1 Hampshire Pension Fund Annual Employers Meeting 30 October 2013 10:00 am

1

Hampshire Pension FundAnnual Employers Meeting

30 October 201310:00 am

2

Fire Alarms• Should fire alarms sound, please

make your way back to the Main Entrance and exit onto Sussex Street

• Turn left and walk to the end of Sussex Street, cross the road and go past the white barrier to the Assembly Point, which is outside the Great Hall on Castle Avenue

3

Hampshire Pension FundAnnual Employers Meeting

30 October 2013

Welcome

Councillor Mark Kemp-Gee

Chairman, Pension Fund Panel

4

Today’s programme10:00 Chairman of the Pension Fund Panel – Cllr Mark

Kemp-Gee

10:10 Annual Report for 2012/13 – Carolyn Williamson

10:20 Pensions Administration update – Nick Weaver10:30 Accounts for 2012/13 and Fund Performance –

Ian Howell10:40 Economic and market outlook – Carolan Dobson

10:50 Coffee break

11:05 Update from the Fund Actuary – Tim Lunn

12:25 General question and answer session12:45 Close

5

Hampshire Pension Fund

Annual Report for 2012/13

Carolyn Williamson Director of Corporate Resources

6

Annual report for 2012/13Copies now availablePart of the Pension Fund’s communication strategy with Fund employers, alongside: this Annual Employers Meeting the Employer’s Guide employer training and liaison meetings the website at www.hants.gov.uk/pensionsWe would like your comments please on the Annual Report and this Annual Meeting

7

Annual report for 2012/13 Contents

LGPS 2014 – from April 2014Investment returns in 2012/13Accounts for 2012/13Statutory statements - revised and updatedDoes the Annual Report meet your needs?

8

Pension Fund Panel

9 county councillors1 representative of Portsmouth City Council 1 representative of Southampton City Council2 representative of the Hampshire district councils1 representative of pensioners1 representative of contributorsPlus an independent adviser, without voting rights

9

Pension Fund PanelCounty councillors: Mark Kemp-Gee (Chairman) Christopher Carter Criss Connor Andrew Gibson Andrew Joy Peter Latham Tim Rolt Bruce Tennant Tom Thacker

City councils’ representatives:

Gerald Vernon-Jackson (Portsmouth)

Stephen Barnes-Andrews (Southampton)

District councils’ representative:

Peter Giddings (Test Valley) John Leek (Basingstoke &

Deane)Pensioners’ representative: Cliff AllenContributors’ representative:

Phillip Reynolds

Independent adviser (non-voting): Carolan Dobson

10

At 31 March 2013 3.9% more pensioners, and 1.5% more contributors

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Contributors Deferreds Pensioners at 31 March

11

Hampshire County Council21,279 46%

Southampton City Council4,151 9%

Portsmouth City Council4,793 10%

District Councils4,334 10%

Hampshire Police2,374 5%

Other organisations9,388 20%

Total 46,319

Number of contributors by employer31 March 2013

12

Number of contributors by employer

31 March 2012

31 March 2013

Change

%

Change since 31 March 2010

%

Hampshire County Council 20,911 21,279 +1.8% -7.0%

Southampton City Council 4,339 4,151 -4.3% -26.0%Portsmouth City Council 4,734 4,793 +1.2% -3.2%District councils 4,214 4,334 +2.8% -4.7%Hampshire Police Authority 2,203 2,374 +7.8% -9.6%

Other organisations 9,232 9,388 +1.7% +11.9%Total 45,633 46,319 +1.5% -5.5%

13

Key issues in the last 12 months working towards the introduction of

LGPS 2014, from 1 April 2014 the actuarial valuation at 31 March

2013 the tactical asset allocation portfolio,

introduced in September 2012 re-tendering the Pension Fund’s global

custody contract, with the appointment of JP Morgan from 1 August 2013

for employers: auto enrolment

14

Challenges ahead . . . LGPS 2014 and its

implementation the outcome of the actuarial

valuation at 31 March 2013 reviewing the investment

strategy changing business and

employment structures for employers

the investment climate structural reform – Government

review

15

Any questions?Any questions?

