west sussex county council pension fund · 25 april 2016 approach to employer risk profiling &...
TRANSCRIPT
Hymans Robertson LLP is authorised and regulated by the Financial Conduct
Authority
West Sussex County Council
Pension Fund
Steven Law FFA
Kameel Kapitan
25 April 2016
Approach to Employer Risk Profiling & Management
Ag
end
a Item N
o. 9
2
Formal valuation of the Fund
The valuation is really c180 employer valuations
Employer
Employer
Employer
Employer
Employer
Employer
Employer
Employer
Employer
Employer
Employer
3
Factors we consider for managing employers
Covenant
term
Open or
closed
Guarantor?
Maturity covenant
Close to
exit?
Funding
source
Security
How strong
is the
covenant?
How strong
is the
guarantee
or security?
Type
Security of
funding?
4
Case studies
Employer Type Funding
Source
Security Open/
Closed
Guarantor Close to
cessation
Admission Body 1 Admitted
Body
Social
Housing
None Closed No No
Admission Body 2 Admitted
Body
Council
contract price
Bond? Closed District
Council
Yes
Council Scheduled
Body
Tax raising Tax-raising
body
Open Central
Government
N/A
Academy Scheduled
Body
Central
Government
Government
backed?
Open Central
Government
N/A
Maturity and Covenant are also considered – but are not used
in initial categorisation
5
In practice - employer categorisation
Scheduled Bodies Admitted Bodies
Tax raising
or Police
Non-tax
raisingSecurity No security
Council
TaxPrecept
Gov
GuaranteeNo gov
GuaranteeOpen Closed Open Closed
Low RiskMedium
RiskHigh Risk
6
2016 valuation: setting employer funding
strategies
What is the employer’s funding target?
How long do we want to give the employer to get to the target?
How sure do we want to be that the employer hits the target?
7
Close to exit, security
Type, open/closed, time to exit, maturity
Funding source, security, covenant, maturity
2016 valuation: setting employer funding
strategies
8
Assigning funding plans
Scheduled Bodies Admitted Bodies
Tax raising
or Police
Non-tax
raisingSecurity No security
Council
TaxPrecept
Gov
GuaranteeNo gov
GuaranteeOpen Closed Open Closed
Stabilised20yrs –
66%
20 yrs –
75%
FWL –
75%
FWL –
75%Flight-path
FWL –
75%Cessation
Low RiskMedium
RiskHigh Risk
9
Case studies
Employer Employers Funding Target Time Horizon Probability of hitting
target
Admission Body 1 100% on Gilts Basis Future Working
Lifetime
75%+
Admission Body 2 “flightpath” Remaining
Contract Period
“flightpath”
Council 100% on Ongoing Basis 20 years 66%
Academy 100% on Ongoing Basis 20 years 75%
Pragmatism and flexibility are still desirable though…
10
Other steps taken by the Fund
Require bonds or guarantees where appropriate
Review bond amounts regularly
Annually for larger employers
At each valuation for other employers
Consider alternative forms of guarantee
Clear & well documented policies
Managing exits
Transferring risks where appropriate
11
Upcoming challenges
Charity sector funding
College status changes
College mergers
Academy conversion rates
Academy outsourcings
Outside scrutiny
Risk of separation of Fund and Council
Decoupling of investment and funding for high
risk employers
Outlook for 2016 valuation
13
Crystal ball….
Funding levels will have improved for most employers
14
Crystal ball….
But deficits may have grown…
15
Effect of RPI/CPI gap increase….
Estimated 31 March 2016 position
0.8% Gap 1.0% Gap
16
Outlook for rates
Increases likely for a majority of employers
Cost of future benefits accruing has gone up (e.g. the
Primary Contribution Rate)
Potential improvements in funding may not be enough
to offset through lower Secondary Rates
Any questions?
Thank you