Tayside Superannuation Fund Actuarial Valuation As at 31 March

Tayside Superannuation Fund

Actuarial Valuation as at 31 March 2008 Valuation Report

December 2008

Cheapside House Chalfont Court St James’s House 163 West George Street West Riding House Cunard Building 138 Cheapside Hill Avenue St James’s Square Glasgow 67 Albion Street Pier Head London Amersham Cheltenham G2 2JJ Leeds Liverpool EC2V 6BW Bucks HP6 5BB GL50 3PR LS1 5AA L3 1EG T 020 7776 2200 Tel 01494 788100 T 01242 538500 T 0141 243 4400 T 0113 394 3700 T 0151 235 6600 F 020 7776 3800 Fax 01494 788800 F 01242 538501 F 0141 243 4432 F 0113 394 3760 F 0151 235 6640

www.barnett-waddingham.co.uk Barnett Waddingham LLP is a limited liability partnership registered in England and Wales. Registered No. OC307678. Registered office: Cheapside House, 138 Cheapside, London EC2V 6BW. A list of members of Barnett Waddingham LLP may be inspected at the registered office. Regulated by the Institute of Actuaries in respect of a range of investment activities. Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Marjory Stewart Head of Finance Dundee City Council Floor 4 28 Crichton Street Dundee DD1 3RF

Dear Marjory

Actuarial Valuation as at 31 March 2008 As instructed we have carried out an actuarial valuation of Tayside Superannuation Fund (“the Fund”) as at 31 March 2008. The valuation is being carried out in accordance with Regulation 76 of the Local Government Pension Scheme Regulations (Scotland) 1998 (“the Regulations”). These valuation results take into account all of the changes in the Regulations governing the Local Government Pension Scheme (“the LGPS”) since the previous valuation and the changes that will come into effect on 1 April 2009. We now have pleasure in presenting our report on the results of the actuarial valuation to Dundee City Council as administering authority to the Fund. This report has been prepared in accordance with version 8.1 of the guidelines ‘GN9: Funding Defined Benefits - Presentation of Actuarial Advice’ published by the Board for Actuarial Standards. However the following aspects of GN9 are not relevant to LGPS Funds in the current circumstances and we have not reported on them: • Paragraph 3.4.16 of GN9 requires the actuary to include the certification of technical provision in relation to a valuation under Part 3 of the Pensions Act 2004. As Part 3 of the Pensions Act 2004 does not apply to the LGPS, this report does not comply with paragraph 3.4.16 of GN9; and • Part 3.5 of GN9 requires the actuary to report on the value of the liabilities that would arise had the Fund wound up on the valuation date (based on the cost of buying out the accrued benefits with insurance policies). As the LGPS is a statutory scheme, there is no regulatory provision for scheme to wind up and the scheme members have a statutory right to their accrued benefits. Therefore the concept of solvency on a buy-out basis does not apply to the LGPS. Accordingly, this report does not comply with part 3.5 of GN9.

Barnett Waddingham LLP Page 2 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Our report is set out in the following sections

1 Introduction 4 2 Valuation Process 5 3 Actuarial Assumptions 6 4 Financial Assumptions 8 5 Demographic Experience and Assumptions 12 6 Valuation Results 17 7 Comments and Conclusions 19 Appendix A – 2005 Contribution Schedule 22 Appendix B – Valuation Method 23 Appendix C – Valuation Data 25 Appendix D – Actuarial Assumptions 27 Appendix E – Individual Employer Data as at 31 March 2008 33 Appendix F – Rates and Adjustments Certificate 36 Appendix G – LGPS Benefits 37

Barnett Waddingham LLP Page 3 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

1 Introduction

1.1 Purpose of the Valuation 1.1.1 The main purpose of the valuation is to review the financial position of the Fund and to determine the rate at which the employing bodies participating in the Fund should contribute in the future to ensure that the existing assets and future contributions will be sufficient to meet future benefit payments from the Fund. 1.2 Previous Valuation 1.2.1 The last formal actuarial valuation of the Fund was carried out as at 31 March 2005 and the results of that valuation were set out in the formal valuation report dated March 2005. 1.2.2 The results of the formal valuation indicated that the assets of the Fund represented 91% of the accrued liabilities of the Fund. The Total Required Contribution Rate was certified as 315% of employees contributions which equated to 18.5% of payroll which assumed that the past service funding level would be restored over a period of 12 years. 1.2.3 A schedule of the certified contribution rates is included in Appendix A. 1.3 Changes to the LGPS 1.3.1 There have been numerous changes to the LGPS since the previous valuation, most notably the removal of the “Rule of 85” with a protection to 2020 afforded to older scheme members. 1.3.2 Following changes to the tax rules governing pension schemes on 6 April 2006, a change was made allowing retiring scheme members the opportunity to commute pension for additional lump sum – known as “commutation”. 1.3.3 However the most significant change has been the introduction of a new scheme from 1 April 2009. The Scottish Public Pensions Agency (“SPPA”) issued regulations for the LGPS in Scotland to come into effect from 1 April 2009. Under these regulations, benefits earned after 31 March 2009 will remain final salary benefits but will be payable from 65. Pensions will accrue at 60ths with no separate lump sum accrual although scheme members will be able to exchange pension for lump sum benefits. Benefits earned to 31 March 2009 will be as before. 1.3.4 A number of other benefit changes will also come into force along with tiered levels of employee contributions. 1.3.5 Full details of the benefits under the pre and post 2009 benefit and contribution structure are set out in Appendix G.

Barnett Waddingham LLP Page 4 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

2 Valuation Process

2.1 Funding Method 2.1.1 Contributions are paid to the Fund by the employing bodies to provide for the benefits which will become payable to Scheme members when they fall due. The funding objectives are to meet the cost of Scheme members’ benefits whilst they are working and to build up assets to provide adequate security for the benefits as they accrue. 2.1.2 The factors affecting the Fund’s finances are constantly changing and so it is necessary for its financial position and the contributions payable to be reviewed, from time to time, by means of an actuarial valuation to check that these objectives are being met. 2.1.3 For the purposes of this valuation we have, as in the past, adopted an approach which separately considers the benefits in respect of service completed before the valuation date (“past service”) and benefits in respect of service expected to be completed after the valuation date (“future service”). This approach enables us to focus on:- • The past service funding level of the Fund. This is the ratio of accumulated assets to liabilities in respect of past service after making allowance for future increases to members’ pay and pensions in payment. A funding level in excess of 100% indicates a surplus of assets over liabilities; a funding level of less than 100% indicates a deficit. • The future service funding rate i.e. the level of contributions required from the employing bodies to support the cost of benefits building up in future. 2.1.4 The method we have adopted at this valuation is known as the “Projected Unit Method”. The key feature of this method is that in assessing the future service cost we calculate the contribution rate which meets the cost of one year of benefit accrual. This is the same method adopted at the previous valuation and is an appropriate method for a Fund which is open to new members. 2.1.5 A full description of the valuation methods adopted at this valuation is set out in Appendix B. 2.1.6 Valuation Data 2.1.7 In our review of the funding position of the Scheme we start with the known facts at the valuation date i.e. the benefit structure, the Fund's membership and the accumulated assets. 2.1.8 A summary of the data on which we have based our valuation calculations is set out in Appendix C. We have relied on the accuracy of information supplied by the administering authority. 2.1.9 We have been supplied with a copy of the audited accounts as at 31 March 2008.

