Hymans Robertson LLP is authorised and regulated

by the Financial Conduct Authority

National issues

• Robert Bilton FFA

• 12 December 2018

Norfolk Pension Fund

2

Agenda

1. Cost cap valuation

2. Valuation cycle

3. The Pensions Regulator & the LGPS

4. Separation

33

Cost cap valuation

4

Cost cap – the origin

5

Cost cap – how it works

Additional member cost

Scheme

cost

Scheme

cost

Baseline

Scheme

cost

21.5% of pay

17.5% of pay

19.5% of pay:

Target cost

for scheme

employers

2% of pay “Buffer”

Future cost sharing valuation

No change in benefits –

employers absorb variation

Change in benefits to

recover full variation

Additional employer cost

6

How to “restore” the scheme cost?

1. Benefit changes

• Options include changing the accrual rate, revaluation rate, protection benefits etc.

2. Alter employee contribution rates

• Options include change the %age rate, pay bands etc.

• Change in net pay to members

7

Cost cap results

• Trigger change if cost +/- 2% of pay

• Excludes actual investment returns, changes in long

term financial assumptions (future salary, inflation)

• If breach, changes to benefits to reset cost to middle

of range

• Initial results suggest saving of c.3-4% of pay

• Breach caused by

• Lower assumed life expectancy increases

• Lower assumed short term pay increases

• Benefit improvement will be implemented

8

Cost cap valuations in the LGPS

2

• Trigger change if cost +/- 2% of pay

• Excludes actual investment returns, changes in

financial assumptions (future salary, inflation)

• If breach, changes to benefits to reset cost to middle

of range

• SAB benefit changes likely to be included

1

• Similar to above

• Includes uptake of 50/50

• Done before HMT

• Initial results show cost saving of 0.5% of pay

• Benefit improvements and contribution rate

changes likely to be implemented

99

Valuation cycle

10

Quadrennial valuations

• Brings LGPS funding valuations into line with public sector cost sharing valuations

• Four years too long for some LGPS employers? May need “interim” valuations

2016 Triennial

2020 Cost Cap Valn

2019 Triennial

2016 Cost Cap Valn

2022 “Interim”

2024 Quadrennial

2024 Cost Cap Valn

2026 “Interim”

2028 Cost Cap Valn

2028 Quadrennial

1111

The Pensions Regulator & the LGPS

12

tPR just one part of governance

Norfolk Pension

Fund

CIPFAKnowledge

& Skills Framework

The Pensions Regulator

MiFiD IILocal

Pension Board

SAB & MHCLG

12

13

The Pensions Regulator’s Code of Practice

Governing your scheme

• Knowledge and understanding required by pension board members

• Conflicts of interest

• Information to be published about schemes

Managing risks

• Internal controls

Administration

• Scheme record keeping

• Maintaining contributions

• Information to be provided to members

Resolving issues

• Internal dispute resolution

• Reporting breaches of the law

14

Scheme employer engagement is key

• Clearly set out responsibilities to employers

• Escalate non-compliance with responsibilities to senior management within employers

• Utilise the ability to impose charges

• Report individual employers where their breach of statutory responsibilities causes the Administering Authority to breach their statutory responsibilities

Pension Regulator is looking for Administering Authority to:

15

The Regulator’s “teeth”

Section 3.3 Enforcement

“We expect scheme managers, assisted by pension boards as appropriate, to:

• identify and understand the root causes of an issue which is resulting in poor standards of governance and administration and non-compliance with legal requirements

• develop an improvement plan which will address the root causes of that issue within a reasonable time period, and

• demonstrate implementation of their plan.”

16

tPR – Their ‘new’ message

Clearer Quicker Tougher

17

The Regulator’s 21st Century Trusteeship campaign

• After a period of consultation, the Pensions Regulator (TPR) launched its campaign on 18 September 2017 with the aim of driving up standards of governance

• tPR is committed to being clearer on standards of governance expected and will be more directive going forward

• Whilst there is no new regulation proposed at this stage, tPR will take a stronger line against schemes failing on good governance

• Only applies to private sector schemes at the moment…

1818

Separation

19

Current LGPS governance structure

Local AuthorityAdministering Authority

Pension Committee s.101 responsibility under Local

Government Act 1972Local Pension BoardPublic Service Pensions Act 2013

responsibility

Delegated Function

S 151 OfficerS151 responsibility under Local

Government Act 1972Delegated Function

Delegated Function

Other OfficersMay have responsibilities under

Local Government Act 1972

EmployersScheme

membersTaxpayers

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Why are we talking about separation?

Aligned interests

Optimises delivery of objectives

Ensures capability and capacity

Provides robust risk management

Transparent and accountable

The challenge

S151 officer wearing 2 hats

Corporate perspective predominates

over other employers or scheme

members

Strategies that suit the host

authority

Fund tied to corporate recruitment

policy

Host authority objectives prioritised

21

The range of options

Status Quo

plus

Ring fence

LGPS

functions

Joint

Committees

Total

separation

Less separation More separation

2222

Thank you

23

The material and charts included herewith are provided as background information for

illustration purposes only. It is not a definitive analysis of the subjects covered, nor is it specific

to circumstances of any person, scheme or organisation. It is not advice and should not be

relied upon. It should not be released or otherwise disclosed to any third party without our

prior consent. Hymans Robertson LLP accepts no liability for errors or omissions or reliance

upon any statement or opinion.