Lancashire County Pension Fund
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Lancashire County Pension Fund 31 March 2020 welcome to brighter Actuarial Valuation as at 31 March 2019 Lancashire County Pension Fund Contents 1. Introduction ....................................................................................................................................................... 3 2. Funding Strategy – Key Elements .................................................................................................................. 4 3. Key results of the funding assessment ......................................................................................................... 6 • Solvency funding position ....................................................................................................................... 6 • Primary Contribution Rate ....................................................................................................................... 7 • Correcting the imbalance – Secondary Contribution Rate ................................................................ 8 • The McCloud Judgment ............................................................................................................................ 8 4. Experience since last valuation ...................................................................................................................... 9 • Summary of key inter-valuation experience ........................................................................................ 9 • Reasons for the change in funding position since the last actuarial valuation ........................... 10 5. Cash flows, risks and alternative funding positions ................................................................................. 11 • Benefit cash flows .................................................................................................................................... 11 • Projected funding position at next actuarial valuation .................................................................... 12 • Material risks faced by the Fund ........................................................................................................... 12 • Impact of COVID-19 ................................................................................................................................. 12 • Sensitivity of funding position to changes in key assumptions ..................................................... 13 • Minimum risk funding position ............................................................................................................. 13 1 Actuarial Valuation as at 31 March 2019 Lancashire County Pension Fund Appendices Appendix A. Assumptions ........................................................................................................................... 16 • How the benefits are valued .................................................................................................................. 16 • Financial assumptions used to calculate the solvency funding target ......................................... 17 • Demographic assumptions used .......................................................................................................... 18 • Assumptions used to calculate the Primary Contribution Rate ...................................................... 22 Appendix B. Summary membership data ................................................................................................ 23 Appendix C. Assets ........................................................................................................................................ 24 Appendix D. Scheme benefits ..................................................................................................................... 25 Appendix E. Analysis of membership experience .................................................................................. 27 Appendix F. Valuation Dashboard as agreed by Scheme Advisory Board ........................................ 28 Appendix G. Rates and Adjustments Certificate issued in accordance with Regulation 62 .......... 30 Appendix H. Schedule to the Rates and Adjustments Certificate dated 31 March 2020 ................ 32 Appendix I. Glossary .................................................................................................................................... 56 2 Actuarial Valuation as at 31 March 2019 Lancashire County Pension Fund This report is addressed to the Administering Authority of the Lancashire County Pension Fund (“the Administering Authority”) and is provided to meet the requirements of Regulation 62 of the Local Government Pension Scheme Regulations 2013 (as amended) (“the Regulations”). It describes the factors considered by the Administering Authority when carrying out the actuarial valuation as at 31 March 2019 and the decisions reached as a result. The purpose of the actuarial valuation is for the Administering Authority to determine: The expected cost of providing the benefits built up by members at the valuation date (the “liabilities”), and compare this against the funds held by the Fund (the “assets”). The contributions needed to cover the cost of the benefits that active members will build up in the future and other costs incurred in running the Fund (the ‘Primary Contribution Rate’). An appropriate plan correcting any shortfall or surplus of the Fund’s assets against its liabilities. This plan will cover the amounts which will need to be paid/offset (the ‘Secondary Contribution Rate’) and the timeframe over which they will be paid (‘the Recovery Period’). Signature Name John Livesey Mark Wilson Fellow of the Institute and Faculty Fellow of the Institute and Faculty Qualification of Actuaries of Actuaries Date 31 March 2020 This report uses various technical terms. These are explained in more detail in the explanatory boxes which appear throughout this report, and in the Glossary at Appendix I. This report has been prepared in accordance with Technical Actuarial Standards TAS 100: Principles for Technical Actuarial Work and TAS 300: Pensions which are issued by the Financial Reporting Council. The calculations referred to in the report use methods and assumptions appropriate for reviewing the financial position of the Fund and determining a contribution rate for the future. Mercer does not accept liability to any third party in respect of this report; nor do we accept liability to the Administering Authority if the information provided in this report is used for any purpose other than that stated. The report may be disclosed to members and others who have a statutory right to see it. It may also be disclosed to any participating employer and, if the Administering Authority and Mercer consent, it may be disclosed to other third parties. 3 Actuarial Valuation as at 31 March 2019 Lancashire County Pension Fund 1 Fundamental to the valuation results is the funding strategy adopted by the Fund. This funding strategy is set out in a specific The FSS is the Administering document (the Funding Strategy Statement or FSS for short) which Authority’s key governance is one of the Administering Authority’s key governance documents document in relation to the for the Fund. In essence, the FSS sets out an overview of the actuarial valuation. It sets out approach to be used for the actuarial valuation. Amongst other the funding policies adopted, things it outlines the assumptions, both economic and the actuarial assumptions used, demographic, to be used in calculating the value of the liabilities and the timescales over which built up, the contributions required to correct any funding shortfall deficits will be paid off. or surplus, and the contribution rate required to fund the benefits Employers are consulted about for future service. It also sets out the strategy for making good any the FSS as part of the actuarial funding shortfall, in particular how any shortfall is expected to be valuation process. financed in terms of the balance between future contributions and future investment returns, and the period over which any surplus or shortfall is expected to be recovered. The principal elements of the funding strategy adopted for this actuarial valuation are as follows: • The McCloud judgment (see Appendix D for details) – we The “McCloud judgment” refers to a legal challenge in relation carried out a stand-alone to historic benefit changes for all public sector schemes being estimate of the cost of the age discriminatory. The Government announced in 2019 that McCloud judgment, and the this needs to be remedied for all schemes including the LGPS. results of this at whole Fund level This is likely to result in increased costs for some employers. are shown in Section 2 of this This remedy is not yet agreed but guidance issued requires that report. Following discussion with each Fund sets out its policy on addressing the implications. the Administering Authority it was agreed to allow for the estimated costs by way of a margin in the discount rate adopted, and for many employers this is expected to cover the additional liabilities. Once the final remedy for McCloud is known, the position will be reviewed. Whilst it is possible that the Fund may require additional contributions from employers at that point in time, based on the Administering Authority’s current knowledge and understanding of the likely outcome it is more likely that contributions will not be reviewed until the next actuarial valuation unless this is a requirement of the final remedy process. • Assumed