Agenda item

Presentation by Actuary, Hymans Robertson.

1.1       The Chairman welcomed Mrs Julie West, Actuary from Hymans Robertson who was in attendance to give a presentation on the Pension Fund’s formal valuation results.  Mrs West began her presentation by explaining that the aim of the valuation was to find the balance between employer contributions and investment returns to ensure funding was in place to cover payment of future benefits to members. The Actuary determined the valuation by placing a value on all the benefits earned to date by all members, including those that had left, deferred members and active members and comparing with the Fund’s assets.  The Actuary also had to try to understand future risk when setting contribution rates and that rates were stable to ensure the long term sustainability of the Pension Fund.  Referring to the graphs in the presentation slides, Mrs West explained the likelihood of achieving the assumed future investment return.   In discussion with officers they had determined that the likelihood of being fully funded should be set at 70%.  The key assumptions in determining the 70% likelihood was:  investment returns decreasing, salary increases and benefit increases.  The demographic assumption also influenced when benefits were paid and for how long.   The most influential of which was life expectancy.  Hymans Robertson were able to drill down to local level to set a life expectancy based on the trends shown for specific areas.   Since the last valuation on 31 March 2017:  inflation had dropped, demographic assumptions had changed, adopting VitaCurves longevity assumption and changes in financial assumptions, such as future investment returns.    This had resulted in a decrease in the Fund surplus from £81m to £63m. 

1.2       Mrs West went on to discuss uncertainties considered when determining their valuation.  The McCloud judgement, ruled protection for those within 10 years of retirement at 31 March 2012.  The true costs of this would not be known until all potentially affected members had retired. This judgement would be a significant burden for the administration of the Fund. The Actuary’s valuation had made an allowance for the McCloud judgement.   The Cost Cap Valuation meant that if the cost of the scheme decreased, future benefits earned would need to increase to the original cost assessed for the scheme.  The Actuary’s valuation had not made an allowance for Cost Cap.  

1.3       Mrs West then explained that the Actuary determined a funding level by considering different future scenarios.   She highlighted three scenarios which were all in excess of 70%.  However, with the potential of Cost Cap the decision reached with officers, was for contributions to stay at the same level for two years and then increase by ½% in the third year.  This would give a protection against future uncertainties.     The next steps in the valuation process was continuing the work of setting contribution rates for the remaining employers in the Fund and also revising the Funding Strategy Statement.  The final valuation would be completed by 31 March 2021.  

1.4       In response to questions, Mrs West advised that the Goodwin judgement had not been published but it was likely to be more of an administration challenge.  As it only affected a small number of individuals it was not anticipated to have a significant impact on liabilities.   Regarding the 1/2% increase in year three, this was to manage future uncertainty and protect the Fund.   The Chairman thanked Mrs West for her attendance and comprehensive, clear presentation.

DECISION

NOTED the presentation.