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
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 2
Recap of the 2014 valuations 3
2014 Scottish valuation results 4
What’s happened since 31 March 2014? Source: Hymans Robertson, sample Scottish LGPS fund 5
Strong asset returns since 2014 Expected investment return 6
Falling interest rates 2.00% 1.00% 0.00% Yield (% p.a.) -1.00% -2.00% -3.00% 31 Mar 2014 31 Mar 2015 31 Mar 2016 Index-linked gilts (FTSE over 15 years, 3% inf.) 7
Not the first time… 8
… and won’t be the last! 9
Themes emerging from E&W 2016 valuations 10
The North vs. The South Like-for-like comparison 100 90 Like-for-like rank (1 = highest funding level) 80 70 60 50 40 30 Required asset return 20 7.0% 10 6.5% Required asset return p.a. for 20 years 0 0 10 20 30 40 50 60 70 80 90 100 6.0% Published rank (1 = highest funding level) 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 0 10 20 30 40 50 60 70 80 90 100 Like-for-like ranking (1 = highest like-for-like funding level) 11
Movement in financial assumptions Long term assumption Pre ‘14 liabilities only LONG TERM SINGLE ASSUMPTION Risk analysis of discount rate Public sector pay restraint Cost of living Recognising short term pay restraint Increased RPI/CPI gap 12
Are deaths on the rise? 13
Movement in non-financial assumptions • Longevity • Lower rates of withdrawal and ill health • Sharp reduction in 50/50 assumption 14
Short term impact of Brexit Brexit Brexit caused a lot of volatility…but not anything exceptional 15
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 16
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 17
Pressures on employers 18
Pressures on employers End of contracting out => Increased payroll costs Continuing Council Tax freeze => limited revenue Funds increasingly seeking more security 19
Increase in scrutiny 20
More stakeholders Administering Authority Employers and members External bodies Local Pension Board Scottish Scheme Advisory Board 21
Thank you 22
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. 23
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