Dorset County Pension Fund Annual Employers Forum

Transcription

1 Dorset County Pension Fund Annual Employers Forum 2 December 2014

2 Employers Forum Agenda Richard Bates (Fund Administrator) Welcome and economic background Nick Buckland (Head of Treasury and Pensions) Update on the Fund s investments Alison Hamilton (Barnett Waddingham) Actuarial update Lynda Jones (DCLG) Update on the reform of the LGPS Anne Cheffey (Pensions Benefits Manager) Administration update

3 Richard Bates Pension Fund Administrator Dorset County Pension Fund

4 Economic growth Low (but positive) growth! Concerns about Eurozone prosperity

5 Unemployment Well below rate where we originally anticipated interest rate rise Not flowing through into tax take or consumer spending

6 Inflation Lowest rate in 5 years mainly food and fuel price suppression Prices close to stagnation not good for everyone

7 Budget deficit (PSNCR) Structural deficit will prove difficult to eliminate with high debt to GDP if interest rates rise and tax take remains suppressed

8 Government debt Gross UK debt at 31/3/14 was 1.521Trn Net borrowing of 41.5bn to31/08/14

9 National context /16 last year covered by formal spending review Real uncertainty for 2/3rds of our MTFP period Autumn Statement 3 rd December Local Govt Finance settlement 17 th December General election 7 th May 2015

10 National context 2 Pressure on Council Tax increases Pressure/elimination of RSG? Growth in business rates? risk? Health and Education still protected Austerity continues beyond MTFP period Awaiting outcomes of the consultation on 2015/16 settlement Unlikely to be good news for LG after 15/16

11 Nick Buckland Head of Treasury and Pensions Dorset County Pension Fund

12 Fund update Fund membership Growth of employer numbers Growth in asset values Investment Strategy Performance Key issues for Pension Fund Committee

13 Fund Membership

14 Fund Membership In last 10 years: Active membership + 11% Pensioners + 61% Deferred members + 153% Effect on Cash-flow Net Cash-flow remains positive, but has fallen significantly Forecast to be negative in next 5 years

15 Employers Fund membership has been steady Number of employers 31 St March st March Nearer 200 now Increased role in liaising with twice as many employers

16 Asset values Fund values ( M)

17 Asset values Fund values have increased 4 fold since 1996 Doubled since 2009 (after Global Financial Crisis) At 30 th September Billion

18 Investment strategy Long term objective to generate returns matching growth in liabilities, short term to match benchmark Equities main returns generator but diversify to reduce volatility Liabilities are also a major source of volatility Deficits can be closed in three ways: Superior asset returns Increased employer contributions Lengthening recovery period

19 Investment strategy Major review of strategy in 2011/12 after previous actuarial valuation Move to diversify return (Diversified Growth) Significant appointment of liability manager to manage inflation risk Light-touch review in 2014 Long term aim to add to Diversified Growth Disinvest from Hedge-Funds Re-affirmed and increased inflation hedging New asset class added - Infrastructure

20 Asset Allocation 31 st October 2014

21 Asset Allocation Equity allocation lower than LA average Allocation to Bonds and alternatives higher Passive core with specialist active managers Inflation risk specifically addressed 9 asset classes 14 Fund managers (plus internal team) Reviewed every quarter and formally every three years (minimum) Strategy was nominated for award - Financial News excellence in pensions awards 2014

22 Fund performance

23 Fund performance Fund has performed well since Global Financial Crisis Fund specific benchmark has been testing Benchmark is weighted average of asset allocation using index returns Outperformed LA average over all periods Best managers have been consistent AXA Framlington (UK equities), Royal London (bonds) and CBREi (property)

24 Pension Fund Committee work Busy year for Committee background of uncertainty over future shape of LGPS Numerous Government consultations Creation of Local Pension Board Role of The Pensions Regulator Review of Investment Strategy Ongoing review of Overseas equity management arrangements

25 UK - Actuarial Advisory Firm of the Year UK - Pensions Advisor of the Year Dorset County Pension Fund Actuarial Update Alison.hamilton@barnett-waddingham.co.uk December 2014

26 Agenda Funding Update Current Issues Questions 26

27 Funding Update at 30 September 2014 As at 31 March % funded 18.6% average total employer contribution rate As at 30 September % funded Strong asset returns in 18 months to 30 September 2014 Funding plan slightly ahead of schedule

28 Funding Update at 30 September % Funding Level changes in the 18 months to 30 September % 85% Funding level on BW model (smoothed) 84% 83% 82% 81% 80% March 2013 June 2013 September 2013 December 2013 March 2014 June 2014 September 2014