Annual report for 2012/13

16


Fund Administration updateNick Weaver

Head of Pensions Services

17

The Fundamentals ….page 17

18

The Past Year ….• Integrated Payroll• Valuation Data• The Cyprus problem• Tax rule change and

ABS’ • Software National

Framework

19

Next Year• 2014 Scheme

– Presentations / workshops– Newsletters / website / email

updates– Employer Focus Group

• New system – Benefits– Impact on Employers

20

Further demands on Employers• Already got challenge of Auto Enrolment

• Now more demand from the LGPS:– 2 x Pensionable Pay figures– Opt out risk (due to rise in contribution rates)– 50:50 option– CARE data accuracy

• The result is more pressure on your HR / Payroll teams

21

The 2014 Scheme is a big, demanding burden !

22

Our aim is to support you …

23

We are here to help !

24

For more information …Please see:

– Website www.hants.gov.uk/pensions – Pensions Matters

Or contact us on:– 01962 845588– [email protected]

25


Fund Administration update

26


Accounts for 2012/13 and Fund Performance

Ian Howell Investment and Borrowing

27

Accounts 2012/13Headlines

£m %Value of Fund 4,3

41+14.

9%

Total income 319 -8.3%Total expenditure

230 +2.9%

Surplus reinvested

89 -28.3

%

28

Income 2012/13£m %

Contributions - employers 16

4-5.8%

- employees 53 -3.2%Incoming transfers

14 -55.0

%Investment income

88 +0.4%

Total 319

-8.3%

29

Expenditure 2012/13£m %

Pensions and other benefits

159 +9.8%

Lump sums 39 -32.2%

Outgoing transfers 20 +101.1%

218 +2.9%Investment management exps

9 +2.7%

Administrative expenses

3 +5.7%

Total 230 +2.9%

30

Income and expenditure 2012/13

-225

-175

-125

-75

-25

25

75

125

175

225

275

Contributions£231m

Investment income£88m

Benefits £218m

Investmentexpenses £9m

Administrativeexpenses £3m

£m

31

Total value of the Pension Fund from 2008 to 2013 At 31 March

Value

£m

Change

%

Surplus

£m2008 2,94

8+1.0

%127

2009 2,396

-18.7%

136

2010 3,238

+35.1%

124

2011 3,558

+9.9%

124

2012 3,777

+6.1%

124

2013 4,341

+14.9%

89

32

Hampshire Pension Fund now £4,308m

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

£m

to 30 September 2013

33

Investment performancein 2012/13

34

The Fund’s investment managers

Global equitiesUK equitiesGlobal bondsUK index linked bondsAlternative investmentsPropertyTactical asset allocation

35

Investment Managers 31 March 2013Total Fund £4,341m

CBRE (UK property) £271mAberdeen (European property) £49m

Alternative investments £310m

Cash £63m

Aberdeen (global equities) £646m

Tactical asset allocation £702m

Newton (global equities) £564m

Schroders (UK equities) £642m

Western (global bonds) £200m

Legal & General (UK index linked bonds) £491m

State Street (UK index linked bonds) £395m

Aberdeen (frontier markets) £8m

36

Asset Allocation by Portfolio 31 March 2013Total Fund £4,341m

Property £320m (7%)

Alternative investments £310m (7%)

Cash £63m (1%)

Global equities £1,218m (28%)

UK equities £642m (15%)

Global bonds £200m (5%)

UK index linked bonds £886m (21%) Tactical asset allocation £702m (16%)

37

1.4%

5.3%

7.6%11.7%

14.4%16.8%

17.5%

18.0%

19.3%

20.0%

0% 5% 10% 15% 20%

Pacific Basin equitiesNorth American equities

European equitiesGlobal equities

UK equitiesJapanese equities

UK Index Linked bondsEmerging Markets equities

Global bondsUK property

Market returns in 2012/13

38

Total investment returns for the Fund12 months to 31 March 2013

15.0%

13.5%

15.1%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Total Fund return

Weighted benchmark indices

Weighted benchmarks plus targets

39

Total investment returns for the Fund3 years to 31 March 2013

8.3%

5.1%

15.0%

30.8%

9.4%

0% 4% 8% 12% 16% 20% 24% 28% 32% 36%

Year to 31 March 2011



3 years - cumulative

3 years - per annum

40

Total investment returns for the Fund3 years to 31 March 2013

9.4%

9.1%

11.1%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Total Fund return

Weighted benchmark indices

Weighted benchmarks plus targets

41


Accounts and performance

42


Economic and market outlook

Carolan Dobson Independent Adviser and Trustee Services

iAts

Investment Adviser and Trustee Services iAts

Economic and market outlook October 2013

43


Themes from last year

• Central bank intervention • Draghi’s do all it takes speech• High budget deficits• Glimmers of hope; leading indicators

US house prices

44


Source FT.

