMI “S3” tables CMI_2018 projections

2016 valuation

Adjusted CMI “S2” tables CMI_2015 projections

Page 37

Agenda Item 10

slide-10
SLIDE 10

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Longevity experience

10

Page 38

Agenda Item 10

slide-11
SLIDE 11

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Key assumptions - summary

11

Assumption 2019 2016 Effect CPI inflation 2.6% p.a. 2.4% p.a. Salary increases 3.6% p.a. 3.9% p.a. Discount rate 4.7% p.a. 5.2% p.a. Mortality base tables 110/105% rating S3 tables 80/85% rating S2 tables Improvement model CMI 2018 CMI 2015 Long-term rate of imp 1.25% p.a. 1.5% p.a.

Page 39

Agenda Item 10

slide-12
SLIDE 12

Initial results

Page 40

Agenda Item 10

slide-13
SLIDE 13

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Assets

  • Market value at 31 March 2019 = £664m

13

Year Annual return 2016/17 20.9% 2017/18 3.1% 2018/19 7.4% Average 10.2%

90 100 110 120 130 140 150

Change in Asset Values

Asset projection based on 2016 valuation assumption Equities Gilts Actual assets

Page 41

Agenda Item 10

slide-14
SLIDE 14

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Summary - whole Fund results

Proposed basis Previous valuation 31 March 2019 31 March 2016 £m £m Smoothed asset value 661 503 Past service liabilities Actives 216 194 Deferred pensioners 163 140 Pensioners 353 298 Total Liabilities 732 632 Surplus (Deficit)

  • 71
  • 129

Funding level 90% 80% Past service funding position

14

90% 80%

2016 2019

  • Overall improvement in position since 2016
  • Allow for legislative uncertainty (McCloud)

Key takeaway

Page 42

Agenda Item 10

slide-15
SLIDE 15

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Summary - whole Fund results (contributions)

Primary rate Proposed basis Previous valuation 31 March 2019 31 March 2016 % of payroll p.a. % of payroll p.a. Average total future service rate 25.8% 23.7% Less average member rate

  • 6.6%
  • 6.5%

Fund primary rate 19.2% 17.2%

15

  • Will vary by employer
  • Increase in primary rate
  • Secondary rate not included
  • Overall aiming for stability of total level of contributions

Key takeaways

19.2% 17.2%

2016 2019 Page 43

Agenda Item 10

slide-16
SLIDE 16

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Reconciliation - whole Fund results

16

Page 44

Agenda Item 10

slide-17
SLIDE 17

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Reconciliation – primary contribution rate

17

0%

Page 45

Agenda Item 10

slide-18
SLIDE 18

Next steps

Page 46

Agenda Item 10

slide-19
SLIDE 19

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

2019 valuation timetable – key milestones

19

March 2020

Results finalised & valuation report signed off New FSS and ISS in place Contributions start 1 April 2020

Winter 2019/2020

Employer results prepared 4 December meeting to discuss/present employers’ rates

Autumn 2019

Agree assumptions with administering authority BW complete initial calculations Initial results and detailed assumptions paper

Summer 2019

All data sent to BW BW complete data checks Audited asset information available

Spring 2019

Timetable agreed, BW meet with Fund Data gathering by administering authority (member data and cashflows)

Page 47

Agenda Item 10

slide-20
SLIDE 20

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Next steps – individual employer results

20

  • Review existing contributions and recovery plan
  • Recovery plan length
  • Avoid extending recovery plans
  • Retain 2035 target date
  • Managing increases
  • Step up if required (watch out for s13)
  • Consider results of covenant analysis report
  • More now means less later and less overall

Page 48

Agenda Item 10

slide-21
SLIDE 21

Funding Strategy Statement

Page 49

Agenda Item 10

slide-22
SLIDE 22

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Risk management

22

Funding strategy Investment Strategy Covenant

Page 50

Agenda Item 10

slide-23
SLIDE 23

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Review Funding Strategy Statement

  • Review funding policies as determined by administering authority
  • Employer pooling
  • Academies
  • Orphan employers
  • Cessation policy (consider exit credits)
  • Policy on ill health retirements
  • Policy on early retirement strain payments
  • Treatment of new admission bodies/outsourcings
  • Treatment of McCloud judgement in valuation
  • Different approaches possible by employer type
  • Doubled number of academies/free schools (22 academies at 2016)
  • Only 6 new admission bodies…and 3 ceased employers

23

Page 51

Agenda Item 10

slide-24
SLIDE 24

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Covenant assessment

24

Qualitative assessment

  • Categorise at high level
  • Agree risk factors
  • Assess employer profile

Quantitative assessment

  • Pension fund metrics
  • D&B risk score
  • Total Risk score

Specialist advice

  • Detailed analysis by

experts

  • Outlook for sector

Benefits

  • Develop risk framework to inform funding strategy
  • Identify and address most risky employers
  • Obtain guarantee / security
  • Evidence good governance

Employer’s ability to meet pension fund commitments

Page 52

Agenda Item 10

slide-25
SLIDE 25

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Employer experience

25

Ill-health strain costs

  • Require payment
  • f strain cost
  • Pooling
  • Self-insurance
  • External

insurance Early retirement cost

  • Strain cost met

by employer

  • Immediate
  • Spread over

short period High salary increases

  • Monitor annually
  • Charge cost

resulting from excess increases

Risk of employer decisions / member experience leading to increased liabilities

Page 53

Agenda Item 10

slide-26
SLIDE 26

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Key takeaways

Funding position Contributions Financial assumptions Demographic assumptions Risk management Regulatory uncertainty

26

Members living not as long as previously thought Funding position improved from 80% to 90% 19.2% primary rate. Secondary rates to follow. 4.7% discount rate and lower salary increase assumption Self insurance, employer covenant, investment strategy McCloud, valuation cycles, Section 13

Page 54

Agenda Item 10

slide-27
SLIDE 27

LONDON BOROUGH OF SUTTON PENSION FUND – 2019 INITIAL RESULTS

Regulatory information

  • The information in this presentation is based on our understanding of current taxation law, proposed

legislation and HM Revenue & Customs practice, which may be subject to future variation.

  • This presentation is not intended to provide and must not be construed as regulated investment
  • advice. Returns are not guaranteed and the value of investments may go down as well as up.
  • Barnett Waddingham LLP is a limited liability partnership registered in England and Wales. Registered

Number OC307678.

  • Registered Office: 2 London Wall Place, London EC2Y 5AU
  • Barnett Waddingham LLP is authorised and regulated by the Financial Conduct Authority and is

licensed by the Institute and Faculty of Actuaries for a range of investment business activities.

27

Page 55

Agenda Item 10

slide-28
SLIDE 28

This page is intentionally left blank