To receive a presentation on the Surrey County Council Pension Scheme from Phil Triggs, followed by a question and answer session.
Minutes:
Phil Triggs, Surrey Pension Fund at Surrey County Council, gave a presentation for Members of the Actuarial Valuation of the fund which would be revalued in 2016.
The LGPS Deficit in 2013 stood at £47bn but with the inclusion of CPI +3% this reduced to £27bn. The options for reducing this deficit included increased contributions, improved investment returns and strategic management of liabilities.
The revaluation in March 2016 would take into account 5 key assumptions:
1. Discount Rate
· Reflects how the value of money decreases over time.
· Based on the CPI base rate (which had stood at 0.5% for 81 consecutive months) plus 3%.
· The higher the discount rate, the lower the valuation of the scheme’s liabilities.
2. Longevity
· Increased life expectancy meant that pensions would be drawn for longer.
· A single year added to life expectancy resulted in a 3% reduction in funding level.
3. Inflation
· Index linking of pensions to inflation would be unlikely to help reduce the pension fund liability in the current environment of -0.1% inflation.
4. Earnings/salary growth
5. Investment Strategy
In reaching the valuation, two calculations would be made. A valuation conducted by the pension fund Actuary and another based on the standardised assumptions specified by the Scheme Advisory Board. These would then be compared to create a final valuation. The 2013 calculation carried out by the Actuary of the Surrey fund came out at 72.3%, more pessimistic then the 79.3% figure coming from a valuation based on the standardised CPI+3% discount rate. It was commented that this reflected the prudence of the Surrey fund.
Other factors impacting the fund included the quality of data used in calculations; the stability and affordability of contributions; monetary based deficit payments; early retirement, ill health, significant salary increases and employer risk.
On closing the presentation, Members were invited to ask questions. Key concerns included the Chancellor`s (RH George Osbourne MP) plans to reduce the number of LGPS schemes by requiring them to merge leaving between 5 and 10 schemes nationally holding around £30bn each.
Phil Triggs explained that the Surrey scheme had already begun scoping possible mergers to pool assets and had held preliminary conversations with both the Cumbria and East Riding LGPS schemes. These had similar good governance arrangements and were seen as suitable potential partners. A further 9 funds had been approached.
Councillor Denise Le-Gal, speaking as the Chairman of the Surrey County Council Pension Fund Committee, also explained that these early discussions reflected a desire on Surrey’s part to determine their own destiny. The Chancellor had stated that schemes that failed to pool resources could be forced to do so via back ended legislation. A combined Surrey/Cumbria/East Riding scheme would be valued at around £25bn.
Members also asked about the ability of the scheme to be pro-active in managing future strains on the fund. Phil Triggs replied that the adaption of investment strategies, together with the smoothing out of contributions to allow for peaks and troughs in conditions were key to cushioning the fund from such strains.
It was agreed that a graph would be sent to members of the Committee sharing Surrey’s current position.