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Claire Connelly Employer Services & Funding
LGSS Pensions
Monitoring Employer Strength
Background LGPS - Funded Scheme Employer Contributions = Members Benefits
Hot topics: Grant reductions / cuts General economic downturn / restriction of credit Organisations cease trading
Consider Impact on: Employers to pay contributions now/ future Funding strategy Employer specific contribution rates.
Shortfall in funding = strain on the Fund
Changing Employers
0
200
400
600
800
1000
1200
1400
1600
1800
1991/92 2010/11
Num
ber (
000)
Active members
Deferred members
Pensioners
Source – CLG SF3 data for English LGPS Funds
Growing Scheme Membership
Increasing Pensions & Assets
0
1,000
2,000
3,000
4,000
5,000
6,000
1989/90 2010/11
£mill
ions
Annual Pensions
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1989/90 2010/11
£mill
ions
Fund Assets
Source – CLG SF3 data for English LGPS Funds
What the papers say...
Pension liabilities are devastating charities, umbrella groups tell minister
Analysis: Facing up to the sector's pensions crisisPension Liabilities
scupper merger
Devastating EU rules will force most UK traditional company pensions to close
Reasons for Employer Covenant Monitoring
Current climate
It's Valuation Year
Health Check for Employers
Agree exit strategy
Manages Risk
Approach
Needs to be fair: predetermined rules / factors objective and justified consistent establish the level of risk for each employer criteria work together
Approach
Outcomes: inform strength of employer covenant deficit recovery periods targeted funding levels discuss / reassessment / mitigation
Risk Assessment Process
• Identify the risk of the employer to the fund
• Criteria / rules used to determine risk levels consulted on with Scheme Actuary
• Other factors – employer information
• Consider factors when assessing contribution rates
• Implications / Mitigations……
CriteriaPriority Item
High Sponsor / Guarantor / Tax Raising PowersCredit Rating Gearing RatioCashflow Funding LevelAdmission Agreement Bond
Medium Ill Health InsuranceTheoretical vs actual cont rateType of Employer TAB agreements
Low Open or Closed Cessation date Number of actives Actives Future Working Life
Information Stabilisation Pass-through ArrangementActual salaries Pension payroll2010 theoretical cont rate / liabilities / assetsActual cont rate 2013/14
Criteria High Low
Gearing Ratio
Funding Level
Credit Rating
Proximity Impending Ongoing
Cessation Date
Risk Implications
Employer Information• Changes in financing arrangements, expansion plans etc
• What is your credit rating
• What are your sponsoring arrangements
• What are your bond arrangements
• What is your AE policy – LGPS or comparable?
• Admitted bodies – how strong is your admission agreement, what is your cessation date
Employer Risk Puzzle
Type of body
Family Tree
Funding Level
Cashflow
Communication
Direct Communications• Individual meeting offered to each fund employer Website• Updates on the valuation process on the Pension Service Website http://pensions.cambridgeshire.gov.uk
http://pensions.northamptonshire.gov.ukConfidentiality• Results are confidential and will not be released
Sum up – our overall expectation
• Joined up funding / investment / covenant• Planning• Parental support / wider group support• Monitoring covenant / reviews• Flexibility• Identify best practice• Get ahead of issues• Pro-active engagement
Questions?
• Further information:
http://pensions.cambridgeshire.gov.uk
http://pensions.northamptonshire.gov.uk• Contact:
Mark Whitby
Claire Connelly [email protected]
