LGPS valuations

hyubh

Question Timers prepare! For the the time is fast approaching - the results of the LGPS triennial valuations are a-near! The concept of an actual pension fund (and lots of 'em) may confuse Michael Gove ('you wot? there ain't no blank cheque?'), but I'm sure there are Tory boys and girls on this board who are far more astute than His Excellency. So... any predictions?

Me?

• The switch from RPI to CPI uprating has proved more handy than envisaged. (And if any active or retired member starts whinging about the supposed 'unfairness' of this - !!!!!!...)
• Wage stagnation has proved pretty handy.
• Investment returns have been moderate, though not necessarily worse than assumed last time around.
• Future service rates static, or perhaps ever so slightly higher given the next point.
• Past service rates increased by up to 5% (those deficit recovery plans are a'kicking). There may be some bodging going on here though.
• In England, northern funds, in general, to come out better than southern ones.
• The 2014 scheme ain't gonna help much.

PS - my predictions may or may not be influenced by insider information

kidmugsy

hyubh wrote: »

- the results of the LGPS triennial valuations are a-near! The concept of an actual pension fund
...

What happens, at least in theory, if one of the local authorities "goes Detroit" i.e. bust beyond all rescue and pension pot badly underfunded? Does central government have to rescue it or does it become a charge on the Pension Protection Fund?

SnowMan

The charity I worked for in my last job went bankrupt earlier this year due mainly to the deficit in the regional LGPS; historically a few employees, although not me, had been able to participate in the LGPS scheme and a large deficit had developed in relation to those employees pensions, attributable to the charity, which made the charity insolvent.

So will be interesting to see how that LGPS's funding position is now.

kidmugsy

SnowMan wrote: »

The charity I worked for in my last job went bankrupt earlier this year ... historically a few employees ... had been able to participate in the LGPS scheme and a large deficit had developed in relation to those employees pensions

Presumably the other employers in the scheme will have to make up the deficit?

What happens if ever they are broke too? I know they have taxing powers but presumably there are some limits on how much Council Tax they can squeeze out of the population?

SnowMan

kidmugsy wrote: »

Presumably the other employers in the scheme will have to make up the deficit?

What happens if ever they are broke too? I know they have taxing powers but presumably there are some limits on how much Council Tax they can squeeze out of the population?

The amount involved was very very small in relation to the size of the local LGPS scheme but ultimately the local authority and other participating employers pick up the tab for the charity's share of the deficit. Ironically it was a cut in local authority funding for the charity and then freezing of their reduced grant, so that the grant became lower in real terms that also lead to the insolvency. A sort of natural justice in some ways but not for the people relying on the services of the charity.

The LGPS schemes are not protected by the Pension Protection Fund (as far as I am aware) as they are treated as statutory bodies. So ultimately the LGPS deficits are the responsibility of the relevant local authority. In the event of a massive deficit which could not be dealt with through increasing council tax or reducing services, I'm not sure what would happen, although in that unlikely scenario you imagine central government would have to help out.

woolly_wombat

kidmugsy wrote: »

What happens, at least in theory, if one of the local authorities "goes Detroit" i.e. bust beyond all rescue and pension pot badly underfunded? Does central government have to rescue it or does it become a charge on the Pension Protection Fund?

There was a report on the state of LGPS funding in yesterday's Times (behind paywall):
http://www.thetimes.co.uk/tto/business/industries/banking/article3930848.ece

Extracts:

"Some local authority pension funds are so poorly funded that they are in a “death spiral”, raising questions about the retirement promises to millions of council workers.

A damning analysis for the Centre for Policy Studies reveals gross inefficiencies among the 101 local authority pension funds and suggests that they are being run for the benefit of vested interests.

An estimated £860 million a year could be saved by more pooling of assets and mergers between the disparate funds, according to the report’s author Michael Johnson, a former JP Morgan investment banker and secretary to the Conservative Party’s Economic Competitiveness Policy Group."

..........

"The weakest funds are having to liquidate assets simply to meet pension promises as they fall due, rather than using new contributions or the income from investments.

“With no realistic prospect of recovery, they are probably in a death spiral heading to an unfunded status,” Mr Johnson said."
..........

"Funds with the lowest funding ratios in 2010 included Waltham Forest, Brent, Havering, Hackney, Croydon and North Yorkshire.

Contrary to most members’ expectations, the schemes are not guaranteed by the Government and are not even covered by the Pension Protection Fund, the lifeboat scheme for schemes whose sponsoring employers fail.

That raises the question of what would happen if a council were declared insolvent. Mr Johnson said that he had asked the question of many experts but no one could tell him. He said that in extremis the Treasury probably would shoulder the liabilities, taking the fund’s assets in-house, as it did with the Royal Mail Pension Plan."

The Centre for Policy Studies publication entitled 'The Local Government Pension Scheme: opportunity knocks' was published yesterday and can be downloaded here:
http://www.cps.org.uk/publications/reports/q/ref-567/

WW

FatherAbraham

hyubh wrote: »

In England, northern funds, in general, to come out better than southern ones.

Interesting; why?

Because statisitcally unhealthier Northerners die younger? Nope, can't be, because unhealthy active members can sometimes retire early.

Warmest regards,
FA

Andy_L

kidmugsy wrote: »

Presumably the other employers in the scheme will have to make up the deficit?

What happens if ever they are broke too? I know they have taxing powers but presumably there are some limits on how much Council Tax they can squeeze out of the population?

Council tax is, typically, less than 1/3rd of council income so everyone else would get squeezed as well:
Business rates
Central Gov (ie other tax payers)
Asset sale
Charges for Council Services
Fines
Borrowing (ie future tax payers)
etc etc

Andy_L

woolly_wombat wrote: »

"The weakest funds are having to liquidate assets simply to meet pension promises as they fall due, rather than using new contributions or the income from investments.

Isn't that what funded pension schemes are supposed to do?

hyubh

A damning analysis for the Centre for Policy Studies

I can't say I read the actual report as entirely following the general line of the press release, even if it's the author's quotes centre stage in it. Indeed, given the Centre for Policy Studies is an expressly Thatcherite 'think tank', the author seems curiously statist in his views (proposals 5, 6 and 7). Moreover, the cashflow thing (proposal 4) is just silly - the fact pretty much every LGPS fund (excepting the closed Environment Agency one) has a positive cashflow says nothing about the liabilites accrued and being accrued. For *that* you need 'financial health indicators' like 'funding ratios', however 'nebulous' ('coz they're the best we have!).

hyubh

FatherAbraham wrote: »

Interesting; why?

In (very) general terms, when the previous Conservative government allowed funding levels to fall, southern councils were more prone to take the possibility up with depressed (*) employer rates (keeping in mind that employer, unlike employee rates, are set locally in the LGPS). The problem is, if the funding level in a DB scheme drops (public or private sector), it's very hard to get it back up.

(*) And yes, it's all relative.