Changes to the exit credit regime

Last week, LGA confirmed that amendments to the current E&W LGPS regulations will come into force from 20 March 2020 regarding the administration of exit credits. The amendments seek to give administering authorities more discretionary powers when deciding if an exit credit should be payable, and if so, how much should be paid. As a result, it's likely that administering authorities will now have to consider if there are any formal risk sharing arrangements in place between the awarding authority and exiting employer and how much benefit should the employer receive from any investment performance. Whilst it's welcome to see some further clarity in this area, discretion does give rise to different interpretations and expectations from fund stakeholders. We would advise that you discuss this further with your actuary and put a formal exit credit policy in the Funding Strategy Statement as soon as possible.

Ready, steady, go for Scottish valuations

Ahead of the 2020 valuations for Scottish LGPS funds, on 20 February we held a seminar in our Edinburgh office which gave some food for thought on funding, investment and governance issues respectively. This was followed by an entertaining walk down memory lane from Ronnie Bowie as he reflected on his decades of advising the LGPS in Scotland. Click here for a summary of the event.

Pensions and pandemics

Recent market volatility has highlighted the uncertainty in relation to the sheer scale and impact of Covid19. From a pensions perspective, there are a range of different aspects and impacts to assess in terms of both longevity and asset returns.  While the LGPS can take a longer term view, it’s important to try and understand whether the impact of the virus is likely to be shorter term or could have a more lasting impact on the world including the health of pension schemes like the LGPS.

2019 valuations; all done and dusted?

The conclusion of the 2019 valuations is within sight but 31 March 2020 isn’t when the fun stops. After the local funding valuations are signed off, focus moves to GAD’s Section 13 valuation and their review of each fund against four key criteria of compliance, consistency, solvency and long term cost efficiency.  Alongside these criteria, GAD have also confirmed to SAB that they will be paying particular focus to how funds have made appropriate allowance for the McCloud ruling and are ensuring inter-generational fairness when setting contribution rates.

Are we still living longer?

The actuarial profession’s latest mortality improvements model has been released, which takes account of the most recent experience when modelling future life expectancy. Over the past 10 years or so, the general trend has been a slowdown in improvements –life expectancy has continued to improve, but the rate at which it increases is slowing. Headlines following the release of the latest model suggest that mortality rates were at record lows, with significant improvements compared to 2018. This bucks the recent trend of slowing improvements, but the headlines should be treated with caution. Socio-economic factors make a big difference. The recent Marmot review: 10 years on report indicated that the slowdown has not been experienced uniformly across the socio-economic divide. Economically comfortable individuals have continued to experience life expectancy rises over the past decade, whilst their more deprived counterparts have seen minimal increases. Analysis from Club Vita shows that LGPS members typically fall into the more comfortable category, and this group has been more resilient to any recent slowdown.

Future Trusteeship and Governance response from The Pensions Regulator

TPR has recently responded to its consultation on the future trusteeship and governance of occupational pension schemes. Of particular interest within LGPS circles were the proposals to continue the push for developing the knowledge and understanding requirements of trustees (i.e. Committee members) and improving the governance structures to enable effective decision making – themes that chime well with the SAB Good Governance project. TPR will now begin the preparatory work to implement its proposals over the coming year. 

Climate change update: a problem disclosed is a problem halved?

The pensions industry was taken by surprise recently when the government announced tougher-than-expected requirements for pension schemes to disclose information on how they are exposed to climate change risk. The intention behind the policy is to “require trustees and managers to govern effectively their pension scheme’s exposure to the effects of climate change”. The strength of these proposals contrasts with the recent announcement from the LGPS Scheme Advisory Board to “take stock” on its proposed responsible investment guidance while it waits for further clarity on the issue of fiduciary duty in the LGPS. The LGPS is more affected by climate risk than most pension schemes thanks to its open-ended nature and long investment horizons. Regardless of what regulations or guidance are in place, many LGPS funds will want to (or indeed are already) taking significant steps to improve their own understanding and disclosure of climate risk. Speak to your usual Hymans contact to find out how we can help.

Full steam ahead for the LGPS National Knowledge Assessment

As we have previously announced, we'll be conducting a LGPS National Knowledge Assessment for Pension Committee and Pension Board members during March and April. The assessment will go ‘live’ on the 17^th of March and will remain open for a number of weeks to allow participants the opportunity to complete the assessment. Please get in touch with your Hymans contact to discuss further.

Conference highlights: LGC Investment Seminar

The annual LGC Investment Seminar took place at Carden Park last week. Chaired by Dawn Turner, the event covered a range of topics, including the outcomes of the 2019 valuations and their impact on investment strategies; climate risk; and an interesting session on geopolitics and economics. Download our conference highlights for the key points discussed.

Good Governance

Our final Good Governance roundtable event will be held in Manchester on Thursday 26 March. To have the opportunity to hear more about the Good Governance project as we move onto phase III and contribute your experience / expertise to the discussion, please register here. The event will take place from 10am – 12pm, at Greater Manchester Pension Fund. We hope to see you there!

JOIN OUR MAILING LIST