Update from the actuary Nottinghamshire Pension Fund AGM 4 October 2018 BARRY MCKAY FFA ASSOCIATE & ACTUARY ROSS ANDERSON FFA ASSOCIATE & ACTUARY
Agenda Purpose of valuations • Short 2016 re-cap • Current funding update • 2019 valuation • NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE
Purpose of valuations
Valuations - recap • Accumulation of • Future benefits paid contributions and from the Fund Assets Liabilities investment returns (pensions, lump sums, transfer values) less benefits paid • How much do we need Valuation • How much are they now to pay future Valuation worth? benefits? (Contribution rate) Value of liabilities less value of Deficit assets Value of assets / value of Funding Level liabilities NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 4
Purpose of valuations Accounting To show cost/liabilities in accounts (IAS19/FRS102) Assumptions are largely prescribed Liabilities/ costs much higher and more volatile Ongoing To set future contributions triennial funding valuation Actuary agrees assumptions with Fund Liabilities/costs much lower and more stable NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE
Short 2016 valuation re-cap
Triennial funding valuations • to certify levels of employer contributions to secure Set out in LGPS the solvency of the Fund and the long term cost Regulations efficiency of the Scheme Also have regard to the • As determined by administering authority Funding Strategy • With some actuarial help! Statement Actuary to “have regard to • Function of Funding Model / investment strategy desirability of maintaining as nearly constant a (primary) • Spreading and stepping contribution rate as possible” Different approaches • Statutory/non statutory bodies possible for different • Open or closed admission agreements employer types • Look at employer financial strength (“covenant”) NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 7
Whole Fund results Past service funding position 31 March 2016 £m Assets were 87% of the Smoothed asset value 4,028 amount required to cover Past service liabilities the cost of accrued benefits Actives 1,612 Deferred pensioners 964 Pensioners 2,073 Total 4,649 Surplus (Deficit) (621) Funding level 87% Average employer cost of benefits accruing in year after the valuation date is Primary rate % of payroll Total future service rate 20.8% 14.5% of payroll less employee contribution rate (6.3%) Total primary rate 14.5% NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE
Section 13 “Section 13 to provide for an independent review (by GAD) of the valuation and employer contribution rates to check that they are appropriate and requires remedial action to be taken where that review identifies a problem.” Government Actuary: LGPS in better position after funds make ‘significant’ progress – Professional Pensions 28 September 2018 All green flags for Nottinghamshire Pension Fund! NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE
Current funding update
Assets 160 150 % growth since 2016 valuation 140 130 120 110 100 90 Asset projection based on 2016 valuation assumption NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 11
Assets 160 150 % growth since 2016 valuation 140 130 120 110 100 90 Asset projection based on 2016 valuation assumption Equities NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 12
Assets 160 150 % growth since 2016 valuation 140 130 120 110 100 90 Asset projection based on 2016 valuation assumption Equities Gilts NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 13
Assets 160 150 % growth since 2016 valuation 140 130 120 110 100 90 Asset projection based on 2016 valuation assumption Equities Gilts Property NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 14
Assets Assets 160 150 % growth since 2016 valuation 140 130 120 110 100 90 Asset projection based on 2016 valuation assumption Equities Gilts Property Actual assets NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 15
Change in real discount rates - liabilities Change in real discount rate 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% Discount Rate Inflation Real discount rate NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 16
Funding levels – the good news…. Funding Level 110% 105% 100% 95% 90% 85% 80% Smoothed Unsmoothed NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 17
Future service costs – less good news……. Future service cost 17.0% 16.5% 16.0% 15.5% 15.0% 14.5% 14.0% 13.5% Primary rate NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 18
So…….. Strong asset returns since 2016 • Great if you held the assets at 2016 •Not so great if you still have some to buy… Lower expected returns (above inflation) going forward • Offsets some of the asset outperformance to date • Still need to buy new assets for new liabilities • More expensive than before so more cash required Looking forward to 2019 valuation? • Higher cost of future accrual • Improved funding level due to good asset returns • Aiming for stability of contributions However! • Still plenty of time for things to change • We live in an uncertain world • Our model designed to help withstand short- term “noise” NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 19
How to plan for results Tricky to provide strong indication of any particular employer’s results at this stage • Assumptions not agreed yet • Employer circumstances different from Fund as a whole What do we know? • Returns have been really good • Lower expected returns (above inflation) going forward • Although, potential for things to change between now and 31 March What we know that we don’t know • Assumptions due to be agreed in September 2019 • Individual employer experience • Individual funding strategy and flexibilities •Won’t know until individual results available in October/November 2019 What we don’t know that we don’t know NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 20
We can help! Online ongoing funding tracker Works in real time Can track accounting deficit too NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 21
2019 valuation
2019 or 2020? NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 23
Why is accurate valuation data so important? Membership extracts Covenant information Assets and cashflows Contribution rates Section 13 conclusions NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE
Timetable – key milestones April 2019 “Early indications” general briefing note 31 March 2019 end-of-year returns due September 2019 Whole Fund results and assumptions October 2019 Reporting of results for major employers (mid-month) Reporting of results for other employers (end-month) NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 25
Timetable – key milestones November 2019 Results released to employers for consultation February 2019 Employer consultation period ends March 2019 Results finalised & valuation report signed off Contributions start 1 April 2020 NOTTINGHAMSHIRE PENSION FUND AGM 2018 ACTUARIAL UPDATE 26
Questions
Recommend
More recommend
