Agenda item

This report prepared by Barnett Waddingham gives the results of the Actuarial Valuation of the Pension fund as at 31^st March 2010. The report shows the proposed contribution rates from April 2011.

Alison Hamilton, Barnett Waddingham, introduced the report which set out the results of the draft Actuarial Valuation of the Pension Fund. The valuation, which must be produced every 3 years, was used to set appropriate contribution rates to the Fund, with the aim of recovering any deficit over a long term.

The valuation showed that the Fund was now 74 percent funded, an improvement on the 70 percent funding level at the last valuation. (The report had erroneously stated that this represented a decrease in funding level). The Fund had experienced a 6% return on investment over the period, against a target of 6.5%.but  the actuary was able to keep employer contribution rates stable.

Councillor Cartwright asked whether the return on investment was disappointing, given the failure to meet target. Alison Hamilton said that the return was good, given the prevailing economic climate during the period covered, adding that other authorities had seen a negative return on investment for the period.

Councillor Iggulden asked about contribution rates. He noted that the improvement in the funding level would appear to give scope for a reduction in the employers’ contribution rate, which had risen considerably from the rate paid ten years previously. He questioned why the actuary did not offer employers a reduction in contribution rates, given the reduction in the deficit.

Alison Hamilton said that the employer rates were based on a number of assumptions, including a 25 year recovery of the deficit. In her view, any reduction in the employer’s rate for the Council, would, based on the current assumptions, mean that the deficit would not be recovered within that period. Further, although the overall payroll had reduced, and was expected to continue to reduce due to continuing reductions in staff numbers,  the amount of employer’s contribution in cash terms needed to meet the deficit did not fall, so that the contribution rate, as a percentage of payroll required to recover the deficit remained high. The fund’s stability was a requirement of the regulations, and a reduction in the rate of employer contributions was not advisable at the time of the valuation.

Pat Gough, Assistant Director of Finance, explained when the employer’s contribution rate had risen. The 2001 Actuarial Valuation had valued the fund as 98% funded, but the 2004 Actuarial Valuation saw that figure fall to 66%. This had prompted the rise in the employer contribution rate, which had stood at 12.3% in  2004/05. The typical contribution rate for a fund that was neither in deficit nor surplus was 13-14%.

The Chairman asked how future developments,  including the reduction in staff numbers and investment conditions, were reflected in the valuation, and what the position was with regard to the scheme’s deficit and the actuary’s advice on its recovery.

Alison Hamilton said that, in response to the latter point, the actuary’s recommendations were binding on the Council, rather than a matter for the Committee to decide, though her recommendations were made with a smooth rate of contribution in mind. She noted that, if the period for recovery of the deficit was extended beyond 25 years, the fund would struggle to pay off its deficit. With regard to the question of future events, and events after the 31^st March 2010, the final report would have a section on post valuation events, but would not be able to take account of events in the future, including the new scheme likely to be introduced.

Councillor Murphy asked what the impact of increasing retirement ages was likely to be.  Alison Hamilton said that a later state pension date would likely mean that workers, particularly lower-paid ones, would retire later, with pensions likely to be payable for a smaller number of years as a consequence; the extent of this effect was hard to determine, however.

With regard to the figure given for investment income on page 33 of the report, Bob Pearce clarified that the fall was the result of the way in which the Barings mandate operated.

RESOLVED THAT

(i)         The draft actuarial report be agreed, and;

(ii)        That approval of the finalised report be delegated to the Director of Finance and Corporate Services, prior to 31 March 2010.