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Suffolk County Council Pension Fund

Suffolk County Council Pension Fund. Employer Forum. Jamie Clark 25 July 2012. Today’s discussion. Funding update Where are we now? Look ahead to 2013 valuation LGPS reforms New scheme design Financial impact of reforms LGPS participation Opt-outs Auto-enrolment. Funding update.

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Suffolk County Council Pension Fund

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  1. Suffolk County Council Pension Fund Employer Forum Jamie Clark 25 July 2012

  2. Today’s discussion • Funding update • Where are we now? • Look ahead to 2013 valuation • LGPS reforms • New scheme design • Financial impact of reforms • LGPS participation • Opt-outs • Auto-enrolment

  3. Funding update

  4. Actuarial valuation • Funding position • Liabilities • Assets • Funding level (100% = “fully funded”) • Contribution rate • Future Service Rate (benefits earned in future) • Deficit contribution (benefits earned in past) Formal valuation every 3 years – next one due 2013

  5. 2010 valuation position This is whole fund – individual employer positions vary

  6. Key factors that influence the valuation • Market conditions • Life expectancy • Contributions in / benefits out • Salary increases • Membership profile • Changes to the scheme Full picture will emerge at 2013 valuation

  7. Market movements since 2010

  8. Effect of market movements since 2010 Expected Actual Expected Actual Assets Liabilities Adverse markets = a double whammy for the Fund

  9. Funding level (whole fund) 82% 71% (£306m) Funding Level (£668m) March 2010 June 2012

  10. Outlook for 2013 Compared to 2010 valuation: • Funding levels likely to be lower • Deficits likely to be bigger • (Theoretical) contribution rates likely to be higher • Results will vary between employers Today’s update an estimate….full picture in 2013

  11. What’s in the mix for 2013 valuation? Life expectancy Contribution stability Membership changes Diverse employers Pay restraints Stretched assumptions Pension reform Budget cuts Suffolk 2013 valuation

  12. LGPS reform

  13. Hutton’s main recommendations • Keep “Defined Benefits” • Protect accrued rights • New CARE scheme for future accrual • Revalue in line with earnings • Link NRA to SPA • Fixed cost ceiling Government set “reference scheme”

  14. New LGPS from 2014 • Accrued rights protected (NRA, Rule of 85, final salary link) • Protection for members within 10yrs of NRA at 1 April 2012 • New “50/50” option to bolster LGPS participation

  15. Financial impact on LGPS employers Taken in isolation... • No impact on existing deficits (past service) • Accrued rights to 2014 are protected • Modest savings on new benefits (future service) • c1.5%-2% of pay across whole fund • Savings will vary by employer: • Depends on membership profile • Changes to member contributions • Take up of “50/50” option BUT cannot take in isolation!

  16. Impact on members • No change to accrued rights • Protection for members within 10yrs of NRA at 1 April 2012 • All pension taken at same retirement age • CARE more/less favourable to certain members • Higher accrual rate (1/49th) / lower revaluation rate • Bakes in more guarantee • Favours those closer to retirement • Better in some economic circumstances There will be winners and losers

  17. What still lies ahead... • Consultation on new scheme • New scheme details to be thrashed out: • Cost management mechanism (cap and collar) • Hutton governance recommendations • Implementation / administration • Communication with members .....all within a very challenging timescale!

  18. LGPS participation

  19. Potential impact of LGPS opt-outs • Issues for any member opting out: • Less security, greater State dependency • Lose employer contributions and other benefits • Issues for the pension fund: • Possible threat to sustainability in long term • Possible cashflow / investment issues in short term • What will help reduce LGPS opt-outs? • New scheme “50/50” option • Communication: members understanding value of their pensions

  20. Auto-enrolment – what is it? • Encouraging greater pension provision • Auto-enrol members into a “qualifying scheme” • LGPS is a qualifying scheme • Minimum contribution levels • Various key “staging dates” • Policeman is The Pensions Regulator Responsibility lies with employers

  21. Auto-Enrolment (simplified!) New starts Existing A/E Suffolk LGPS A/E Opt-outs

  22. Implementing Auto-Enrolment Eligible jobholders Staging dates Monitoring Communications Contributions HR/Payroll Penalties Early planning essential!

  23. Summary • Funding update • Likely outlook - higher deficits and contribution rates.... • ....but won’t know full picture until 2013 valuation • LGPS reform • New scheme from 2014 • No impact on current deficits • Unlikely to mean lower contribution rates at 2013 • LGPS participation • Opt-outs in no-one’s interests • Auto-enrolment on the horizon – employer responsible • Early planning for A/E is vital

  24. Thank you Any questions?

  25. Appendix

  26. How CARE works For example, Tom earns £20,000, so his pension in year 1 is worked out as: £20,000 x 1/49th = £408 Maintaining your pension’s value Revalued by 4% each year The £408 that Tom earns in year 1 is revalued at the end of the next year. So at the end of year 2, this part of Tom's pension is £408 x 1.04 = £424. The pension continues to be revalued until you retire Year 1 retirement pension Tom's pension for year 1 is £860 after 20 years' service.

  27. Your pension at retirement Adding your other years’ pension pots. You receive a new pension ‘pot’ for each year you are a member Add up the pension you earned each year (after it has been revalued) to find your total pension Annual pension at retirement If Tom has a 4% salary rise each year, by adding all of the other years' pension pots together, he could expect a pension of £17,200 a year after 20 years' service.

  28. Valuation timetable • Early 2013: • Pre-valuation meetings to discuss valuation process • Summer 2013: • All data requirements provided to actuary • Data validated and declared “fit for purpose” • Autumn 2013: • Initial valuation results – whole fund • Meetings to agree final valuation assumptions • Final valuation results – individual employers • Winter 2013: • Agreement on final contribution rates for employers • By 31 March 2014: • Final valuation report (including Rates & Adjustments certificate)

  29. AE: categorising workers Qualifying Earnings Age 75 Opt-in to a scheme (LGPS) Entitled workers Non-eligible job holders Non-eligible job holders Opt-in to Qualifying Scheme (LGPS) SPA Eligible job holders Auto-enrol to Qualifying Scheme (LGPS) 22 Non-eligible job holders 16 Earnings £42,475 Upper earnings threshold £5,564 Lower earnings threshold £8,105 Earnings trigger

  30. BIG money penalties for non compliance Fixed penalty notice of £400 Prohibitive recruitment notice Based on number of workers – but in total no more than £50,000 Escalating penalty notice £50 to £2.500 per day for less than 250 workers £5,000 per day for 250 plus workers £10,000 per day for 500 or more workers

  31. New public sector scheme designs Uniformity sacrificed *Except LGPS

  32. Will these reforms last 25 years*? Possible spanners in the works... • Taxpayer savings don’t materialise • SPA not keeping up with life expectancy • Cost management (caps/collars etc) ineffective • Envy (continuing decline in private sector pensions) • Economy underperforming over long term • Politics (either lack of will or too much interference) * Rt Hon Danny Alexander MP, November 2011

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