Royal Borough of Kingston Upon Thames Pension Fund Connell Boyle - PowerPoint PPT Presentation

Royal Borough of Kingston Upon Thames Pension Fund Connell Boyle Kameel Kapitan 9 September 2014 Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Services Authority

Agenda 1. The role of the actuary 2. 2013 Valuation Results 3. LGPS Like for Like Analysis 4. Funding Update 2

The role of the Fund Actuary Accounting standards (FRS17/ Outsourcing Cessation IAS19) and bulk valuations transfers New employer calculations Triennial valuation Individual member Funding calculations strategy statement Fund Actuary Risk Other ad hoc management advice ......... all on behalf of administering authority 3

The pensions promise – valuing a single member Contributions 25 65 85 95 Recruitment Retirement Death Death 4

Fund valuation - assumptions Amounts paid and probability of payment Financial Assumptions Demographic Assumptions Inflation Life expectancy Pay increases Retirement age and cause Pension increases Withdrawals Investment return Marriage statistics Consider: Consider: Economic outlook Population trends Actual Fund assets Members’ lifestyle factors Historical pay growth Past Fund experience 5

Valuing all members Future Benefit Payments (Past Service) 1,200 Benefit Payments (£m) 1,000 800 Pensioners Deferred Pensioners Actives 600 400 200 0 1 4 7 100 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 Source: Sample LGPS fund Years from valuation But we don’t need all this money today! 6

Agenda 1. The role of the actuary 2. 2013 Valuation Results 3. LGPS Like for Like Analysis 4. Funding Update 7

Why do we do a valuation? Compliance with legislation Recommend contribution rates Common rate Individual employer rates Determine money needed to meet accrued liabilities Calculate solvency (“funding level”) Monitor experience vs. assumptions Manage risks to Fund Review the Funding Strategy Statement (FSS) 8

Market conditions UK gilt yields since 31 Mar 2010 6.00% 5.50% Discount rate: 6.8% Salary Increases: 5.3% Pension increases: 3.3% 5.00% 4.50% Discount rate: 4.6% 4.00% Salary Increases: 4.3% Pension increases: 2.5% 3.50% 3.00% 2.50% 2.00% 31 Mar 2010 31 Mar 2011 31 Mar 2012 31 Mar 2013 Fixed interest gilts (FTSE over 15 years) Implied Inflation 9

Index Returns Sterling total returns of major asset classes (rebased to 100 at 31 Mar 2010) 140 130 120 110 100 90 80 31 Mar 2010 31 Mar 2011 31 Mar 2012 31 Mar 2013 UK equities (FTSE All Share) Overseas equities (FTSE World ex-UK) Expected benchmark return on Plan assets Discount rate unwinding 10

Assets & Liabilities 2010 2013 £800m Deficit £600m £210m Assets Deficit Pensioner £145m £400m Deferred Active £200m £0m Liabilities Assets Liabilities Assets Funding Level: 72.6% 70.5% 11

Deficit Progression 2010 valuation -£145m Interest on surplus/(deficit) -£32m Investment returns more than expected £10m Contributions greater than cost of accrual £28m Change in mortality assumption £12m Change in demographic assumptions £11m Change in financial assumptions -£143m Experience £50m 2013 valuation -£210m -£300m -£200m -£100m £0m £100m £200m 12

Common Contribution Rate 35.0% 31.4% 30.0% 10.9% 25.0% 22.2% Past Service 20.0% 7.5% Adjustment 15.0% Employer Future Service Rate 20.5% 10.0% 14.7% 5.0% 0.0% 2010 2013 13

Employer Future Service Rate Progression 2010 valuation 14.7% Change in mortality assumption -0.2% Change in demographic assumptions -1.4% Change in financial assumptions 7.6% Experience 1.9% Impact of LGPS 2014 -2.1% 2013 valuation 20.5% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 14

