Hymans Robertson LLP is authorised and regulated

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Valuation Update

• Robert Bilton FFA

• 12 December 2018

Norfolk Pension Fund

2

Agenda

1. What is a valuation?

2. Setting the funding strategy

3. Interaction with the investment strategy

4. Outlook for 2019

3

What is an actuary?

44

What is a valuation?

5

How the Fund works

Investment returns

Member contributionsNorfolkPension

Fund

Benefits to members and dependants

Determined by investment strategy & manager performance Determined by LGPS Regulations Must meet balance of cost over longer term

Employer contributions

6

Why we do a valuation

• Calculate employer contribution rates

• Compliance with legislation

• Analyse actual experience vs assumptions

• Review Funding Strategy Statement

• Part of continual ‘health check’ on fund solvency

7

How we do the valuation

Data for c83,000 members

Financial assumptions

Demographic assumptions

Contribution calculations

Health check

Actuarial valuation

Benefit projections

Asset data

8

Valuation begins at member level

Lump Sum

Dependant’s Pension

Member’s Pension

40 65 85

Recruitment

Contributions

Exp

end

itu

reIn

com

e

Retirement Death

9

Valuing all members

0

50

100

150

200

250

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Pen

sio

n A

mo

un

ts (

£Mill

ion

s)

Year from the valuation

Pensioner members

Deferred Members

Active members

10

Valuation ‘health check’

Benefits earned to

date Assets today

ManagersLiabilities Assets

11

Approach to setting contributions

Benefits earned to

date Assets today

Future investment

outperformance

Future contributions

ManagersLiabilities Assets

Benefits earned in

future

Where to draw this line?

1212

Setting the funding strategy

13

Each employer tends to its own patch

Contractor

College

Academy

14

The make up of the Norfolk Pension Fund

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Council Uni/College Housing Association AB Academy Scheduled

Split of membership/liabilities/deficit by employer type at 2016 valuation

Active membership Liabilities Deficit

15

Funding strategy – 3 step approach

What is the funding target?

How long do we want to give the employer to get to the target?

How sure do we want to be that the employer hits the target?

16

Understanding uncertainty

17

Why do contribution rates differ?

Guarantor or security

term

Open or closed

Guarantor?

Funding position

covenant

Term

Planning to exit?

Maturity

1818

Interaction with the investment strategy

19

Increasing employer diversity

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Fun

din

g le

vel a

s at

31

Mar

ch 2

01

6

20

Diversity means different needs

Assets today

Future investment

outperformance

Future contributions

Managers

Employer A

Weak funding position,

needs more growth

Assets today

Future investment

outperformance

Future contributions

Managers

Employer B

Stronger funding

position, can de-risk Managers

21

Different investmentstrategies for different employers

Employer 1 Employer 2

Employer 3

Employer 4

Historically: One investment strategy for all

Implemented in July 2017: Different investment strategies for different employers

22

Current investment strategies

Alternative

Strategy A

62%

Growth

34%

enhanced

yield

4%

Protection

Core

Strategy

47.5%

enhanced

yield

5%

Protection

47.5%

Growth

Alternative

Strategy B

90%

Protection

10% enhanced

yield

2323

The end result

2424

Outlook for 2019

25

Norfolk Pension Fund – returns since 2016

3.6%

4.7%3.8%

4.2%

1.7% 1.7%2.6%

-2.0%

4.2%

2.2%

-4.0%

10.0%

Quarterly Fund Returns

?

2019

Source: Norfolk Pension Fund, Core Strategy. Note that information is subject to change

26

Outlook for investment returns – March 2016

Future investment return vs risk

Source: Hymans Robertson ESS model, for indicative information purposes only

27

Outlook for investment returns – Sept 2018

Future investment return vs risk

Bonds

Property

Equities

Cash

PE

Source: Hymans Robertson ESS model, for indicative information purposes only

28

Are life expectancy increases slowing down?

29

Or is it just a blip?

Source: ONS weekly deaths figures

Average deaths per week

30

Observed life expectancies in Norfolk

High life expectancy

Mid life expectancy

Low life expectancy

Source: Club Vita research based on VitaBank as at November 2018

31

2019 Valuation - summary

Factor Impact

Investment outperformance Helps contain employer costs

Funding levels up Helps contain employer costs

Longevity improvements Slowing down for some groups

Future investment returns Still low

32

2019 valuation timeline

April 2019Data submitted by employers

October 2019Employer results reviewed and funding and investment strategy discussed November 2019

Funding Strategy Statement (FSS) draftedDecember 2019Employer ForumFSS consultation started

January - February 2020Consultation of FSS

March 2020Final valuation report signed off by 31 March

Q4 18 – Q1 19Pre-valuation work:- Planning- Data cleansing- Long term employer modelling

1 April 2020New contributions start to be paid.

June - July 2019Data cleansed and submitted to actuary August – September 2019

Actuarial calculations processedWhole Fund results issued

33

How can you help?

• Submit year end data on time

• Prompt reply to any queriesMeet deadlines

• Keep up to date

• Circulate to relevant peopleRead updates

• Ask any questions

• A change in your circumstances

Speak to the team

3434

Thank you

35

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

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