Barnett Waddingham LLP Page 5 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

3 Actuarial Assumptions

3.1 Valuation Assumptions 3.1.1 The next step is to formulate assumptions about the factors affecting the Fund's future finances such as inflation, pay increases, investment returns, rates of mortality, early retirement and staff turnover etc. 3.1.2 Future levels of pay increases will determine the level of benefits to be paid in future in respect of active members as well as the contributions that will be received by the Fund. Once in payment, pension benefits, in excess of Guaranteed Minimum Pensions (“GMPs”) are linked to the Retail Prices Index through increases granted in line with the Pensions (Increase) Act 1971. 3.1.3 The cost of providing for benefits, however, depends not only upon the amount but also the incidence of benefits paid i.e. at what point in the future benefits begin to be paid and, for pension benefits, for how long they continue to be paid. 3.1.4 As money is being set aside now to provide for benefits payable in the future i.e. the benefits are being prefunded, then part of the cost of providing the benefits can be met from investment returns achieved by the Fund’s assets. These assets build up from contributions paid by scheme members and participating employers to the Fund. 3.1.5 The assumptions adopted at the valuation can therefore be considered as:- • The statistical assumptions which generally provide estimates of the likelihood of benefits and contributions being paid, and, • The financial assumptions which determine the estimates of the amount of benefits and contributions payable as well as their current or present value. 3.1.6 We examine the assumptions in more detail in the next 2 sections of our report. 3.2 Funding Model 3.2.1 At this valuation we have used the same “market related” funding model that was used at the 2005 valuation. The key features of the model are as follows: • Future levels of price inflation are derived by considering the difference between index-linked gilt and fixed interest gilt yields at the valuation date. • Pay increases are assumed to exceed future price inflation. • The expected future return from equities is based on dividend yields at the valuation date in addition to an allowance for real capital growth is asset values. • In light of market conditions at the valuation date and subsequent events we have at this valuation also introduced a “risk adjustment” parameter into the calculation of future equity returns. Barnett Waddingham LLP Page 6 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

• Rather than take “spot” yields and market values of assets at the valuation date we have used smoothed yields and asset values. • The discount rate used to discount future payments to and from the Fund and so determine the value placed on the liabilities reflects the expected return that will be earned by the actual investment strategy adopted by the Fund.

Barnett Waddingham LLP Page 7 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

4 Financial Assumptions

4.1.1 The derivation of the key financial assumptions adopted at this valuation and how they compared as at the previous valuation are set out below: - 4.2 Future Price Inflation 4.2.1 The base assumption is the future level of price inflation. This is derived by considering the difference in yields from conventional and index linked gilts. The following table shows smoothed bond yields at both valuation dates and the derivation of future inflation derived from gilt yield differentials.

Smoothed Yields March 2008 March 2005 % p.a. % p.a. Corporate bonds 6.3% 5.3% Conventional gilt yields 4.6% 4.5% Index linked gilt yields 0.9% 1.7% Implied inflation 3.7% 2.8% 4.2.2 Both conventional gilt yields and index linked gilt yields have reduced since the previous valuation date although the “gap” has increased resulting in a higher level of implied inflation. 4.3 Future Pay Inflation. 4.3.1 As benefits are linked to pay levels at retirement, an assumption has to be made about future levels of pay inflation. Historically there has been a close link between price and pay inflation with pay increases in excess of price inflation averaging out at between 1% and 3% per annum depending on economic conditions. 4.3.2 The assumption adopted at the previous valuation was that pay increases, over and above increases due to promotion and other increments (or “salary scales”), would exceed price inflation by 1.50% per annum. 4.3.3 At this valuation we have categorised active members into male and female and then into full time and part time staff. Accordingly there are different salary scales reflecting the expectation that there is less scope for promotion or incremental increases amongst part time staff when compared to full time staff. 4.4 Future Investment Returns/Discount Rate 4.4.1 To determine the value of accrued liabilities and future contribution requirements at any given point in time it is necessary to discount future payments to and from the Fund. There are a number of different approaches which can be adopted in deriving the discount rate to be used. FRS 17 for example requires that the discount rate is related only to yields from corporate bonds.

Barnett Waddingham LLP Page 8 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

4.4.2 In our view the discount rate adopted should depend on the purpose of the valuation and the overall funding objectives. The regulations require the actuary to adopt methods and assumptions which “produce levels of employer contributions that are as stable as possible”. Therefore to help achieve this objective the discount rate should reflect the expected investment return to be achieved from the underlying investment strategy. 4.4.3 In determining the assumption to be made in relation to future investment returns it is necessary to consider the investment strategy of the Fund and the resulting expected future return earned by the assets held. The investment strategy of the Fund is to invest the assets in a mix of equities, bonds and property. 4.4.4 Redemption yields from bonds (gilts, index-linked gilts and corporate bonds) as set out in the previous table give an indication of the future rates of return from these asset classes. There is however no comparable market indicator to derive the market’s expected future return from investing in equities or property. 4.4.5 It is however possible to model future returns from equities by deriving an “equity risk premium”. This is effectively the expected return to be earned from equities over and above the returns available from gilts in return for taking on the additional risk of investing in equities rather than gilts. 4.4.6 We then include a risk adjustment parameter into the model which aims to keep the resulting equity risk premium within a reasonable long term range. 4.4.7 This risk adjustment parameter is based on the “spread” between corporate bond yields and gilt yields. The model now adjusts the equity risk premium when the difference between corporate bond yields and gilt yields is more than the historic average of around 1% per annum. 4.4.8 The following table sets out the derivation of the equity risk premium and the expected return from equities at the current and previous valuation date.

Smoothed Equity Returns March 2008 March 2005 % p.a. % p.a. Equity Risk Premium Net equity yield 3.6% 3.1% plus assumed real capital return 1.3% 1.3% less real risk free return 0.9% 1.7% Corp Bond Spread Adjustment (0.8%) Equity Risk Premium 3.1% 2.6%

Equity Return Inflation 3.7% 2.8% plus risk free real return 0.9% 1.7% plus equity risk premium 3.1% 2.6% Equity Return 7.8% 7.1% Barnett Waddingham LLP Page 9 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

4.4.9 It would also be possible to derive the expected future return from property in the same way. However as property might be expected to return somewhere between gilts and equities, we have assumed that the return from property is broadly the same as adopted at the previous valuation in real terms. 4.4.10 The discount rate is then the weighted average of future expected returns from the various asset classes based on the overall asset strategy adopted by the Fund. 4.4.11 In summary therefore we have adopted the following assumptions.

Financial Assumptions March 2008 March 2005 % p.a. Real % p.a. % p.a. Real % p.a. Investment Return Equities 7.8% 4.1% 7.1% 4.3% Gilts 4.6% 0.9% 4.5% 1.7% Bonds & Property 5.9% 2.2% 5.3% 2.5% Discount Rate 7.1% 3.4% 6.5% 3.7% Pay Increases 5.2% 1.5% 4.3% 1.5% Price Inflation/Pension Increases 3.7% 2.8%

4.4.12 Further details are included in Appendix D. 4.5 Intervaluation Experience 4.5.1 The following table sets out the financial experience of the Fund during the intervaluation period compared to the assumptions adopted at the previous valuation.