5,000 scenarios gives a distribution of outcomes 200% 175% 1 in 6 chance 150% Funding Level (%) 125% Median 100% 75% 1 in 6 chance 50% 25% 0% 0 3 6 9 12 15 18 Years from valuation date More than 50% chance meet funding objective Source: Hymans Robertson LLP, comPASS, sample fund 15

Agenda 1. The role of the actuary 2. 2013 Valuation Results 3. LGPS Like for Like Analysis 4. Funding Update 16

How do the published 2013 valuation results compare between Funds? 17

Like-for-like reveals the true picture…. 18

Like-for-like vs Published Like-for-like comparison 90 Like-for-like rank (1 = highest funding level) 75 60 45 30 15 0 0 15 30 45 60 75 90 Published rank (1 = highest funding level) 19

Like-for-like funding level versus contributions in payment Funding level by contribution levels 100% 90% Like-for-like funding level 80% 70% 60% 13.0% 18.0% 23.0% 28.0% 33.0% 38.0% Average contribution rate in payment p.a. 20

Required asset return Required asset return 7.0% 6.5% Required asset return p.a. for 20 years 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 0 10 20 30 40 50 60 70 80 90 Like-for-like ranking (1 = highest like-for-like funding level) 21

Summary of Like-for-like Results Strong position relative to other LGPS Funds Credible funding plan in place Not overly reliant on future asset returns Relatively short “implied” deficit recovery period Not likely to come under scrutiny from DCLG/SAB 22

Agenda 1. The role of the actuary 2. 2013 Valuation Results 3. LGPS Like for Like Analysis 4. Funding Update 23

Market conditions UK gilt yields since 31 Mar 2013 4.00% 3.80% 3.60% 3.40% 3.20% Discount rate: 5.1% 3.00% Salary Increases: 4.5% Pension increases: 2.7% 2.80% 2.60% Discount rate: 4.6% Salary Increases: 4.3% 2.40% Pension increases: 2.5% 2.20% 2.00% 31 Mar 2013 30 Jun 2013 30 Sep 2013 31 Dec 2013 31 Mar 2014 Fixed interest gilts (FTSE over 15 years) Implied Inflation 24

Index returns Sterling total returns of major asset classes (rebased to 100 at 31 Mar 2013) 120 115 110 105 100 95 90 31 Mar 2013 30 Jun 2013 30 Sep 2013 31 Dec 2013 31 Mar 2014 UK equities (FTSE All Share) Overseas equities (FTSE World ex-UK) Expected benchmark return on Plan assets Discount rate unwinding 25

Funding Update – March 2014 2014 2013 £800m Deficit Deficit £162m £600m £210m Assets Pensioner £400m Deferred Active £200m £0m Liabilities Assets Liabilities Assets Funding Level: 70.5% 76.9% 26

Deficit Progression – 2013 to 2014 31 March 2013 valuation -£210m Interest on surplus/(deficit) -£10m Investment returns more than expected £17m Change in yields and inflation £36m Contributions greater than cost of accrual £5m 31 March 2014 update -£162m -£300m -£200m -£100m £0m £100m £200m 27

A word of caution … UK gilt yields since 31 Mar 2013 4.00% 3.50% Discount rate: 5.1% Salary Increases: 4.5% 3.00% Pension increases: 2.7% Discount rate: 4.6% Discount rate: 4.5% Salary Increases: 4.3% Salary Increases: 4.3% 2.50% Pension increases: 2.5% Pension increases: 2.5% 2.00% 31 Aug 2014 31 Mar 2013 30 Sep 2013 31 Mar 2014 Fixed interest gilts (FTSE over 15 years) Implied Inflation 28

… but perhaps not all bad news Sterling total returns of major asset classes (rebased to 100 at 31 Mar 2013) 120 115 110 105 100 95 90 31 Mar 2013 30 Sep 2013 31 Mar 2014 31 Aug 2014 UK equities (FTSE All Share) Overseas equities (FTSE World ex-UK) Expected benchmark return on Plan assets Discount rate unwinding 29

Thank you Any questions?