45


46


47


48


49


50


51


Global Economic ForecastsReal GDP % ch yoy 2013 2014 2015 2016

USA 1.6 2.9 3.2 3.0Euro area -0.4 0.9 1.2 1.5Japan 1.9 1.8 1.4 1.5BRICS 5.8 6.2 6.8 6.9

Source: Goldman Sachs

52


53


54


55


56


Looking forward to the future

• Economic growth picking up across world but at a steady rather than exciting rate

• Uncertainty caused by difficulties in agreeing US budget

• QE will be reduced and eliminated sometime• Risk is not getting much pricing premium• Don’t be greedy moment

57

58


Economic and market outlookCarolan Dobson

59

Annual Employers Meeting

Coffee break

60


Annual Employers Meeting

30 October 2013

Prepared by Tim Lunn FIAPublic Sector Consulting

Hampshire County Council Pension FundAnnual Employers’ Meeting

The 2013 actuarial valuation

30 October 2013Tim Lunn FIA

Public Sector ConsultingProprietary & Confidential | 26 October 2012 62

Agenda

A bit about actuarial valuations Review of experience - what’s happened

Setting assumptions for the future – projection factors

Setting assumptions for the future – demographic factors

Setting assumptions for the future – discount rate

Results


A bit about actuarial valuations


What’s it all about?

Sensible check on pace of fundingRegulatory requirement

Assets

Liabilities


Regulations – solvency versus smoothness

36.—(1) Each administering authority must obtain—(a) an actuarial valuation of the assets and liabilities of each of its

pension funds …….., and(c) a rates and adjustments certificate prepared by an actuary.(4) A rates and adjustments certificate is a certificate specifying—(a) the common rate of employer’s contribution; and(b) any individual adjustments, ……..(5) The common rate of employer’s contribution is the amount which, in

the actuary’s opinion, should be paid to the fund by all bodies whose employees contribute to it so as to secure its solvency, expressed as a percentage of the pay of their employees who are active members.

(6) The actuary must have regard to— ……..(b) the desirability of maintaining as nearly constant a common rate as

possible; ………


Calculations

LiabilitiesSum, for each potential payment, of

Benefit amount x Probability x Projection factor x Discount factor (Data) (Demographic) (Financial) (Financial)

AssetsSum, for each receipt, of

Income amount x Probability x Projection factor x Discount factor (eg Dividend) (roughly 1 ?) (eg Div Growth) (As per liabilities)

Pay, service, benefit structure

Withdrawal, death,Ill health, retirement

Pay increases,Pension increases

Investmentreturn


Past service position – 2010 valuation

Based on 2010 actuarial valuation report £M

Liabilities Pensioners 1,727Deferreds 711Actives 2,055

4,494Assets (Market value) 3,238

Surplus/(Deficiency) (1,256)

Funding ratio 72%


Past service/Future service

Join Valuation Retire

Past Service Future Service

Benefits earned

Assets

Cost as % pay


A bit of background to assumption settingComplete balance sheet – 2010 valuation

Future service position % of payCost of future service 19.4%

Members’ contributions (6.5%)

Administration expenses 0.3%

Future service employer cost 13.2%

Past service position 2010Value of liabilities £4,494M

Market value of assets £3,238M

Surplus/(deficiency) (£1,256M)Funding ratio 72%

Cost of surplus/deficiency % of pay

Recovery contributions (25 year recovery period)

6.5 %

Total employer rate 19.7%

Assumptions

Assumptions

RecoverySolvency


Altering the level of risk in the valuationSOLVENCY

Smoothing adjustments

Different funding target (e.g. 75%)

Difficult to assess impact on risk

RECOVERY

Recovery period

Stepping pattern

Difficult to assess impact on risk

ASSUMPTIONS (FUNDING TARGET)

Most easily measured and adjusted assumption

Discount rate (i.e. expected investment return on the Fund’s assets)

Other assumptions that could be varied, but are not so easily justified or measured

Pay increases Mortality Commutation

Pension increases Turnover rates

Solvency

RecoveryAssumptions


Risk versus Cost - smoothness

Valuation result depends on:Matters of fact

Promises madeObserved experience since last valuation

Assumptions – the more optimistic, the more riskyProjection FactorsProbabilitiesDiscount Rate

Risk

Cost


Valuation process

Obtain data– Membership data– Accounts, assets– Employer information

Review experience– This will have already affected the valuation outcome

Set new assumptions– This will further affect the valuation outcome, impact can be large– Need to balance risk/cost

Carry out calculations If appropriate, rebalance risk and cost

– Is the overall level of risk acceptable?– Are inter-employer risks acceptable?– Are costs manageable?