Financial Experience Actual Assumed Difference % p.a. % p.a. % p.a. Investment Return 9.1% 6.5% 2.6% Estimated Pay Increases 4.3% 4.3% 0.1% Price Inflation/Pension Increases 3.4% 2.8% 0.6%

Barnett Waddingham LLP Page 10 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

4.5.2 The principal conclusions are: • Investment returns achieved were better than expected. • Pension increases were higher than the assumption made at the previous valuation. • Pay increases were broadly in line with the assumption adopted at the previous valuation in nominal terms. 4.5.3 Overall the financial experience of the Fund during the intervaluation period compared to the assumptions adopted at the previous valuation was a positive factor during the intervaluation period.

Barnett Waddingham LLP Page 11 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

5 Demographic Experience and Assumptions

5.1 Statistical Experience – Active Members 5.1.1 The following table sets out the actual number of membership movements amongst active members during the intervaluation period compared to the assumptions adopted at the previous valuation.

Active Membership Movements Actual Assumed Difference % Early Leavers Contribution refunds 1,788 Deferred benefits 2,137 Transfers out 167 Total 4,092 3,025 35%

Deaths in Service 62 128.9 (52%)

Retirements Ill health 195 749.7 (74%) Age 708 708.0 - Voluntary 29 Redundancy 71 Efficiency 71 Total 1,074 1,458 (26%)

5.1.2 There were significantly more early leavers than assumed and fewer ill-health retirements than assumed. 5.1.3 Overall the statistical experience of the active members within the Fund during the intervaluation period compared to the assumptions adopted at the previous valuation was a positive factor during the intervaluation period. 5.1.4 In light of the actual experience of the Fund we have considered amending the future ill health retirement assumption. However in light of the changes to the criteria for ill health retirement we have retained the same assumption as we believe that the incidence off ill health retirements under the new LGPS could increase albeit the amount of benefits could be lower in the longer term.

Barnett Waddingham LLP Page 12 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

5.2 Pensioner Mortality 5.2.1 Mortality investigations over the last few years have concluded that the population across the UK is living longer and that this improvement will continue at a faster rate than seen in the past. Our analysis of LGPS pensioner longevity over the course of the last 20 years or so confirms that pensioners are living longer although experience does vary across the country and from Fund to Fund. 5.2.2 The following table sets out the actual and expected mortality of pensioners during the intervaluation period. We have compared the actual and assumed number of deaths by “lives” and also by the amount of pension ceasing (by “amounts”).

Pensioner Deaths Pensioners Dependants Total By Number Actual 783 345 1,128 Assumed 594 227 821 % Difference 31.8% 51.9% 37.3% By Amount of Pension £(000) £(000) £(000) Actual 2,905 660 3,565 Assumed 2,503 476 2,979 % Difference 16.0% 38.8% 19.7%

5.2.3 Analysis by number of pensioner deaths and indeed more importantly by amount of pension ceasing, shows the number of pensioners and dependants dying or pension ceasing during the intervaluation period was greater than the number expected on the 2005 assumptions. 5.2.4 We have also analysed the mortality experience in each intervaluation year to identify any trends:

Year Ave Age of Death Ave Term of Pension (Yrs) Num Deaths 2005/2006 76.5 16.3 288 2006/2007 76.9 16.8 246 2007/2008 77.2 16.8 249 Average 76.9 16.6 261

5.2.5 The average age at death was age 76.9 and pensions were in payment for an average of 16.6 years. 5.2.6 In terms of any trends then there would appear to be an increasing average age at death. 5.2.7 We have also carried out a number of analyses on the pensioner mortality experience during the intervaluation period. We have analysed mortality experienced by the Fund by age, sex and size of pension.

Barnett Waddingham LLP Page 13 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

5.2.8 The results of our analysis are set out in the following charts:

Pensioner Mortality by Age 300%

250% 231% 200% 200% 164% 134% 132% Lives 150% 114% 116% 100% 100% Amounts

50% Actual/Expected

0% <65 65-85 85+ Total Age at 31 March 2005

5.2.9 The table indicates that whilst overall the mortality experience was heavier than expected on both a lives and an amounts basis, mortality amongst those aged 65-85 who represent the majority of the pensioner liability was least heavy. This is known as the “cohort effect”. There is evidence that those born in the 1920s and 1930s have experienced greater improvements in longevity compared to other “cohorts”. 5.2.10 Mortality is also expected to vary by the size of pension in payment. We have therefore analysed the mortality experience by looking at those with higher than average and lower than average pensions – we have assumed that the average pension is £4,000 per annum.

Barnett Waddingham LLP Page 14 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Pensioner Mortality by Size of Pension

170%

150% 142% 134% 132% Lives 130% 114% 116% Amounts 109% 110% Actual/Expected 90% Below average Above average Total Pension per annum

5.2.11 The results show that members receiving “above average” pensions experienced lighter mortality than those receiving “below average” pensions – on an amounts basis.

5.3 Pensioner Mortality Assumptions 5.3.1 From the above analysis we can conclude • Overall the mortality experience over the intervaluation period had a positive financial impact in that more pensioners died and more pension ceased to be paid compared to the assumptions adopted at the previous valuation. • Those receiving higher pensions tend to experience lighter mortality than those receiving smaller pensions. • Those aged between 65 and 85, who represent the majority of pensioners, experienced lighter mortality than other age groups. 5.3.2 National surveys indicate that the pace of improvement in longevity continues and we believe there is a case to amend the assumptions adopted at this valuation to allow for lighter mortality in future although there is no need to increase the assumptions significantly based on past experience. 5.3.3 We have therefore completed calculations assuming current pensioners will follow the mortality experience underlying the PA92 tables projected to 2008. 5.3.4 For active members and deferred benefits members who will become pensioners at some stage in the future we have adopted the PA92 tables projected to calendar year 2018.

Barnett Waddingham LLP Page 15 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

5.3.5 These are the same base tables adopted at the previous valuation but with a further 3 year projection of improvement in longevity for pensioners and a further 13 years for non pensioners. 5.3.6 We have also assumed that the future improvement in mortality is set at a minimum of 1% per annum.

Barnett Waddingham LLP Page 16 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

6 Valuation Results

6.1 Past Service Position 6.1.1 The following table sets out the past service position for the Fund as a whole.

Past Service Funding Position £(000) Smoothed Asset Value 1,558,258

Past Service Liabilities Active Members 928,312 Deferred Pensioners 119,664 Transport Fund recharges 4,429 Pensioners 543,455 Value of Scheme Liabilities 1,595,860

Surplus (Deficit) (37,602)

Funding Level 97.6%

Contribution Rates % of payroll Future Service Total 22.3% less average employee contribution rate (6.3%) Employer 16.0% Deficit Contribution (12 years) 1.0% Total Employer Contribution Rate 17.0%

Employer Contribution (% of employee ctbns) 270%

Barnett Waddingham LLP Page 17 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

6.2 Reconciliation of Past Service Position 6.2.1 A reconciliation of the intervaluation experience on the past service position in the 3 years to the valuation date is set out in the following table.