29 Funding Update at 30 September Valuation Still 18 months to go Will depend on assumptions adopted Individual employers Strong asset returns and deficit contributions would imply an improvement but may not be in line with Fund improvement Member experience, changes in workforce, deferment of contribution rate increases

30 What else going on? 2013 LGPS (England and Wales) valuations Comparison frenzy Who are the good/bad funds? LGPS 2014 up and running since 1 April Public Sector Pensions Act 2013 New governance requirements across all public service schemes Scheme Advisory Boards Local Pensions Boards All in place/established by 1 April 2015 LGPS Structural Reform Scheme mergers? Collaboration / Common Investment Vehicles? 30

31 2013 valuations Much excitement about range of results Comparisons difficult due to different funding strategies (assumptions and funding plans) GAD doing them all again on scheme-wide assumptions for cost management reasons Will get like for like But how useful? Actuarial firms also trying to do like for like comparisons from published results Some publishing their analysis Better consistency of measurement but not perfect 31

32 2013 valuations Barnett Waddingham Analysis Published funding levels Range of 55% to 100% Rebased funding levels Range of 60% to 95% Not totally like for like Different discount rates underlying some calculations of employer contribution rates Plenty of contribution rates don t reflect published funding level Different assumptions for different employer types But better comparability GAD analysis will be better Those who have paid more will pay less / those who have paid less will pay more 32

33 Where are we going? A decade of missed opportunity? 2008 Scheme Should have at least have switched to CARE CARE should have been introduced in 1991! 2014 Scheme Switch to CARE but still 100% defined benefit With some sort of cost cap a real struggle Should have changed to a proper cost/risk sharing structure 33

34 Where are we going? 2014 Budget Pensions Freedom Cash in your pension from 55 Pay all that future income tax up front Glasgow Rangers season ticket model? Advice to be available Start reserving for mis-selling compensation now! Do we never learn? Pension schemes essentially being replaced with savings schemes? Will encourage more (pensions) savings apparently But pension schemes are supposed to be income replacement schemes 34

35 National Consequences Today s Treasury gets richer / tomorrow s tax payers are poorer? Depends what Treasury do with the extra cash People do underestimate their life expectancy Some (most?) will run out of cash Fall back on the State / tomorrow s tax payers Back to the days of Samuel Pepys? Pension schemes were designed to be a tool to manage out older workers Fewer jobs for younger people? Less productive economy? 35

36 Public Sector Consequences Cashing in not allowed in unfunded schemes No assets Government has no cash Will probably be allowed in LGPS Some assets but not enough Pay full transfer values or reduce? Large cash outflows from Funds? Selling down investments More risk! 36

37 Conclusions Pension schemes initially an HR tool Managing an aging workforce More useful tool if element of defined benefit Otherwise just a savings scheme Pensions Freedom May encourage more saving for retirement Tomorrow's tax today scheme? But beware unintended consequences Elderly employees unable to retire due to lack of funds Poorer retired population or young people heading for the exit? 37

38 Future of LGPS Move to new structure (CARE, SPA) a step in right direction But need more radical reform Better cost sharing design Cash balance? Consistent with Pensions Freedom But should be some restrictions on cashing in (how much and when) To help employers/economy manage workforce 38

39 39 Questions?

40 Dorset County Council Pension Fund Employers Conference Tuesday 2 December 2014 Lynda Jones Workforce, Pay and Pensions Division

41 The Public Service Pension Act Governance The Act sets out 4 roles to be performed in all public service pension schemes including the LGPS in England and Wales These are: The Responsible Authority Secretary of State DCLG The Scheme Managers each Administering Authority The Scheme Advisory Board A national advisory body The Scheme s Local Pension Boards one for each administering authority 41

42 Their roles The Scheme Manager: Will be the Administering Authority will be accountable for scheme administration and governance The new Pension Boards: will be established by 1 April 2015 to assist the Scheme Manager equal numbers of employer and member representatives at least 2 of each The new Scheme Advisory Board: will provide advice and recommendations to DCLG on scheme changes will advise Scheme Managers and Pension Boards on effectiveness and efficiency 42

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44 Occupational Pension Schemes ending of contracting out from 2016 A single tier state pension is being introduced from 1 April 2016 S2P second earnings related component of state pension will stop accruing Transitional arrangements will provide for the merging of the two components Contracted out status is abolished and all employers and employees will pay towards the single tier state pension 44