Finalise calculations and report


Review of Experience - what’s happened


Membership data

2010 2013Actives

Number 49,336 47,178Payroll (£m) (yr to 31/3) 877 809SB Group (yr to 31/3) 847 781AB Group (yr to 31/3) 17.8 16.5

DeferredsNumber 39,864 50,184Deferred pension (£m) 48 63

Pensioners and DependantsNumber 28,933 33,102Pension (£m) 127 166


Key elements of experience

Actual Assumed

Fund investment return +30.8% +21.8%

Pension increases +10.8% +10.2%

Inflationary Pay growth (approx) + 4.6% +16.8%

Payroll progression - 8.0% + 16.8%

Market yields (pa) -1.3% nil

Emerging analysis of RPI/CPI Gap pa >1.0% 0.5%


New benefit structure

PAST SERVICE Pre 2008

– Final salary - 1/80 + 3/80 lump sum– NRA generally Rule of 85 Age

Post 2008– Final salary - 1/60 (with commutation option)– NRA generally age 65 with protections

FUTURE SERVICE Post 2014

– CARE - 1/49 with CPI revaluation– NRA generally SPA with further protections


Setting assumptions for the futureProjection factors


CPI linked pension increases

At the last valuation we assumed that CPI linked increases would be: ‘Break even’ inflation less 0.5% pa Which was

– 3.8% - 0.5% = 3.3% pa

At this valuation we are assuming: ‘Break even’ inflation less 1.2% pa Which was

– 3.6% - 1.2% = 2.4% pa

Why?


RPI vs CPI

-4%

-3%

-2%

-1%

0%

1%

2%

3%

1999 2001 2003 2005 2007 2009 2011

Difference due to formula effect

Increase in RPI less increase in CPI

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

1999 2001 2003 2005 2007 2009 2011

Annual increase in RPI

Annual increase in CPI

Average difference over the periodexcluding the formula effect

New assumed differentialCPI inflation = RPI inflation- 0.3% pa Inflation Risk Premium- 0.7% pa Formula Effect- 0.2% pa Constituent Effect= RPI – 1.2% pa

Formula effect

Constituent effect

Inflation risk premium


RPI versus CPI

Analysis by the OBR

In December 2011, the Office for Budget Responsibility (OBR) produced a long-term estimate for the difference between RPI and CPI of 1.4% p.a.

This is higher than our best estimate for this differential because:

• The OBR’s analysis starts from the position of the economy being in balance rather than its actual current position.

• Our best estimate reflects the market consensus for future levels of RPI and CPI. In turn, the market consensus takes account of the OBR’s estimate together with all other views.


Pay Increases

At the last valuation we assumed that inflationary pay increases would be: ‘Break even’ inflation plus 1.5% pa Which was

– 3.8% - 1.5% = 5.3% pa

At this valuation we are assuming: CPI increases plus 1.5% pa Which was

– 2.4% + 1.5% = 3.9% pa

Why?


Total observed increases

Black line shows rough split between ‘promotional’ and ‘inflationary’ progressionBlue line shows promotional progression assumed at the 2010 valuation

Experience analysis for the period 2010 to 2013

0%

1%

2%

3%

4%

5%

6%

7%

22 to23

24 to25

26 to27

28 to29

30 to31

32 to33

34 to35

36 to37

42 to43

44 to45

46 to47

48 to49

50 to51

52 to53

54 to55

56 to57

58 to59

60 to61

62 to63

64 to65

Age

Pay

incr

ease

p.a

.

Male pay increase, actual

Female pay increase, actual

Average general salary increases awarded over 2010 to 2013 (assumed p.a.)