Change in Past Service Position £(000) £(000) £(000) Surplus(Deficit) at 31 March 2005 (107,947) Benefits Accrued (166,939) Settlements/Curtailments (5,483) Contributions Paid 224,155 Deficit Funded (Use of Surplus) 51,734

Expected Return on Assets (242,597) Actual Return on Assets 338,575 Change in Market Conditions (103,541) Financial Gain(Loss) (7,563)

Salary Increases (2,087) Pension Increases (12,247) Membership movements 35,663 Experience 21,330

Change in demographic assumptions 21,776 Interest Cost (16,931)

Surplus(Deficit) at 31 March 2008 (37,602)

6.3 Sensitivity Analysis 6.3.1 The valuation results are sensitive to the assumptions made particularly the key assumption which is the real discount rate. A change of 1% would change the valuation of the liabilities by approximately 20%. 6.3.2 Assuming pensioners would live 1 year longer than assumed would increase the liabilities by approximately 3% - 4%.

Barnett Waddingham LLP Page 18 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

7 Comments and Conclusions

7.1.1 As anticipated, the overall funding level has increased since 31 March 2005. 7.1.2 This is due to a combination of factors as follows: • The actual rate of investment return that was achieved by the Fund being greater than was assumed at the previous valuation, plus, • Positive statistical experience of the Fund, plus, • The planned amount of deficit funded via employers contributions, less, • The reduction in real discount rates as a result of changes in market conditions. 7.1.3 However this has been offset by an increase in the cost of ongoing accrual of benefits, due to the change in market conditions, allowance for mortality improvements and the introduction of the new scheme in 2009. 7.1.4 Employers joining or leaving the Fund 7.1.5 Any new employers or admitted bodies joining the Fund should be referred to us for individual calculation as to the required level of contribution. 7.1.6 Any employer who ceases to participate in the Fund should be referred to us in accordance with Regulation 77.

Barnett Waddingham LLP Page 19 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

7.2 Post Valuation Date Events 7.2.1 Since the valuation date there has been a period of considerable market volatility. 7.2.2 The following chart plots the change in equity and bond markets since the valuation date to 30 November 2008.

Total Return Indices

120 110 100 90 80 70 60 Mar 2008 Jun 2008 Sep 2008 Dec 2008 Mar 2009

UK Equities UK Fixed Interest Gilts Expected Returns Total Fund (estimate)

7.2.3 As we see equity markets are well below levels as at 31 March 2008 and overall the return achieved by the Fund might be of the order of minus 15% to 20%. 7.2.4 However the discount rates and the smoothing mechanisms underlying our funding model means that whilst there may have been a slight deterioration in the financial position of the Fund since the valuation date, overall the impact on levels of employer contribution rates are not particularly significant at this stage. 7.2.5 The following chart shows the change in funding level and total contribution rate under our funding model and a funding model which assumes a fixed risk premium.

Barnett Waddingham LLP Page 20 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Funding Level Total Employer Contribution Rates

110% 25%

100% 20% 90% 15%

80% of% payroll

70% 10% Mar 2008 Jun 2008 Sep 2008 Dec 2008 Mar 2009 Mar 2008 Jun 2008 Sep 2008 Dec 2008 Mar 2009 Gilt Plus Model Smoothed Dynamic Gilt Plus Model Smoothed Dynamic Gilt Plus Gilt Plus Model

7.2.6 We have therefore certified contribution rates which represent, on average, an increase of around 1.5% of payroll compared to the position as at the valuation date and in line with current rates being paid. 7.2.7 We would be pleased to answer any questions arising from our report.

Graeme D Muir FFA Alison Hamilton FFA Partner Associate

Barnett Waddingham LLP Page 21 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Appendix A – 2005 Contribution Schedule

Dear Sir On your instruction, we have made an actuarial valuation of The Tayside Superannuation Fund (“the Fund”) as at 31 March 2005. In accordance with Regulation 76 of the Local Government Pension Scheme Regulations (Scotland) 1998 we have made an assessment of the contributions which should be paid to the Pension Fund by the employing authorities as from 1 April 2006 in order to maintain the solvency of the Fund. The Common Rate of Contribution payable by each employing authority under Regulation 76 for the period 1 April 2006 to 31 March 2009 shall be as follows:

Year to Common Contribution Rate % of employees' contributions 31 March 2007 275% 31 March 2008 295% 31 March 2009 315%

Further sums should be paid to the Fund to meet the costs of any early retirements using methods and assumption issued by us from time to time. The assumptions underlying the number of pensions that will come into payment during the period of this certificate are included in Appendix C. The certified contributions assume that there will be no changes to the benefits payable under the Regulations during the period of the certificate. Should any changes be introduced then we reserve the right to amend the certified levels of contribution.

Barnett Waddingham LLP Page 22 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Appendix B – Valuation Method

Valuation of Liabilities Using our assumptions we estimate the payments which will be made from the Fund throughout the future lifetime of existing active members, deferred benefit members, pensioners and their dependants. We then calculate the amount of money which, if invested now would be sufficient together with the income and growth in the accumulating assets to make these payments in future, using our assumption about investment returns. This amount is called “the present value” (or, more simply, “the value”) of members benefits. Separate calculations are made in respect of benefits arising in relation to service before the valuation date (“past service”) and for service after the valuation date (“future service”).

Past Service Funding Level A comparison is made of the value of the existing assets with the value of benefits in relation to past service (allowing for future pay and pension increases). If there is an excess of assets over past service liabilities then there is a past service surplus. If the converse applies there is a past service deficiency.

Future Service Funding Rate The first stage is to calculate the value of benefits accruing to existing active members in the future, by reference to projected pay as at the date of retirement or earlier exit. In the valuation we consider the benefits accruing in the year following the valuation date. The value of benefits accruing in the year following the valuation date is then expressed as a percentage of payroll over the same period having first deducted the equivalent contribution paid by the active members. The method described above results in a stable, long term contribution rate over time, if the assumptions adopted are borne out in practice and there is a steady flow of new entrants to the Fund. If the admission of new entrants is such that the average age of the membership profile increases then the contribution rate calculated at future valuations would be expected to increase.

Overall Result Any past service surplus or deficiency if significant can be used to offset against the contribution rate payable by the employing bodies over the period following the valuation date.

Barnett Waddingham LLP Page 23 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Name of Method The method described above is known as the Projected Unit Method of valuation.

Valuation of Assets Assets have been valued at a 6 month smoothed market value straddling the valuation date.

Barnett Waddingham LLP Page 24 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Appendix C – Valuation Data

A summary of the membership records submitted for the valuation is as follows.

Active Members Actual Pensionable Pay Average Number £ (000) £ Full Time 2008 2005 2008 2005 2008 2005 Males 5,450 5,601 131,816 123,066 24,187 21,972 Females 5,512 5,746 121,796 111,136 22,096 19,341 Part Time Males 784 632 7,166 5,102 9,140 8,072 Females 7,278 6,435 69,140 54,189 9,500 8,421 Total 19,024 18,414 329,918 293,493 17,342 15,939

Pensioners Annual Pensions Average Number £ (000) £ 2008 2005 2008 2005 2008 2005 Males 4,139 4,010 24,761 20,787 5,982 5,184 Females 4,485 3,973 13,060 10,412 2,912 2,621 Dependants 1,886 1,784 4,166 4,074 2,209 2,284 Total 10,510 9,767 41,987 35,273 3,995 3,611

Deferred Pensioners (incl "undecideds") Annual Pensions Average Number £ (000) £ 2008 2005 2008 2005 2008 2005 Males 2,506 2,028 3,477 3,309 1,387 1,632 Females 4,561 3,407 4,373 3,751 959 1,101 Total 7,067 5,435 7,850 7,060 1,111 1,299 Notes 1. The numbers relate to the number of records and so will include members in receipt of or potentially in receipt of more than one benefit. 2. Annual pensions are funded items only include pension increases up to and including the 2008 PI Order. 3. Pensionable pay is actual earnings.

