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PENSIONS FORUM 23 FEB 2010

PENSIONS FORUM 23 FEB 2010. EQUITY MARKETS. FUND VALUE. How extreme are current conditions?. Median. 1 in 20 chance. 1 in 100 chance. Funding levels within range modelled. Source: Hymans Robertson comPASS system. VALUATION 2010. Long Term Longevity Assets Liabilities

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PENSIONS FORUM 23 FEB 2010

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  1. PENSIONS FORUM 23 FEB 2010

  2. EQUITY MARKETS

  3. FUND VALUE

  4. How extreme are current conditions? Median 1 in 20 chance 1 in 100 chance Funding levels within range modelled Source: Hymans Robertson comPASS system

  5. VALUATION 2010 Long Term Longevity Assets Liabilities Different Employing Bodies

  6. Profile of emerging expenditure Funded schemes like LGPS have investment income too Source: sample LGPS Fund; new entrants for 50 years

  7. Contributions alone cover benefit payments for 12 years or more but picture different for individual employers

  8. Two years of improvement per decade Period expectations of life derived from calculated crude mortality rates. Source: Club VITA LLP, part of the Hymans Robertson group

  9. Vita’s lifestyle effect (postcode based) High life expectancy Mid life expectancy Low life expectancy PH1 2AF PH1 2AE Source: Club Vita research based on VitaBank as at 2 October 2008

  10. Vita’s lifestyle effect (postcode based) High life expectancy Mid life expectancy Low life expectancy PH1 2AF PH1 2AE Source: Club Vita research based on VitaBank as at 2 October 2008

  11. What has changed since 2007 Negatives Investment experience since 2007 Government bond yields lower (inflation linked) Higher inflation expected over the long term Expectation of future improvements in life expectancy Positives Pay increases may be lower than assumed? Cost sharing or “cap and share”??

  12. Funding level (solvency) since last valuation Assets Liabilities Funding Level

  13. Progress of employer contribution rate since 31 March 2007 13 13 13

  14. VALUATION 2010 6 year Stabilisation for strong covenant remains in place Doesn’t cover Contractors, HA’s other smaller bodies

  15. Other employers including contractors and CABS Possible Options; Seek stronger backing - guarantee - additional security Current Contracts difficult - Actuary willing to assess risk New Contracts may need to limit risk e.g. pass back

  16. CLG financing plan for 2010 valuations Staffordshire Pension Fund has been doing all of this since 2007 • Achieve stability for long term, secure employers • Test contribution strategy meets long-term funding objective • Generate cashflows for future benefit expenditure • Risk assessment

  17. VALUATION 2010 Large funding deficit Longevity – Club Vita Potential LARGE increase in contribution rates for contractors, CAB’s etc. 6 year stabilisation deal OK but reviewed going forward All – relies on accurate data

  18. FUND CHANGES Tenders out for; Actuary Investment Consultant Performance Measurer

  19. FUND CHANGES Move balance from UK to overseas (now 40:60) Move from Regional to Global managers Move bond mandate to Corporate bond only – passive gilts exposure

  20. FUND CHANGES 5 new global managers Aberdeen Bankinvest J P Morgan Longview Sarasin

  21. FUND ALLOCATION Target Actual Equity 74% 74.5% Bonds 13% 12.9% Property 10% 6.5% Hedge 2% 2.3% Cash 1% 4.0%

  22. REGULATIONS UPDATE Management of cash – separate bank account Explicit power to borrow Policy on stock lending Compliance with Myners – Gov guidance? Further consideration to prudential approach ‘in due course’

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