Administration Report Linda Welsh Principal Pensions Officer Agenda

Administration Report Linda Welsh Principal Pensions Officer

Agenda • • • SPFO Targets and Performance Customer Satisfaction Employer Performance Collaborative Working Digital Communications Summary

Targets & Performance

Satisfaction Rating and Feedback Changes – 77. 8% Deferreds – 81. 3% Refunds – 83. 7% Retirals – 89% “Excellent “Staff very pleasant and answered my questions in a clear and easy to understand way” “Throughout my service with the council I have had several reasons to contact the service and have always found the staff to be helpful and pleasant” Service” “I don’t think it could have gone any smoother!”

Employer Performance 2012/13 2013/14 Named contacts 100 % 100% Policy statements 82. 9% 91. 2% Compliance Certificates 83. 3% 80. 4% Councils – electronic data 100% Admitted Bodies – electronic data 19. 5% 20% Missing – New Start records 0. 70% 0. 73% Missing – Leavers records 1. 46% 0. 55% Retirements – within 2 months notice or more 64% 60% SPFO enquiries answered within 7 days 78% 68% Posting returns received by 20 th May 75% 79. 2%

Data Improvements

Collaborative Working • Auto Enrolment • Valuation • New Scheme

Digital Communications

SPFOnline

Live Roll Out Pilot 1 – Argyll & Bute Pensioners/employees Member type No Issued Do not wish to go digital Pensioners 1, 532 145 Employees 2, 806 82 Estimate Completed registration Estimate 9. 46% 30% 223 14. 56 (%) 10% 2. 92% 15% 509 18. 14% 20% Pilot 2 – North Lanarkshire Council + All Deferred Member type No Issued Do not wish to go digital Estimate Completed registration Estimate Pensioners 3, 571 0 0% 306 8. 56% 10% Employees 7, 710 16 0. 21% 15% 1, 368 17. 74% 20% Deferred 23, 578 52 0. 22% 15% 2, 560 10. 86% 20%

Success So Far Membership Type Employees Deferred Pensioners Completed Registration 3, 896 3, 339 1, 843 % of those registered 42. 9% 36. 8% 20. 3% Requested hard copy 780 1080 577 Total 9, 078 2, 437 Age Profile 29 and Under 30 - 39 40 - 49 50 - 59 60 - 65 Over 65 198 828 2078 3963 1366 645 2. 1% 9. 1% 22. 9% 43. 7% 15. 0% 7. 1%

ESS Summer 2014

Financial Overview Paul Murphy SPFO Fund Accountant

Agenda 2013/14 Annual Accounts Previous 5 Year Trends Future

2013/14 Annual Accounts Members 2012/13 £ 000 2013/14 FUND INCOME £ 000 331 Contributions receivable from employers 341 52 Additional contributions from employers 27 108 Contributions receivable from employees 110 7 Transfers in 6 1 Other income 1 498 485 FUND PAYMENTS 347 Pensions 107 Lump sums 1 Refund of contributions 16 Transfers out 371 96 1 15 0 State scheme premiums 0 4 Administrative and other expenses borne by the Fund 4 475 23 487 Net addition/Reduction - from dealings with members -2

2013/14 Annual Accounts Returns 2012/13 £m 2013/14 £m RETURNS ON INVESTMENTS 168 Investment income 183 (15) Investment management expenses (18) (4) 1, 443 Overseas tax (3) Change in market value of investments 719 1, 592 Net returns on investments 881 1, 615 Net movement in the Fund during the year 879 ADD 11, 451 Opening net assets as at 1 st April EQUALS 13, 066 Closing net assets as at 31 st March 13, 066 13, 945

2013/14 Annual Accounts Net Assets 2012/13 £m 2013/14 Investment Assets £m 5, 955 Equities 6, 440 5, 693 Pooled Investment Vehicles 5, 902 1 Derivative Contracts 831 Property 510 Cash and Other 12, 990 7 1, 021 519 13, 889 (32) Investment liabilities (33) 149 Current Assets 126 (41) Current Liabilities (37) 13, 066 Net Assets 13, 945

Financial Summary • • • Members income £ 485 m (down 3%) Expenditure £ 487 m (up 3%) Deficit £ 2 m Net Return £ 881 m (down 45%) 7% Return on assets, higher than target Net Assets increased £ 13. 1 bn to £ 13. 9 bn

Total Income from Members and Employers £m

Total Expenditure from Dealing with Members £m

Net Additions from Dealing with Members £m

Net Return on Investments £m

Closing Net Assets of the Fund £m

5 Year Summary • • • Clear trend reducing members income but now stabilising Increasing expenditure Leading to deficit but Returns on Investments performing well and more than sufficient to cover this and increase fund Net Assets increasing

Future • • • Similar pattern but uncertainties Triennial revaluation Pensions Act Auto-enrolment Market Conditions

Cash Flow for 2013/14 to 2023/24

Future Cash Flows

Questions?

Strathclyde Pension Fund Fairytales and deficits • Steven Law FFA • Catherine Mc. Fadyen FFA • 20 June 2014 Hymans Robertson LLP is authorised and regulated by the Financial Conduct Authority

The line-up There’s no place like home (the SPF Valuation) Steven Law Actuarial Valuations (and other Grimm Tales) Catherine Mc. Fadyen Reaching the finish line (LGPS Scotland 2015) John Wright 31

There’s no place like home (the SPF valuation) • Steven Law • 20 th June 2014 Hymans Robertson LLP is authorised and regulated by the Financial Conduct Authority

April 2015 – New Contribution Rates December 2014 – Employer Results November 2014 – Fund Results March 2014 – Formal Valuation Date 33

Dorothy 34

Good and Evil (for pension funds!) Investment Returns Contributions LGPS Scotland 2015 Interest Rates LGPS Scotland 2015 Certificates of Protection 35

Funding levels holding steady Higher liabilities Manageable employer contribution rates 36

Actuarial valuations (and other Grimm Tales) • Catherine Mc. Fadyen • 20 th June 2014 Hymans Robertson LLP is authorised and regulated by the Financial Conduct Authority

z z z The man who fell z asleep for 25 years 38

The way we were 39

Cashflows are king 250 Pension Amounts (£) Millions 200 150 Pensioner members Deferred Members Active members 100 50 0 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 Year Source: Hymans Robertson, based on a typical County Council pension fund. 40

Longevity matters 250 Pension Amounts (£) Millions 200 150 Pensioner members Deferred Members Active members 100 50 0 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 Year Source: Hymans Robertson, based on a typical County Council pension fund. 41

Inflation matters more 250 Pension Amounts (£) Millions 200 150 Pensioner members Deferred members Active members 100 50 0 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 Year Source: Hymans Robertson, based on a typical County Council pension fund. 42

The magical shrinking discount rate 43

Discount rate sets the Target Assets £ 5. 0 bn £ 4. 5 bn Investment returns Interest rates Contributions £ 4. 0 bn £ 3. 5 bn £ 3. 0 bn £ 2. 5 bn £ 2. 0 bn £ 1. 5 bn £ 1. 0 bn £ 0. 5 bn £ 0. 0 bn Liabilities (3. 0% p. a. ) Liabilities (4. 6% p. a. ) Liabilities (5. 6% p. a. ) Assets We can’t count the same £ twice Source: Hymans Robertson, based on a typical County Council pension fund. 44

Mirror, mirror… 45

2013 funding levels (published) But who is really fairest? Source: All English & Welsh LGPS Funds, values based on 31 March 2013 published valuation data 46

2013 funding levels (same investment return) 2013 funding levels (rebased to same investment return) Source: Hymans Robertson; all English & Welsh LGPS Funds, estimated values based on 31 March 2013 published valuation data Basis: HM Treasury standard basis, Net Discount Rate = 0. 25% p. a. pre retirement / 3. 0% p. a. post retirement 47

Money isn`t everything 48

Bigger deficit Bigger contributions? 140% 120% Funding level 100% 80% 60% 40% 20% 0% 0% 5% 10% 15% 20% 25% Contributions 30% 35% 40% Source: Hymans Robertson, based on a typical County Council pension fund. 49

Forcing the slipper to fit? 140% 120% Funding level 100% 80% 60% 40% 20% 0% 0% 5% 10% 15% 20% 25% Contributions 30% 35% 40% No correlation between solvency and contributions Source: Hymans Robertson; all English & Welsh LGPS Funds, estimated values based on 31 March 2010 published valuation data 50 Basis: HM Treasury standard basis, Net Discount Rate = 0. 75% p. a. pre retirement / 3. 0% p. a. post retirement

Losing interest? 15% Excess deficit contributions above interest Covering interest 10% 5% 0% -5% -10% Not covering interest -15% Source: Hymans Robertson; all English & Welsh LGPS Funds, estimated values based on 31 March 2010 published valuation data 51 Basis: Net Discount Rate = 3. 25% p. a.

The Investment beanstalk 52

Can we believe in Beanstalks? 8% Required return 7% 6% 5% 4% 3% 2% 1% 0% 0% 10% 20% Contributions 30% 40% Source: Hymans Robertson; all English & Welsh LGPS Funds, estimated values based on 31 March 2010 published valuation data 53 Basis: Discount Rate = 5. 0% p. a.

The story so far Focus on the real cash flows We need a common language Funding plans can be different but must be credible What part return/ interest rates/ cash? Contingency plans What level of risk when fully funded? Not all employers are the same No magic wand to vanish deficits 54

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Thank you Any questions?

Please help yourself to Tea/Coffee during this 20 minute interval.

Agenda • • The New Scheme SPFO Implementation Employer Perspective TU/Employee Perspective Governance Q&A Closing Remarks

Reaching the finish line (LGPS Scotland 2015) • John Wright • 20 th June 2014 Hymans Robertson LLP is authorised and regulated by the Financial Conduct Authority

Pensions reform reaches Scotland …. Lord Hutton review of Public Sector Pensions (2012) 61

Hutton’s review of public service pensions Principles Affordability & Sustainability Adequacy & Fairness Transparency & Simplicity Supporting Productivity 62

What’s the problem?

Problem 1: Living longer …

People living longer on average Women Men SPA Paying pensions for longer, costs increasing 65

Life expectancy in the south east High life expectancy Mid life expectancy Low life expectancy Source: Club Vita research based on Vita. Bank as at 2 October 2008 66

Closer to home … High life expectancy Mid life expectancy Low life expectancy 67

Hutton recommendations Measures to contain cost increases LGPS retirement age will increase Linked to increasing State Pension Age Change only for benefits earned after 2015 And “cost management” system Helps make the scheme sustainable and affordable 68

Problem 2: Are final salary pensions fair?

Final salary pension good for “high flyers” 2. 0 1. 8 High Flyers 1. 6 1. 4 Medium 1. 2 1. 0 Lower paid 0. 8 0. 6 0. 4 0. 2 0. 0 23 33 43 53 63 Less good for others Source: Institute of Fiscal Studies 70

Is final salary pension fair? Year Pay 1 £ 20, 000 Employee contributions £ 1, 100 2 £ 20, 000 £ 1, 100 3 £ 20, 000 £ 1, 100 4 £ 20, 000 £ 1, 100 5 £ 20, 000 £ 1, 100 Employee pays in £ 5, 500 Gets back £ 1, 667* per annum for life *5 years x 1/60 x 20, 000 = £ 1, 667 71

Is final salary pension fair? Year Pay 1 £ 20, 000 Employee contributions £ 1, 100 2 £ 20, 000 £ 1, 100 3 £ 20, 000 £ 1, 100 4 £ 20, 000 £ 1, 100 5 - PAY RISE £ 40, 000 £ 2, 793 Employee pays in £ 7, 193 Gets back £ 3, 333* per annum for life Extra pension worth £ 42, 000+ over full retirement *5 years x 1/60 x 40, 000 = £ 3, 333 72

Hutton recommendations Final Salary pensions to end Career Average pensions for fairness Helps make the scheme fair, affordable and sustainable 73

“Career Average” pensions: _fairer but more complicated?

Final salary easier to understand “If I work for 30 years my pension will be half of my pay*” *60 th scheme 75

“Career average revalued earnings” pension Year Salary £ 10, 000 Pension earned (1/49 th) £ 204 1 Revaluation to retirement 5 yrs@3%=15% Revalued pension at retirement £ 204 + £ 31 2 £ 10, 000 £ 204 4 yrs@3%=12% £ 204 + £ 24 3 £ 10, 000 £ 204 3 yrs@3%=9% £ 204 + £ 18 4 £ 10, 000 £ 204 2 yrs@3%=6% £ 204 + £ 12 5 £ 10, 000 £ 204 1 yr@3%=3% TOTAL PENSION £ 204 + £ 6 £ 1, 111 76

Transparent and simple? 77

Enough pension in retirement?

How much pension is enough? £ 10 k £ 20 k £ 30 k £ 40 k £ 50 k £ 60 k £ 70 k ? ? Scheme should address adequacy 79

What does it mean for employers?

New scheme effect on employer costs Deficit unchanged (past service) Modest savings on new benefits (future service) Savings uncertain (eg 50/50 take-up, CPI/earnings) Savings will vary by employer Membership profile (age, protection, member contributions) Take up of “ 50/50” option Remember - other factors affect contributions at the valuation (deficits, investment returns, etc) 81

New scheme costs more for some employers COSTS MORE AVERAGE CHANGE IN COST -1. 5% COSTS LESS Employers New scheme costs more for some employers Source: Hymans Robertson, based on a large LGPS fund, each dot is a different employer. 82

Impact on administrators

Administration complex Three schemes (80 ths, 60 ths, 49 ths) Different retirement ages for each Record keeping – more data needed Grandfathering Other complexity – transitional regulations 84

Benefit statements in future? Period Scheme Type Number of years Pension amount Retirement age Pre-2009 80 ths Final salary 20 £ 10, 000 60 2009 2015 60 ths Final salary 6 £ 4, 000 65 2015+ 49 ths Career average 10 £ 8, 000 68 Simple and transparent? 85

In summary …

What it means for members Full protection if within 10 years of retirement Accrued rights protected for everyone Changes only for future benefits New scheme still provides a good pension amount New scheme benefits could be better for some A lot for members to take on board? 87

The new scheme … Doesn’t reduce deficits Helps contain future cost pressure from living longer Is a fairer career average system Other challenges: Administration Data requirements more onerous for employers? Little or no savings for employers in short run? 88

25 year promise? 89

Thank you Any questions?

SPFO Implementation Juan Carlos Fernandez Systems and Compliance Manager

LGPS 2015 SPFO Implementation • • Deliver project plan Collaborative approach • • Scottish Pensions Liaison Group (SPLG) Local Authorities Pension Forum Communications strategy Training programme

LGPS 2015 SPFO Implementation • Ensure technical platform is in place to deliver on LGPS 2015 • • Testing Regulations & Guidance Risks Data required to deliver a CARE record • • Data submissions i-Connect

Vicki Rodgers Head of People and Transformation West Dunbartonshire Council

• • Background SLOGPAG Accrual rate Auto enrolment

• • WDC perspective LGPS 2015 Members & non-members Employers’ responsibilities

Strathclyde Pension Fund AGM – June 2014 UNISON Scotland Scottish LGPS 2015 Dave Watson Head of Bargaining and Campaigns UNISON Scotland

Background UNISON Scotland Ø UK Public Service Pensions Act ØCARE scheme ØPension age linked to state pension age ØCost capping Ø Scottish LGPS 2015 v. Focus on main benefit – accrual rate v. Keep contributions stable - Pay restraint, economy, NI contributions 2016 Ø Strengthen governance of funds

Scottish LGPS 2015 UNISON Scotland Ø Final salary to CARE scheme v Generally fairer - spreads scheme benefits Ø Accrual Rate – 60 ths to 49 ths v E&W comparison - mortality rate v ill health, death in service & age profile Ø Contributions unchanged v Banding not cliff edge. P/T based on actual pay not nominal F/T Ø Ø Pensionable pay – P/T add hours not overtime 50/50 option – bring in 25% workforce, review 2017 Civil partners as married and cohabiters don’t nominate Post April 2015 – transitional protections

Governance UNISON Scotland ØScheme Advisory Board v Statutory SLOGPAG ØReview fund structure v IORP and separation from lead local authorities v Number of funds in Scotland or shared services to cut costs ØCost control – 2% cap ØPension Board at fund level v One or two boards

Hybrid Solution UNISON Scotland

Constitutional Change UNISON Scotland Ø Further devolved powers v Unlikely to include occupational pensions – PAYG spending volatility Ø Independence v v v Public expenditure forecasts? Scottish LGPS already separate Pay as you go schemes – negotiation over past and future liabilities Private sector – IORP funding requirements and splitting schemes State pension – retirement age not increased? Cost?

Next Steps UNISON Scotland ØScheme and Governance Heads of Agreement signed ØRegulations: Benefits this month? Transitional in autumn? ØGovernance v. Model constitution and regulations v. Start work on structural review - IORP interpretation impact ØImplementation April 2015 ØJoint communications – UNISON Scottish Pensions Bulletin ØFuture v. State pension changes – NI increase 2016 (1. 4%. 3. 4% employers) v. Revaluations

Governance Richard Mc. Indoe Head of Pensions

Strathclyde Pension Fund Governance 105 Actuary SPF COMMITTEE Investment Advisory Panel Representative Forum Membership Trade Unions 5 Pensioner Rep 1 Deferred Rep 1 Administering Authority 2 Local Authorities 11 Scheduled Bodies 4 Admitted Bodies 6 Total 30 Investment Consultant STRATHCLYDE PENSION FUND OFFICE

LGPS 2015 Bingo CARE 50: 50 Pension Board Scheme Advisory Board The Pensions Pensionable Pay Regulator Cost Control NCPs 1/49 th 1/98 th Pension Accounts CPI Data Communications

Questions?