Barnett Waddingham LLP Page 25 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Details of the assets held at the valuation date and accounts are as follows.

Assets at This Valuation 31 March 2008 31 March 2005 £(000) % £(000) % UK Equities 489,816 32% 509,979 45% Overseas Equities 694,585 45% 343,444 31% UK Fixed Interest Gilts 61,810 4% 36,894 3% Corporate Bonds 21,663 1% - - UK Index Linked Gilts 51,453 3% 31,542 3% Overseas Bonds 39,361 3% 51,046 5% Property 146,490 9% 101,795 9% Absolute Return Funds - - - - Private Equity - - - - Cash 31,841 2% 26,927 2% Net Current Assets 13,486 1% 21,420 2% TOTAL 1,550,505 100% 1,123,047 100% Year to March 2008 March 2007 March 2006 TOTAL Revenue Accounts £ (000) £ (000) £ (000) £ (000) EXPENDITURE Retirement Pensions 40,365 37,406 35,441 113,212 Retirement Lump Sums 11,419 9,518 5,245 26,182 Death Benefits 913 666 1,354 2,933 Leavers benefits 4,857 3,801 5,972 14,630 Admin/Investment Expenses 6,790 6,000 5,020 17,810 Other Expenditure ---- TOTAL 64,344 57,391 53,032 174,767

INCOME Employees Ctbns 19,898 19,172 18,444 57,514 Employers Ctbns 59,250 54,338 53,053 166,641 Transfer Values 7,739 9,796 7,681 25,216 Investment Income 49,049 45,686 40,107 134,842 Other Income ---- TOTAL 135,936 128,992 119,285 384,213 Fund Value £ (000) £ (000) £ (000) £ (000) Assets at Start of Year 1,587,567 1,446,325 1,123,047 1,123,047 Cashflow 71,592 71,601 66,253 209,446 Change in value (108,654) 69,641 257,025 218,012 Assets at End of Year 1,550,505 1,587,567 1,446,325 1,550,505 Annual Returns Approx Rate of Return -4.1% 7.6% 25.8% 9.1%

Barnett Waddingham LLP Page 26 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Appendix D – Actuarial Assumptions

The valuation process is essentially a projection of future cashflows into and out of the Fund. The amount of future cashflows out of the Fund i.e. benefits provided will depend on rates of future pay increases and price inflation. The timing or incidence of the cashflows will depend upon future rates of retirement, mortality etc. As money is being set aside now to provide for benefits payable in the future then part of the cost of providing the benefits can be met from investment returns achieved by the Fund’s assets which then build up. The higher the rate of return achieved by the assets the lower the contribution requirement that has to be paid in future to meet the cost of the benefits.

Financial Assumptions The principal financial assumptions adopted in the valuation are therefore as follows:-

Price Inflation In formulating a set of financial assumptions, the base point is the expected level of future price inflation. In a market related valuation the approach is to consider the difference in yields available from index-linked gilts and traditional gilts as at the valuation date. This effectively tells us what the market’s expectations are for long term inflation. At the current and previous valuation dates the yields were as follows:-

Smoothed Yields March 2008 March 2005 % p.a. % p.a. Corporate bonds 6.3% 5.3% Conventional gilt yields 4.6% 4.5% Index linked gilt yields 0.9% 1.7% Implied inflation 3.7% 2.8%

Pay Increases Having determined our assumption about future levels of price inflation, the next stage is to assess future levels of pay increases relative to price inflation. Historically there is, not surprisingly, a strong correlation between pay and price inflation as we see in the following charts.

Barnett Waddingham LLP Page 27 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

UK Inflation - Rolling 5 Year Averages (%p.a.) UK Real Pay Inflation - Rolling 5 Year Averages (%p.a.) 20% 6% 18% 5% 16% 4% 14% 12% 3% 10% 2% 8% 1% 6% 0% 4% 2% -1% 0% -2% 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

UK Earnings Inflation UK Price Inf lation

The trend has been that real pay increases have been around 1% to 3% per annum although as overall levels of inflation have reduced so too has the level of real pay growth.

Investment Returns In a market-related valuation it is necessary to assess future average levels of return in current market conditions. Redemption yields from gilts give an indication of the market’s expectations of long term interest rates and so some indication about future risk free rates of return. There is however no comparable market indicator to derive the market’s expected future return from investing in equities at any particular point in time. It is generally accepted however that the expected future return from investing in equities should exceed that available from investing in gilts. This extra expected return is known as the equity risk premium. By comparing yields from gilts and equities it is possible to derive the equity risk premium. The real return to be earned in future from equities from current market levels will be the current net dividend yield plus future real growth in share values. The next chart shows the long term the capital return in real terms over the last 35 years or so which has averaged out at around 1 per cent per annum although there have been prolonged periods when the real capital returns have been significantly different to this average.

Barnett Waddingham LLP Page 28 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

UK Equity Real Capital Returns - Rolling 5 Year Averages (%p.a.)

25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

For the purposes of the valuation therefore we have assumed that real capital returns will be 1.3% per annum which is consistent with the same assumption adopted at the previous valuation. In light of market conditions at the valuation date and post valuation events we have also included a risk adjustment parameter into the model which aims to keep the resulting equity risk premium within a long term range. This risk adjustment parameter is based on the “spread” between corporate bond yields and gilt yields. The model now adjusts the equity risk premium when the spread corporate bond yields above gilt yields is more than the historic average of around 1% per annum. The following chart shows how the spread between corporate bond yields and gilt yields has varied over the last ten years.

Barnett Waddingham LLP Page 29 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Corp Bond/Gilt Yield Spread

8% 7% 6% 5% 4% 3% 2% 1% 0% Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 Dec 2003 Dec 2004 Dec 2005 Dec 2006 Dec 2007

Gilt Yields Bond Yields Spread Linear (Spread)

The derivation of the equity risk premium and the assumption regarding future equity returns were therefore as follows:-

Equity Return Inflation 3.7% 2.8% plus risk free real return 0.9% 1.7% plus equity risk premium 3.1% 2.6%

Barnett Waddingham LLP Page 30 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

It would also be possible to derive the expected future return from property in the same way. However as property is not held in the same proportion as equities and property might be expected to return somewhere between gilts and equities, we have assumed that the return from property is broadly the same in real terms as assumed at the previous valuation. The discount rate is then the weighted average of future expected returns from the various asset classes based on the overall asset strategy that is adopted by the Fund. In summary therefore we have adopted the following assumptions.

Barnett Waddingham LLP Page 31 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Statistical Assumptions The statistical assumptions we have adopted are based on our analysis of the incidence of retirement, and withdrawal of our Local Authority client funds. The mortality assumptions are based on national mortality tables. Sample rates are shown in the following tables: -

Incidence per 1000 active members per annum Salary Scales Other assumptions Males Females Age Retirements Benefits accrued prior to 1 April 2009: It is assumed that active members will retire at age 60 or when they would first satisfy the rule of 85 if later, no later than 65 Death Ill Health WithdrawalDeath Ill Health Withdrawal Males Females Age FT PT FT PT FT PT FT PT FT PT FT PT FT PT FT PT Benefits accrued after 31 March 2009: It is assumed that active members will retire at age 65 of if they would reach age 60 by 2020 then as for benefits accrued prior to 20 0.50 0.90 0.0 0.0 150 153 0.20 0.20 0.0 0.00 156 247 112 103 107 103 1 April 2009. 25 0.50 1.00 0.0 3.2 101 119 0.20 0.20 0.6 2.60 162 244 170 116 141 117 30 0.60 1.10 0.6 5.2 62 90 0.30 0.30 1.0 3.60 138 193 214 127 162 126 Pensioner Mortality Prospective Pensioners PxA92 c2018 35 0.70 1.20 0.8 7.8 42 70 0.50 0.50 2.0 5.20 95 140 244 135 182 133 Prospective Ill Health Pensioners PxA92 c2018 plus 4 years 40 1.20 1.70 1.4 10.8 31 56 0.80 0.80 2.6 7.20 64 106 269 142 205 140 Current Pensioners PxA92 c2008 45 2.00 2.90 3.2 15.6 24 42 1.30 1.40 4.2 9.20 49 81 296 145 228 143 Mortality improvements Underlying tables subject to a minimum of 1% per annum 50 3.20 5.30 8.8 22.8 18 28 1.90 2.20 8.2 13.60 39 60 324 146 252 145 Probability of partners pension coming into 90% payment (including a loading for dependants 55 5.00 7.80 18.0 37.2 13 20 2.50 3.30 21.6 25.60 32 47 324 146 252 145 benefits) 60 9.00 11.00 36.0 70.0 0 0 3.20 4.40 43.2 48.17 0 0 324 146 252 145 65 9.00 11.00 61.0 114.5 0 0 3.20 4.40 73.2 78.79 0 0 324 146 252 145 Partner Age Difference Males are assumed to be 3 years older than their partners Commutation It is assumed that members at retirement will commute pension to provide a lump sum of 50% * (3/80ths lump sum + HMRC maximum lump sum) at a rate of £12 of lump sum for £1 of pension.

Ill health tiers It is assumed that 15% of ill health retirements will be eligible for benefits based on full prospective service and 85% will qualify for a service enhamcment of 25% of prospective service.

Barnett Waddingham LLP Page 32 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Appendix E – Individual Employer Data as at 31 March 2008

Active Members Pensioners Deferred Pensioners

Employer Code Number Actual Pay Average Number Annual Pensions Average Number Annual Pensions Average £ (000) £ £ (000) £ £ (000) £ Abertay Housing Association 217 31 694 22,379 13 51 3,913 10 18 1,839 Abertay Students Association 225 8 135 16,835 - - - 7 5 736 Angus and Dundee Tourist Board 214 - - - 8 33 4,117 9 13 1,439 Angus Business Shop 416 ------Angus College 402 123 1,967 15,992 17 52 3,034 49 45 922 Angus Council 40 3,977 65,264 16,410 883 3,794 4,297 970 1,180 1,217 Angus Digital Media Centre 417 2 22 10,925 - - - 4 4 1,048 Angus District Council 4 - - - 269 1,190 4,425 108 75 690 Angus Itec 407 - - - 1 1 1,001 3 2 645 Angus Tourist Board 400 - - - 5 7 1,491 - - - Anton House 209 - - - 3 4 1,319 3 5 1,740 Balgay School 500 - - - 6 17 2,864 5 4 754 Balgowan School 501 - - - 7 28 3,951 - - - Balnacraig School 307 37 747 20,181 13 89 6,820 15 26 1,719 Blindcraft Products 299 ------Bowerswell Memorial Homes 504 - - - 1 0 429 - - - Carnoustie Golf Links Committee 404 36 810 22,494 12 27 2,291 22 26 1,173 Carolina House Trust 211 22 515 23,395 5 28 5,504 26 56 2,152 Central Region 509 - - - 1 2 2,115 - - - Countryside Commission for Scotland 505 - - - 23 210 9,141 10 11 1,068 Dale School 502 - - - 3 10 3,347 - - - Dorward House 408 2 42 21,155 3 12 3,991 5 12 2,388 Dovetail Enterprises 208 71 1,162 16,368 111 299 2,695 53 63 1,190 Duncan of Jordanstone College 204 34 708 20,831 77 414 5,379 27 25 937 Dundee Business Shop 216 ------1 1 656 Dundee Citizens Advice Bureau 205 10 182 18,181 3 10 3,326 1 1 731

Barnett Waddingham LLP Page 33 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Active Members Pensioners Deferred Pensioners

Employer Code Number Actual Pay Average Number Annual Pensions Average Number Annual Pensions Average £ (000) £ £ (000) £ £ (000) £ Dundee City Council 20 6,044 110,172 18,228 1,859 8,719 4,690 1,640 2,303 1,404 Dundee College 202 248 4,058 16,362 65 228 3,512 80 59 732 Dundee Contemporary Arts Ltd 218 16 304 19,012 1 2 2,428 14 12 874 Dundee District Council 2 - - - 1,271 4,489 3,532 323 211 653 Dundee Itec 506 - - - 5 8 1,571 1 1 536 Dundee Leisure Trust 226 127 1,737 13,679 3 11 3,689 5 5 943 Dundee Science Centre 220 9 214 23,808 - - - 6 5 838 Dundee Society for Visually Impaired 210 5 125 24,997 5 15 2,933 9 12 1,315 Dundee Voluntary Action 207 9 214 23,740 11 32 2,876 9 7 742 Employer 900 900 1 13 13,032 ------Fairfield Trust 507 - - - 1 1 965 1 6 6,476 Forfar Day Care Centre 405 2 40 19,836 4 5 1,202 2 0 175 Forfarshire Society For Blind 406 5 126 25,212 2 24 12,202 4 4 1,080 Health Service 510 - - - 3 7 2,283 - - - Highland and Island Airports 229 41 995 24,279 ------Montrose Links Trust 403 6 107 17,767 3 2 598 4 15 3,820 Montrose Port Authority 401 22 482 21,919 35 149 4,257 13 35 2,702 Perth and Kinross Council 30 4,247 72,515 17,074 847 4,142 4,890 1,080 1,313 1,216 Perth and Kinross DC 3 - - - 365 1,326 3,633 131 76 583 Perth and Kinross Leisure 300 340 3,006 8,843 26 87 3,353 287 112 390 Perth and Kinross Society for the Blind 306 5 100 20,004 3 15 5,022 3 3 934 Perth Business Shop 316 ------Perth Citizens Advice Bureau 305 7 146 20,900 2 6 3,018 3 7 2,477 Perth College 302 154 2,918 18,946 52 171 3,280 70 72 1,022 Perth Countryside Trust 317 5 129 25,727 - - - 1 0 170 Perth Theatre Company Ltd 304 33 632 19,167 13 15 1,181 29 23 804 Perthshire Tourist Board 301 - - - 18 52 2,910 29 32 1,115 Pitlochry Leisure Company 303 ------3 1 367 Robertson Facilities Management 418 3 49 16,393 - - - 1 0 352 Rossie Secure Accomodation Services 409 96 2,448 25,499 43 285 6,636 32 67 2,082 Rural Forum 308 - - - 1 1 1,414 6 7 1,141 Scottish Commission For Care 223 547 15,308 27,986 51 462 9,058 100 308 3,076

Barnett Waddingham LLP Page 34 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Active Members Pensioners Deferred Pensioners

Employer Code Number Actual Pay Average Number Annual Pensions Average Number Annual Pensions Average £ (000) £ £ (000) £ £ (000) £ Scottish Police Services Agency 228 96 2,477 25,807 - - - 2 7 3,744 Scottish Social Services Council 224 77 2,117 27,494 5 39 7,800 16 59 3,682 Social Work Services - Rossie 503 - - - 1 2 1,793 - - - Stirling District 508 - - - 1 2 1,516 - - - TACTRAN 318 5 209 41,869 ------Tay River Purification Board 201 - - - 7 79 11,296 2 1 332 Tay Road Bridge 200 34 759 22,322 62 197 3,183 10 16 1,625 Tayside Business Gateway 221 - - - 10 15 1,526 30 60 2,000 Tayside Careers Limited 410 - - - 6 34 5,647 7 12 1,776 Tayside Community Justice Authority 230 3 103 34,442 ------Tayside Contracts 222 1,439 15,352 10,668 470 1,438 3,060 521 340 652 Tayside Fire Board 215 86 1,839 21,384 63 236 3,738 14 24 1,740 Tayside Police Joint Board 213 531 9,679 18,228 131 579 4,423 134 183 1,366 Tayside Regional Council 1 - - - 3,433 11,946 3,480 851 557 654 Tayside Valuation Joint Board 219 75 1,851 24,682 17 201 11,851 19 46 2,430 University of Abertay Dundee 203 322 6,881 21,370 149 684 4,592 245 274 1,117 Visit Scotland 227 31 563 18,148 2 0 211 2 2 1,160

Total 19,024 329,918 17,342 10,510 41,987 3,995 7,067 7,850 1,111

Barnett Waddingham LLP Page 35 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Appendix F – Rates and Adjustments Certificate

Marjory Stewart Head of Finance Dundee City Council 28 Crichton Street Dundee DD1 3RF

Dear Sirs

On your instruction, we have made an actuarial valuation of Tayside Superannuation Fund (“the Fund”) as at 31 March 2008. In accordance with Regulation 76 of the Local Government Pension Scheme (Scotland) Regulations 1998 we have made an assessment of the contributions which should be paid to the Pension Fund by the employing authorities as from 1 April 2009 in order to maintain the solvency of the Fund. The Common Rate of Contribution payable by each employing authority under Regulation 76 for the period 1 April 2009 to 31 March 2012 shall be 18.5% of pensionable payroll. Further sums should be paid to the Fund to meet the costs of any early retirements using methods and assumption issued by us from time to time. Employing authorities may pay further amounts at any time and future periodic contributions may be adjusted on a basis approved by ourselves. The assumptions underlying the number of members who will become entitled to pensions under the provisions of the Scheme and the liabilities arising in respect of such members are set out in Appendix D. Yours faithfully

Graeme D Muir Fellow of the Faculty of Actuaries

Barnett Waddingham LLP Page 36 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

Appendix G – LGPS Benefits

LGPS Scotland 1998 LGPS Scotland 2009

General Features

Type of Scheme Final salary Final salary

Relationship with Contracted-out Contracted-out S2P Eligibility/Joining All employees in LG or participating employers, with the exception All employees in LG or participating employers, with the exception of Teachers, Police Officers and Fire-fighters. of Teachers, Police Officers and Fire-fighters. Cannot join on or after eve of 75th birthday. Cannot join on or after eve of 75th birthday.

Automatic entry unless you are a casual employee. Automatic entry unless you are a casual employee.

Admitted bodies can determine which groups of staff are eligible Town or Parish Councils, Foundation Schools, Resolution or and which have automatic entry. Admitted bodies can determine which groups of staff are eligible and which have automatic entry.

Must have a contract of at least 3 months duration.

Member 6% Tiered Banded Contributions based on pay as at 1 st April Contributions 5% for manual workers in scheme prior to 01/04/1998 Range Cont Rate

Earnings up to £18,000 5.50%

Above £18,000 and up to 7.25% £22,000 Above £22,000 and up to 8.50% £30,000 Above £30,000 and up to 9.50% £40,000 Above £40,000 12.00%

Bands to be increased annually with RPI (rounded down to nearest £100)

Barnett Waddingham LLP Page 37 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

LGPS Scotland 1998 LGPS Scotland 2009

Final Pay Best of the last 3 years pensionable pay Best of the last 3 years pensionable pay

Certificate of Protection available covering a period of 13 years should the members rate of pay be reduced. Pensionable Pay Normal salary or wages plus any shift allowance, bonuses, Nor mal salary or wages plus any shift allowance, bonuses, contractual overtime, Maternity Pay, Paternity Pay, Adoption contractual overtime, Maternity Pay, Paternity Pay, Adoption Pay, and any other taxable benefit specified in your contract Pay and any other taxable benefit specified in your contract as being pensionable. as being pensionable. Retirement Benefits

Normal Retiring Age Age 65 Age 65 Early Retirement Age 60 onwards Age 60 onwards

Joined after 30/11/2006 then benefits reduced. Joined after 30/11/2006 then benefits reduced.

Member as at 30/11/2006 then benefits protected: Member as at 30/11/2006 then benefits protected:

Age 60 or over by 31/03/2020 Age 60 or over by 31/03/2020

Satisfy the 85 year rule when you draw your pension, then Satisfy the 85 year rule when you draw your pension, then benefits accrued to 31/03/2020 are unreduced. Benefits built up benefits accrued to 31/03/2020 are unreduced. Benefits built up after 31/03/2020 are reduced by the period to age 65. after 31/03/2020 are reduced by the period to age 65.

Do not satisfy the 85 year rule when you draw your pension, but Do not satisfy the 85 year rule when you draw your pension, but would have had you remained until age 65, then benefits accrued would have had you remained until age 65, then benefits accrued to 31/03/2020 are reduced by the period short of attaining the 85 to 31/03/2020 are reduced by the period short of attaining the 85 year rule. Benefits built up after 31/03/2020 are reduced by the year rule. Benefits built up after 31/03/2020 are reduced by the period to age 65. period to age 65. Do not satisfy the 85 year rule when you draw your pension and Do not satisfy the 85 year rule when you draw your pension and would not have satisfied the 85 year rule by age 65 then all would not have satisfied the 85 year rule by age 65 then all benefits are reduced by the period to age 65. benefits are reduced by the period to age 65.

Under Age 60 by 31/03/2020 Under Age 60 by 31/03/2020

Satisfy the 85 year rule when you draw your pension, then Satisfy the 85 year rule when you draw your pension, then benefits accrued to 31/03/2008 are unreduced. Benefits built up benefits accrued to 31/03/2008 are unreduced. Benefits built up after 31/03/2008 are reduced by the period to age 65. after 31/03/2008 are reduced by the period to age 65.

Barnett Waddingham LLP Page 38 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

LGPS Scotland 1998 LGPS Scotland 2009

Do not satisfy the 85 year rule when you draw your pension, but Do not satisfy the 85 year rule when you draw your pension, but would have had you remained until age 65, then benefits accrued would have had you remained until age 65, then benefits accrued to 31/03/2008 are reduced by the period short of attaining the 85 to 31/03/2008 are reduced by the period short of attaining the 85 year rule. Benefits built up after 31/03/2008 are reduced by the year rule. Benefits built up after 31/03/2008 are reduced by the period to age 65. period to age 65. Do not satisfy the 85 year rule when you draw your pension and Do not satisfy the 85 year rule when you draw your pension and would not have satisfied the 85 year rule by age 65 then all would not have satisfied the 85 year rule by age 65 then all benefits are reduced by the period to age 65. benefits are reduced by the period to age 65.

Early Retirement Age 50+ All new scheme members to have Minimum Pension Age of 55 (employer consent, years. redundancy, All current scheme members will have MPA of 55 from 6/4/2010, efficiency) except for any member who was in the scheme on or before 5/4/2006 whose employment is terminated on grounds of redundancy or efficiency and is aged 50 or over at that point. Such members will have a protected pension age of 50. Minimum 2yrs membership or transfer in Minimum 2 years membership or transfer in Employers discretion to waive any actuarial reduction Employers discretion to waive any actuarial reduction

Maximum augmentation up to 10 years regardless of age

Employers able to grant extra pension up to £5,000 pa

Flexible Retirement Age 50+ Age 55+ (existing members remains at age 50+ for requests up to 31/03/2010) Minimum 2yrs membership or transfer in Minimum 2 years membership or transfer in

Reduce hours or move to a lower graded post Reduce hours or move to a lower graded post

Draw pension and salary Draw pension and salary

Employers discretion to waive any actuarial reduction Employers discretion to waive any actuarial reduction

Late Retirement Continue to day before eve of 75th birthday Continue to day before eve of 75th birthday

Benefits accrue to date of retirement Benefits accrue to date of retirement

Barnett Waddingham LLP Page 39 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

LGPS Scotland 1998 LGPS Scotland 2009 Ill Health Retirement Minimum 2 years membership for ill health enhancement Accrued Membership Benefit Payable

Less than 1 year Refund of contributions Higher Tier - No reasonable prospect of undertaking gainful employment before age 65 then service enhanced by 100% of 1 to 2 yrs Greater of refund of contributions or ill health grant of prospective service to age 65.

1/12 x PP x Membership Lower Tier - No prospect of undertaking gainful employment within a reasonable period of leaving local government 2 to 5 yrs Accrued Membership employment, but likely to be able to obtain gainful employment before 65 then service enhanced by 25% of prospective service. 5 to 10 yrs Membership Doubled

10 to 13 1/3 yrs Membership Enhanced to 20 yrs Third Tier (outside of LGPS to be funded by employer revenue account not pension fund) - A third tier of ill health provision, will 13 1/3 years to 33 1/3 yrs Membership Enhanced by 6 2/3 yrs sit outside of the pension scheme and will be in respect of those 33 1/3 years to 40 yrs Membership Enhanced to 40 yrs who are capable of gainful employment. Participating employers under the Local Government (Discretionary Payments and Injury Over 40 years No Enhancement Benefits)(Scotland) Regulations will have the option of paying a discretionary lump sum payment of 1 week’s pay for each year of Subject in all cases to a maximum enhancement of potential service up to a maximum of 30 week’s pay, (of which up to membership to age 65 £30,000 being tax free). Employers would need to remember that any payment under these Regulations is available to all employees and not just those who participate in the LGPS. Benefit Accrual Pension = 1/80 th Pension = 1/60th

Lump Sum = 3/80 th plus increased lump sum by commutation Lump Sum = By commutation £12:£1 up to a maximum of 25% of £12:£1 up to a maximum of 25% of lifetime allowance lifetime allowance Spouse’s Pension = 1/160 th Spouse’s Pension = 1/160 th

Barnett Waddingham LLP Page 40 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

LGPS Scotland 1998 LGPS Scotland 2009

Death and Survivor Benefits

Lump Sum Death Active = 2 x PP Active = 3 x PP Benefit Deferred = Current value of deferred lump sum Deferred = 5 x Current value of deferred annual pension

Pensioner = 5 year guarantee less pension paid Pensioner = 10 year guarantee less pension paid (for death before age 75) Dependants’ Widow(er)s Widow(er)s Provision Registered civil partners Registered civil partners Nominated cohabiting partners Dependants’ If membership > 2 years 1/160th x full prospective service to age 65 Pension (Death in Service) 50% x notional ill health pension

Otherwise 1/160th x accrued membership

Spouse’s Short Active = 3 months x salary (increased to 6 months if dependent None Term Pension children)

Deferred = none

Pensioner = 3 months x member’s pension (increased to 6 months if dependent children)

Children’s Provision a) under age 17, or a) under age 17, or

b) under age 23 and, since before age 17, have been in b) under age 23 and, since before age 17, have been full-time education or in training for a trade, profession or in full-time education or in training for a trade, profession or vocation, or vocation, or c) dependent by reason of incapacity which arose whilst a c) dependent by reason of incapacity which arose whilst child within the definition of a. or b. above a child within the definition of a. or b. above

Barnett Waddingham LLP Page 41 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

LGPS Scotland 1998 LGPS Scotland 2009

Children’s Pensions Surviving Parent Surviving Parent

1 child = 1/4 x notional pension 1 child = 1/2 x dependant’s pension

2+ children = 1/2 x notional pension divided by number of children 2+ children = 1 x dependant’s pension divided by number of children

Orphans Orphans

1 child = 1/3 x notional pension 1 child = 2/3 x dependant’s pension

2+ children = 2/3 x notional pension divided by number of children 2+ children = 1 1/3 x dependant’s pension divided by number of children For death in service the notional pension is the ill health pension or a pension based on the lesser of 10 years and full service to age 65 where this is higher. Increasing Benefits

AVCs Maximum contributions – 100% of taxable earnings Maximum contributions – 100% of taxable earnings

Options available: Options available: • Open market annuity • Open market annuity • LGPS Top Up Pension • LGPS Top Up Pension • Tax Free Lump Sum (100% of fund up to max of 25% of LTA) • Tax Free Lump Sum (100% of fund up to max of 25% of LTA) • LGPS Service Credit (if commenced AVCs prior to • LGPS Service Credit (if commenced AVCs prior to 30/06/2005) 30/06/2005) Added Maximum purchase 6 2/3 years Maximum purchase £5,000 extra pension (in multiples of £250). Years/Pension Benefits Payable from next birthday to age 65 (contracts taken out before Scheme Member can pay by regular contributions and has the 01/12/2006 may have an earlier date than age 65) option to increase pension benefits with or without increasing any dependant's pension. Contract can commence at anytime before age 64 and be paid over a term of a whole number of years not exceeding NRD at age 65. Employers can purchase added pension for the member only (not including dependant) by way of a lump sum payment.

Barnett Waddingham LLP Page 42 of 43

Tayside Superannuation Fund – Actuarial Valuation as at 31 March 2008

LGPS Scotland 1998 LGPS Scotland 2009

Leaving the Scheme

Withdrawal Benefits Less than 2 years membership and no transfer in Less than 2 years membership and no transfer in on Leaving • Refund of contributions • Refund of contributions

• CETV • CETV

• Defer decision • Defer decision

More than 2 years membership or transfer in More than 2 years membership or transfer in

• CETV • CETV

• Defer Benefits until NRA • Defer Benefits until NRA

Barnett Waddingham LLP Page 43 of 43