Pay increase, expected


Proposals for pay increases

Two key changes in relation to the ‘inflationary element’ Shorter term assumption

– CARE scheme means final salary benefits will phase out– Take account of timing of any catch up vs private sector?– Assuming a delay in catch up could lead to a lower assumption

Of much reduced importance– CARE scheme means it only really affects past service and– Potentially, value of future recovery contributions

Are expectations more CPI linked these days?ProposalPropose to change assumption from RPI + 1.5% pa to CPI + 1.5% pa = 3.9% paAnticipates short term suppression in pay increases followed by some catch upNo change to ‘promotional’ assumptions


Setting assumptions for the futureDemographic factors


Base mortality rate – scaling adjustments – post retirementPropose small adjustment to female normal health retirementsMales Females


0%

5%

10%

15%

20%

50 to 54 55 to 59 60 to 64 65 to 69 70 to 74 75 to 79 80 to 84 85 to 89 90 to 94Age

Dec

rem

ent r

ate

(dea

ths)

- w

eigh

ted

by a

mou

nts

Actual male deaths (weighted by amount)

Expected male deaths, A/E 101.4%

Scaling of test table Scaling of test table

Normal health


0%

5%

10%

15%

20%


Dec

rem

ent r

ate

(dea

ths)

- w

eigh

ted

by a

mou

nts

Actual female deaths (weighted by amount)

Expected female deaths, A/E 92.1%

Proposed female mortality table, A/E 97.0%

Scaling of test table Scaling of test table

Normal health


0%

5%

10%

15%

20%


Decr

emen

t rat

e (d

eath

s) -

wei

ghte

d by

am

ount

s

Actual male deaths (weighted by amount)

Expected male ill health death rates, A/E 118.0%

Ill health


0%

5%

10%

15%

20%


Dec

rem

ent r

ate

(dea

ths)

- w

eigh

ted

by a

mou

nts

Actual female deaths (weighted by amount)

Expected female ill health death rates, A/E 151.3%

Ill health


Mortality improvement ratesPropose increasing long term rate from 1.25% pa to 1.5% pa

Deaths by cause over time for England & Wales population

0

1,000

2,000

3,000

4,000

5,000

1920 1930 1940 1950 1960 1970 1980 1990 2000

Year

Rat

e pe

r mill

ion

Circulatory (heart / stroke) Cancers Respiratory Infections

Chart 2: Deaths by cause over time for England & Wales population

Chart 1: Life expectancy at age 60 (UK population)

12141618202224

1900 1920 1940 1960 1980 2000

Males Females

* The thick lines are smoothed whereas the tagged lines are the actual unsmoothed life expectancies

Deaths by cause over time for England & Wales population

0

1,000

2,000

3,000

4,000

5,000

1920 1930 1940 1950 1960 1970 1980 1990 2000

Year

Rat

e pe

r mill

ion

Circulatory (heart / stroke) Cancers Respiratory Infections

Chart 2: Deaths by cause over time for England & Wales population

Chart 1: Life expectancy at age 60 (UK population)

12141618202224

1900 1920 1940 1960 1980 2000

Males Females

12141618202224

1900 1920 1940 1960 1980 2000

Males Females

* The thick lines are smoothed whereas the tagged lines are the actual unsmoothed life expectancies

−2%

−1%

Nil

+1%

+2%

+3%

+4%

+5%

+6%

1970 1975 1980 1985 1990 1995 2000 2005 2010

Year

Annu

al im

prov

emen

t rat

e

Chart 1: Male mortality improvement England & Wales

−2%

−1%

Nil

+1%

+2%

+3%

+4%

+5%

+6%

1970 1975 1980 1985 1990 1995 2000 2005 2010

Year

Annu

al im

prov

emen

t rat

e

Chart 2: Female mortality improvement England & Wales


Why focus on the female rate?One reason male mortality has recently improved faster than female mortality is because the difference between them is reverting to its historical norm. From 1940s to the 1960s, male mortality became relatively worse than female mortality. However, since the 1960s, male has been catching back up with female mortality.Chart shows the different between male and female mortality rates over time (horizontal axis) and age (vertical axis). The differential increases the ‘hotter’ the colour.

