Agenda item

2019 Actuarial Valuation

Purpose:  To update Committee Members on the progress of the 2019 Actuarial Valuation

Decision:

(a)  All Committee members noted this report, the progress being made with the actuarial valuation project and the planned meetings with employers.

(b)  The Committee members considered the draft response to the consultation and provided comments and required amendments. The Committee then delegated the finalisation of the response to officers.

 

Minutes:

Mr Middleman explained the background of the Actuarial Valuation i.e. emphasising the importance of the valuation in respect of the employer budgets and setting the strategy going forward in terms of the investment strategy and risk appetites.   The key driver is the expected return above CPI inflation as well as the certainty of that return. This is the core objective of the Flightpath strategy which targets a more stable return in the long term to provide as much stability in contributions as possible whist targeting the removal of the deficit over a reasonable period of time.

He noted the following points in terms of the process;

  • The challenge that will be faced in relation to the McCloud judgement as this is expected to increase costs but we don’t know by how much at this point.
  • Mercer expect a data set by mid-July.
  • Initial demographic analysis reflects a slowdown of life expectancy (which reduces the liabilities by around 3-4%) but there has been an upwards incidence of ill-health retirement.
  • Going forward the expected investment returns above CPI inflation are expected to be lower than previously.
  • Allowing for the lower returns and estimated change in life expectancy the estimated funding level had improved at 31 March 2019 to be c91%. As a result, there was an expectation of a substantial reduction on the deficit.
  • In terms of the future service contribution rate this was expected to increase due mainly to the lower expected future investment returns.

Mr Middleman confirmed that more detail would be discussed at the September committee where there will be a draft Funding Strategy Statement for approval.

Mr Everett mentioned that officers have had detailed discussions around the valuation and the early dialogue is helpful.

Mr Middleman moved on to page 531 which presents a draft consultation Fund response for the proposed change to a 4-year valuation cycle from 2024 and management of employer risk.  He covered the draft response and asked for questions from the Committee.

The main discussion points were as follows:

  • The change to a 4-year cycle was to bring it into line with the unfunded public sector schemes and the cost management process.  In isolation Mr Middleman didn’t agree with the amendment to a 4-year valuation cycle as it weakened the governance of the LGPS and for some employers it was certainly too long.  However, as interim valuations are going to be allowed where circumstances warrant it, then it was reasonable.  However, his view was that this should be phased in so was supportive of the option of a valuation in 2022 and then another in 2024.
  • The changes proposed in relation to Exit Credits (to clarify the previous regulations) and the implementation of Deferred Employer status options were sensible additions to the Regulations.
  • Guidance from the Scheme Advisory Board should be welcomed as long as it was principles based and not prescriptive to allow funds to apply it sensibly to their own circumstances.

RESOLVED:

(a)  All Committee members noted this report, the progress being made with the actuarial valuation project and the planned meetings with employers.

(b)  The Committee members considered the draft response to the consultation and provided comments and required amendments. The Committee then delegated the finalisation of the response to officers.

 

Supporting documents: