05 September 2023
5 min
Following up on our 60-Second Summary on the Government’s recently launched consultation on LGPS investments in England and Wales, we provide a more detailed look at its vision for the future. Here, we set out areas we support, where we think further thought is needed, and suggest areas for clarification and guidance to ensure any new regulation takes into account impacts on the full range of stakeholders. We're also working on our formal response to the consultation, which will be available mid-September. And finally, please watch our webinar on-demand – see more information below.
HMT has published revised Directions that will apply to the 2020 Cost Cap valuations, alongside a GAD letter. As expected, these new Directions incorporate changes that were subject to prior consultation, including the widening of the ‘cost corridor’ from +/-2% to +/- 3% of pay and the introduction of an ‘economic check’. Our response to that consultation is here. The calculation will now be done in two stages. Costs will firstly be measured under a ‘core mechanism’. Secondly, if this triggers a breach of the cost corridor, the ‘economic check’ will re-measure the cost with allowance for changes in long term economic assumptions. If the cost under the economic check is also outside the 3% margin and in the same direction as the ‘core mechanism’, changes will be made to the scheme’s structure to bring costs back to the original target employer cost cap. GAD’s letter suggests that for the 2020 valuations (across a sample of unfunded schemes), the ‘core mechanism’ result breaches the cost corridor on the downside due mainly to lower longevity assumptions. However, the impact of the SCAPE discount rate reduction to CPI +1.7%pa (compared to the CPI + 3%pa used in the ‘core mechanism’) in the ‘economic check’ increases the cost and more than offsets the ‘core mechanism’ corridor breach. This results in no change to member benefits or contribution rates.
The 2023 Scottish valuation project is now well underway following data submission from a number of funds. Initial results will be emerging over the weeks ahead – watch this space for news of the trends that we're seeing. One big question will be “what is the impact of inflation on the valuation results”? and we're closely monitoring CPI figures as they are released each month. Your actuary will discuss the impact of emerging inflation and the April 2024 PI Order along with the presentation of your valuation results.
Academies – as we enter September, it’s all ‘hands on deck’ to prepare the 31 August 2023 FRS102 results schedules for LGPS academies. In an environment of high inflation and high corporate bond yields, along with the triennial valuation recalibration to funding positions, there’s a lot to consider this year.
Further education bodies - the 31 July 2023 results are in – and they’re overwhelmingly ‘positive’! Net asset positions are being seen by many FE bodies across the LGPS, which comes with the tricky question, “how do I allow for this accounting surplus”? For details on the options available to you, please contact our LGPS accounting specialists here.
On 18 September we will launch our 2023 Knowledge Progress Assessment (KPA) for Committee and Board members – coinciding with LGPS training expectations set out within the ‘Next steps on investments’ consultation mentioned above. The online assessment will cover the 8 topics of the CIPFA Knowledge and Skills framework, and has been designed to complement Hymans' LGPS Online Learning Academy.
The purpose of the KPA is to check that knowledge levels are progressing as expected, see if the focus of your training plan feels right, and to provide Funds with a tangible way to demonstrate they are regularly assessing Committee and Board members’ knowledge levels and training needs. Register your interest here.
We’re delighted to be continuing our LGPS employer training, with the next sessions taking place in October and November. Attendance will provide your employers with knowledge of important LGPS topics. With the implementation of the McCloud remedy and pensions dashboards on the horizon, and the administrative challenge of updating data, good employer engagement is needed more than ever. Register your interest here, and if you require more information get in touch.
Join us on 14 September for a special edition webinar, focused on the Local Government Pension Scheme (England and Wales): Next steps on investments consultation. Kate Dickson will be joined by David Walker to discuss our views on the questions raised in the consultation. You can register your place here.
Catch the third webinar in our risk management series on-demand. Robbie McInroy was joined by Julie Baillie and Alex Younger, Head of Funding & Investment at Norfolk Pension Fund, for a discussion on employer investment strategies. You can also download Julie’s latest publication on utilising employer investment strategies to manage risk for LGPS employers.
We're delighted to have been shortlisted for industry awards in September, and wish all of the nominees good luck!
We all need to eat, and global demand for food is set to keep increasing. However, the food sector is a big contributor to climate change and also vulnerable to adverse climate impacts. There’s a clear need for innovative agricultural models based on regenerative and resource-efficient practices. Increasing input costs may provide an incentive for the agriculture sector to adopt more efficient practices quickly. Couple this with changing consumer demand and the potential for regulation, and we have interesting opportunities for investment.
Latest inflation figures – the latest ONS figures recorded annual CPI for the year to July 2023 at 6.8%, down from 7.9% in the prior month. Our latest InflationWatch assesses the outlook for future inflation.
Overview of 2022 valuation results – the Scheme Advisory Board has published a report on the 2022 valuation results. Our own analysis was captured in a ‘Big Picture’ report that was published earlier this year. Plenty of reading for those who love statistics!
Cold calling – HMT plans to extend the pensions cold-calling ban to cover all consumer financial services and products. It's exploring the details of the extended ban via a consultation, with a deadline of 27 September.
Data accuracy – the Pensions Administration Standards Association (PASA) has updated its guidance in this area.
Climate change litigation – the Court of Appeal has dismissed a claim against the USS for allegedly failing to deliver on its climate change commitments. The Court highlighted that the claimants were unable to prove that they had suffered loss (due to an alleged breach of duty by USS directors), and that the trustees had complied with the Investment Regulations 2005 (on the back of receiving appropriate professional advice).
McCloud and pensions tax – the McCloud discrimination case continues to keep HMRC busy, with the publication of another newsletter about the implementation of the remedy. They have also updated their lifetime-allowance protection guidance for members who may find themselves, retrospectively, in the market for fixed or individual protection (2016) as a consequence of the remedy for McCloud discrimination, or who lost their protection because of the McCloud remedy and may now be able to reinstate it. Click here and here to see the respective guidance.
Climate scenario analysis – TPR has published a blog about recent reports that have challenged the approach that schemes have taken to model climate risk. Whilst trustees are not expected to be climate experts, they are expected to keep their most recent analysis under review and conduct new analysis where improved scenarios or modelling capabilities are available.
Annual benefit statements – TPR has issued guidance around ABS’s for public sector schemes. They’re keen for schemes to take care to avoid confusing information to members affected by the McCloud remedy (who will receive both ABS’s and remedial service statements). In recognition of this challenge, TPR will take a ‘risk-based, practical approach’ in response to ABS breaches during 2023 to 2025.
Autumn Statement – the Chancellor’s statement will be presented to Parliament on 22 November, alongside an economic and fiscal forecast from the OBR.
If you have any questions on anything covered in this month's Current Issues in the LGPS, please get in touch.
This communication has been compiled by Hymans Robertson LLP® (HR) as a general information summary and is based on its understanding of events as at the date of publication, which may be subject to change. It is not to be relied upon for investment or financial decisions and is not a substitute for professional advice (including for legal, investment or tax advice) on specific circumstances.
HR accepts no liability for errors or omissions or reliance on any statement or opinion. Where we have relied upon data provided by third parties, reasonable care has been taken to assess its accuracy however we provide no guarantee and accept no liability in respect of any errors made by any third party.
Hymans Robertson LLP is a limited liability partnership registered in England and Wales with registered number OC310282. Authorised and regulated by the Financial Conduct Authority and licensed by the Institute and Faculty of Actuaries for a range of investment business activities.
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