Difference in male v female absolute log(mortality)England & Wales (Δ=5)

≤ Nil

+10.0%

+20.0%

+30.0%

+40.0%

+50.0%

+60.0%

+70.0%

+80.0%

+90.0%

≥ +100.0%

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Year

40

50

60

70

80

90

Age

Chart 1: Male v female mortality rates for England & Wales populationDifference in male v female absolute log(mortality)England & Wales (Δ=5)

≤ Nil

+10.0%

+20.0%

+30.0%

+40.0%

+50.0%

+60.0%

+70.0%

+80.0%

+90.0%

≥ +100.0%

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Year

40

50

60

70

80

90

Age

Chart 1: Male v female mortality rates for England & Wales population


Mortality – scalar adjustments – post retirement

Sex and type of

retirement

SAPS standard mortality table

Scaling factor

Future improvements

Life expectancycurrent age

65 45

2013Men (NH) Normal health

Light

100% CMI projections1.5% p.a. long term rate

89.3 91.4

Women (NH) 95% 91.0 93.3

Men (IH) Ill healthAll pension amounts

80% CMI projections1.5% p.a. long term rate

86.9 89.5

Women (IH) 80% 90.6 93.3

2010Men (NH)

Normal healthLight

100%CMI projections

1.25% p.a. long term rate

89.0 90.7

Women (NH) 100% 90.0 91.9

Men (IH)Ill health

All pension amounts

80%CMI projections

1.25% p.a. long term rate

86.5 88.6

Women (IH) 80% 89.8 92.1


Demographic assumptions

Post Retirement Mortality

Base rates Small reduction for females (normal health)

improvement rates Increased 1.25% pa to 1.5% pa

Pre Retirement Mortality Small reduction for males and females

Ill health retirements and tiers Small changes

Withdrawals Reduced rates

Normal Retirement Pattern Small increase in average age of retirement

Commutation No material change

Family assumptions No material change

50/50 Scheme take up Per GAD assumption


Setting assumptions for the future Discount rate


INPUT OUTPUT

Discount rate Current funding ratio Employer contributions

Setting the risk in the funding strategy

• Determined by 3 key decisions• The three decisions drive the choice of discount rate• Can be applied at whole Fund, Group or individual employer level

1. Determine solvency targetPrudent Best estimate

2. Consider when you want to get thereShort term Longer term

3. Set probability of successPrudent Best estimate


Modelling the risk

Suc

ceed

Fail

How long to get there

Where you are nowand what you pay

Stochastic projection of the ongoing funding ratio - ongoing basis same as solvency basis

1

2

3

1 + 2 + 3 =


So how much risk?Grouped Employers 2007 Valuation

75% (approx) chance of solvency after 25 years

2010 Valuation65% (approx) chance of solvency after 25 yearsTemporary extreme measure for extreme circumstances

2013 ValuationDoes anything in the range 65% to 75% give smoothness of rates?Apparently so !!! Use of a discount rate of 5.5% paEquates to broadly 70% chance of success (approx due to shape of Stream 1)Gives a small benefit to most employers


Results


Valuation balance sheet – 2010 valuation

Future service position % of pay % of pay % of payCost of future service 19.4% 19.3% 21.9%

Members’ contributions (6.5%) (6.5%) (6.6%)

Administration expenses 0.3% 0.3% 0.3%

Future service employer cost 13.2% 13.1% 15.6%

Past service position Whole Fund SB Group AB GroupValue of liabilities £4,494M £4,200M £132M

Market value of assets £3,238M £2,974M £102M

Surplus/(deficiency) (£1,256M) (£1,226M) (£30M)Funding ratio 72% 71% 77%

Cost of surplus/deficiency % of pay % of pay % of pay

Recovery contributions (25 years from 1/4/11)

6.5 % 6.5% 9.4%

Total employer rate 19.7% 19.6% 25.0%


Scheduled Body Group2010 Stream of deficiency contributions

2013

6 yrs

25 yrs

22 yrs

16 yrs

2035

~12% pa

5.3% pa

2019


Admission Body Group2010 Stream of deficiency contributions

2013

6 yrs

25 yrs

22 yrs

16 yrs

2035

25% pa

5.3% pa

2019

15% pa


2013 draft balance sheet – discount rate 5.5%

Future service position % of payCost of future service 19.4% 20.2% 20.1% 22.0%

Members’ contributions (6.5%) (6.4%) (6.4%) (6.7%)

Administration expenses 0.3% 0.3% 0.3% 0.3%

Future service employer cost 13.2% 14.1% 14.0% 15.6%

Past service position (£M) 2010 WoF Whole of Fund SB Group AB GroupValue of liabilities 4,494 5,430 5,092 153.1

Market value of assets 3,238 4,341 4,021 125.4

Surplus/(deficiency) (1,256) (1,089) (1,071) (27.7)Funding ratio (%) 72% 80% 79% 82%Present value of 2010 Stream (22 years) 1,499 48.2

Net past service surplus/deficiency 428 20.5


2013 draft balance sheet – discount rate 5.5%

Future service position % of payCost of future service 19.4% 20.2% 20.1% 22.0%

Members’ contributions (6.5%) (6.4%) (6.4%) (6.7%)

Administration expenses 0.3% 0.3% 0.3% 0.3%

Future service employer cost 13.2% 14.1% 14.0% 15.6%Capital cost of keeping FS at 13.1% (22 yrs) (136)Net financial position 294 20.5

Past service position (£M) 2010 WoF Whole of Fund SB Group AB GroupValue of liabilities 4,494 5,430 5,092 153.1

Market value of assets 3,238 4,341 4,021 125.4

Surplus/(deficiency) (1,256) (1,089) (1,071) (27.7)Funding ratio (%) 72% 80% 79% 82%Present value of 2010 Stream (22 years) 1,499 48.2

Net past service surplus/deficiency 428 20.5


Scheduled Body GroupProposal for utilising £428m

2013

6 yrs

25 yrs

22 yrs

16 yrs

2035

~12% pa

5.3% pa

2019

8.8% pa

3.9% pa

Costs £294m


Reshaped SB group stream of deficiency contributions

-

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

Year

Am

ount

s p.

a.

Stream 1Re-shaped Stream 1


Dealing with the SB Group deficit

Year commencing

1 April

Deficit at start of year

£m

Interest on deficit

£m

Deficit payment

£m

Deficit at end of year

£m

% change

2013 1,071.0 57.5 50.2 1,078.3 0.7

2014 1,078.3 57.8 54.8 1,081.3 0.3

2015 1,081.3 57.8 59.8 1,079.3 -0.2

2016 1,079.3 57.6 65.1 1,071.8 -0.7

2017 1,071.8 57.0 70.8 1,058.0 -1.3

2018 1,058.0 56.1 77.1 1,037.0 -2.0

2019 1,037.0 54.7 83.9 1,007.9 -2.82020 1,007.9 53.0 87.1 973.8 -3.42021 973.8 51.1 90.5 934.3 -4.1

Reshaping 2010 Stream in this way covers interest on the deficit by 2017


Admission Body GroupProposal for utilising £20.5m

2013

6 yrs

25 yrs

22 yrs

16 yrs

2035

25% pa

5.3% pa

2019

15% pa 20% pa

3.9% pa

4 yrs


Reshaped AB group stream of deficiency contributions

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

Year

Am

ount

s p.

a.

Stream 1

Re-shaped Stream 1


Dealing with the AB Group deficitYear

commencing 1 April

Deficit at start of year

£m

Interest on deficit

£m

Deficit payment

£m

Deficit at end of year

£m

% change

2013 27.7 1.5 0.9 28.3 2.2

2014 28.3 1.5 1.1 28.8 1.6

2015 28.8 1.5 1.3 29.0 0.9

2016 29.0 1.6 1.5 29.1 0.1

2017 29.1 1.5 1.8 28.8 -1.0

2018 28.8 1.5 1.9 28.4 -1.3

2019 28.4 1.5 2.0 27.9 -1.7

2020 27.9 1.5 2.1 27.3 -2.12021 27.3 1.4 2.1 26.6 -2.6

Reshaping 2010 Stream in this way does not cover interest on the deficit until 2020


Summary

Scheduled Body GroupCurrent: 13.1% Pay + Deficiency Stream (12% incs for 6 yrs, 5.3% for 16 yrs)New: 13.1% Pay + Deficiency Stream (8.8% incs for 6 yrs, 3.9% for 16

yrs)

Admission Body GroupCurrent: 15.6% Pay + Deficiency Stream (25% incs for 6 yrs, 5.3% for 16 yrs)New: 15.6% Pay + Deficiency Stream (20% incs for 4 yrs, 3.9% for 18 yrs)

Ungrouped EmployersTo be communicated individually in due course


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This document has been prepared for the Administering Authority on the understanding that the Authority is the addressee and only user of this document, but that it may be shown to participating Employers in general Forum. It is a summary of the key points of our advice for the 2013 actuarial valuation. It does not fully comply with the full actuarial professional standards, and readers should refer to our full advice for further explanation.

108


Tim Lunn Update from the Fund Actuary

Documents

1 Hampshire Pension Fund Annual Employers Meeting 30 October 2013 10:00 am