norfolk pension fund · 15 the regulator’s “teeth” section 3.3 enforcement “we expect...
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Hymans Robertson LLP is authorised and regulated
by the Financial Conduct Authority
National issues
• Robert Bilton FFA
• 12 December 2018
Norfolk Pension Fund
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Agenda
1. Cost cap valuation
2. Valuation cycle
3. The Pensions Regulator & the LGPS
4. Separation
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Cost cap valuation
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Cost cap – the origin
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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
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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
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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
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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
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Valuation cycle
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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
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The Pensions Regulator & the LGPS
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tPR just one part of governance
Norfolk Pension
Fund
CIPFAKnowledge
& Skills Framework
The Pensions Regulator
MiFiD IILocal
Pension Board
SAB & MHCLG
12
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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
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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:
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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.”
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tPR – Their ‘new’ message
Clearer Quicker Tougher
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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…
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Separation
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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
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The range of options
Status Quo
plus
Ring fence
LGPS
functions
Joint
Committees
Total
separation
Less separation More separation
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Thank you
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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.