45 Occupational Pension Schemes ending of contracting out from 2016 The national insurance rebate for contracted out employers and employees stops from 1 April 2016 This means employers pay the full national insurance losing a rebate of 3.4% for certain pay bands This means employees pay the full national insurance losing a rebate of 1.4% for certain pay bands LGPS employer and employee costs stay the same The Local Government Association and DCLG are in talks about how this cost pressure might be managed for all employers in the Scheme 45

46 Freedom and Choice in Pensions Budget 2014 announced that savers in a defined contribution pension scheme would not be compelled to buy an annuity when they retire From April 2015, they will be able to take the defined contribution savings pot as cash Members have to be aged 55 or over and tax is paid at the member s marginal rate if it is more than 25% of the overall pot 46

47 Freedom and choice in pensions the impact for the LGPS Members of defined benefit pension schemes will continue to be able to transfer from their scheme to a defined contribution (DC) arrangement and could have the freedom to draw down the pension savings from the DC pot This does not include the unfunded public service pension schemes like the Teachers Pension Scheme It does include the LGPS The Pensions Schemes Bill is in Parliament. It is expected that safeguards will be introduced to protect the LGPS funds, employers and tax payers should there be a financial risk if significant cash amounts leave the Scheme 47

48 A Fair Deal for Staff Pensions There has been pension protection for staff compulsorily transferred to a new provider for some years the Fair Deal for Staff Pensions In local government and the LGPS, best value authorities have to secure pension protection for compulsorily transferred staff Best Value Authorities Pensions (Direction) 2007 Currently, the new provider needs to offer the LGPS or their own broadly comparable scheme Delivery of pension protection has now changed and the member can stay in their current public service pension scheme Treasury published their revised Code of Practise in October Pressure to implement in local government. 48

49 Implementing the pension protection in the LGPS The agreement reached between the LGA and Trades Unions was that the pension protections would be implemented through the Scheme rules - a key part of the 2014 Scheme reforms The Best Value Pensions (Direction) 2007 is still in operation but needs to be changed as it offers a choice the LGPS or a broadly comparable scheme A LGPS Fair Deal implementation group was set up to discuss the issues employers who bid for local government work such as the Business Services Authority, are part of the group. DCLG has been checking the legal aspects of introducing the policy through the Scheme regulations it is not straightforward DCLG is working on a consultation document for consideration by all interested parties 49

50 Do you have a question? 50

51 Administration Update Anne Cheffey Pensions Benefits Manager

52 Pensions Administration Strategy (PAS) Your Fund CMS workflow Training and support to employers 2014 scheme impact

53 Pensions Administration Strategy (PAS) Outlines policies and performance standards Provides a cost effective high quality administration service Joint working between stakeholders Positive benefit to Admin Authority and employers

54 Pensions Administration Strategy (PAS) Charges! We will start to issue charges for unsatisfactory performance E.g., 50 per working day for late submission of End of Year return Will be kept under review

55 Your Fund Employer Portal A new facility to assist employers with the administrative responsibilities On-line submission of forms, data and correspondence No cost to the employer Easy to use Secure transmission Nothing should ever get lost!

56 Your Fund Currently we have a few employers using the facility in full Eventually all employers must move to using Your Fund for administration of the LGPS All new employers will be given this facility with no choice of paper forms All employers MUST use Your Fund for the 2014/15 End of Year data transfer Please lgpsemployers@dorsetcc.gov.uk for more information and to book in your start up session

57 CMS workflow Enables us to evidence our side of the PAS Prioritises work by task nothing gets missed! Enables us to monitor work peaks and share work with other team members Increased efficiency direct link to Your Fund

58 CMS workflow for example; Key tasks have we met our SLA? Retirements 5 days Estimate - 15 days Death benefits 5 days We will be able to report each year

59 Training and support to employers PLOG meets 3 times a year Employer workshops employer responsibilities Add hoc training, i.e. discretions/end of Year Any further training/talks as requested

60 Training and support to employers Website specific employer section Dedicated teams who deal with specific employers Employer Liaison staff / Stephanie Clifton Vince Elliott lgpsemployers@dorsetcc.gov.uk

61 2014 scheme impact Active membership has stayed constant 31 March 2014 = October 2014 = Increased administration for AA and employers; e.g. Unpaid Leave and Additional Pension Contributions (APCs) Attribution process Average member contribution rate will be known at year end Heightened awareness of pensions due to communications and publicity

62 Future plans Continued improvement of our performance and efficiency Member Self Serve All employers using Your Fund Increased support and guidance to employers

63 Dorset County Pension Fund Annual Employers Forum 2 December 2014