LPFA Employer Forum 2012

Please visit our Help Desk:• Can LPFA help you improve your Data Quality?

• Meet the Employer Services Team. • How can we improve our communication with you?

Welcome and Introduction

Anthony MayerLPFA Chairman

Public Service Pensions Bill

Mike TaylorLPFA Chief Executive

Agenda

• Update of progress toward LGPS 2014;

• Proposals in draft Public Service Pensions (PSP) Bill; and

• Gives pointers on other implications for administering authorities, employers and pensions committees.

LGPS 2014 – New design

• Career Average;

• 1/49th accrual with CPI revaluation;

• Pension age linked to State Pension Age;

• Contribution rates held for majority of members;

• Protection for pre 2014 service and within 10 years of age 65 atApril 2012; and

• P/T worker rates based on actual pay;

• 50/50 option;

• Rule of 85 retained.

LGPS 2014 – Update

• Consultations concluded successfully to date;

• Work ongoing on scheme design details:• Pensionable pay;

• Major issues for employers and payroll providers.

• Revaluation methodology; and• 50/50 option.

• Proposals under Workstream 2 – governance and value for money - submitted to government - discussions ongoing;

• Still on track for April 2014 (…just).

PSP Bill – Highlights

• Replaces current enabling legislation for public service schemes;

• Reshapes governance arrangements;

• Introduces wide ranging Treasury control;

• Defines the link to State Pension Age;

• Extends the oversight of The Pensions Regulator to public service schemes; and

• Sets out protections for current scheme members.

PSP Bill – New definitions

• Section 1 scheme – a new public service scheme e.g. LGPS 2014;

• Responsible Authority – person who makesthe regulations – probably Secretary of State for LGPS;

• Scheme Manager – person responsible for administering the scheme – probably includes LPFA;

• Relevant Authority – can be an LGPS scheme manager such as LPFA; and

• Scheme Board – responsible for assisting the scheme manager in relation to compliance – could be a National Pensions Board for LGPS.

• Require consent for regulations changes;

• Determine types of schemes to be allowed in regulations;

• Determine revaluation based on changes in prices or earnings;

• Determine the timing, data and method of scheme valuations (LGPS?);

• Direct the setting of the employer cost cap;

• Set the parameters and target cost for the cap;

• Set a procedure by agreement or otherwise of achievingthe target cost; and

• Require the publication of or provision to itself of scheme information.

PSP Bill – HM Treasury may… PSP Bill – Pension Age

• Pension Age – must be SPA or age 65 if higher;

• Exceptions – Police, Fire-fighters and Armed forces pension age is 60;

• Applies to normal and deferred pension age;

• Applies to benefits payable in the new scheme only; and

• If SPA changes then so do ALL benefits from new scheme including deferred.

PSP Bill – Protection

• Final salary link – sets conditions for retention of link for old scheme service;

• Service between old and new schemes must be continuous and with a scheme employer;

• Link may be protected by transfer between old schemes if member is in a new schemeand service is continuous; and

• Gaps less than 5 years are to be counted as continuous unless any one gap is more than 5 years.

PSP Bill – The Scheme Board

• Responsible for securing compliance with regulations, other legislation and requirements of TPR;

• Scheme manager must be assured that no board member has a conflict of interest;

• Where the scheme manager is a relevant authority may be a committee of that authority; and

• Must publish information on its membership, representation and matters within its responsibility.

Implications for pension committees

• A new structure with new responsibilities;

• Two roles into one – does it work?

• Possible models to fit the Bill – a national pension board for the LGPS?

• The role of the Pensions Regulator regarding committees.

Other implications

• Pensions Act 2004 amended to extend oversight of TPR to public service pensions in following areas:

• Appointment of skilled person to assist (the board of) a public service pension scheme;

• Duty (on scheme manager) to report late payment of employer contributions;

• Reports about (board members) misappropriation etc in public service pension schemes;

• Codes of practice: public service pension schemes (with the ‘stick’ of improvement notices and possibly civil penalties);

• Requirement for knowledge and understanding: pension boards of public service pension schemes; and

• Requirement (on scheme managers) for internal controls: public service pension schemes.

Good news and bad news

• Likely to be 1.5-2% reduction in scheme costs;

• Draft regulations expected Xmas Eve;

• Major complexities: • Definition of pay;• Protections; and• Interrelationship with Auto Enrolment.

Timescale

• October 2012 – First reading of PSP Bill;

• December 2012 – likely consultation on draft regulations;

• March – June 2013:• Final regulations; and• Bill enacted.

• 31 March 2013 – next triennial actuarial valuation;

• 1 April 2014 – new LGPS; and

• Post 2016 – review of cost control.

Automatic Enrolment

Mike AllenLPFA Director of Pensions

What is Automatic Enrolment

What is Automatic Enrolment

• Government requirement that all employees must be enrolled into a pension scheme (pension saving);

• The Government has appointed The Pension Regulator to oversee the process and ensure compliance;

• Minimum amounts payable by employee and employer;

• Regulations will apply from an employers ‘staging date’between October 2012 and 2017; and

• Regulator will write to you at 12 and 3 month stage.

Transitional Arrangements

• On staging date all eligible jobholders not in the scheme to be auto enrolled;

• For LGPS staging date can be brought forward e.g. to avoid end of year;

• Or it can be postponed using transitional delay to October 2017;

• Regulations still apply to new employees and those who become eligible workers due to earnings or age during transitional period; and

• Eligible employees can still elect to join at any time.

Categories of Employee

Non eligible job holder

Eligible JobHolder

Non eligible job holder

Over £8105

Non eligible job holder

Non eligible job holder

Non eligible job holder

Between £5035 and £8105

Entitled worker

Entitled worker

Entitled worker

Less than £5035

Over SPA22 to SPAUnder age 22

Employer Duties

Pre Staging Date

• Decide if using transitional delay;

• Know your workforce;

• Inform all employees of staging date;

• Write to all employees who are not in scheme (either using transitional delay or enrolling them from staging date); and

• Inform LPFA of those employees being auto enrolled.

Employer Duties 2

From Staging Date Forward

• Bring all new employees into pension scheme;

• Bring in any employee who reaches age 22; and

• Bring in any employee who increases their earnings above £675 on a given month.

Employer Duties 3

After Staging Date

• Register with the Pension regulator no later than 4 months from your staging date to confirm all duties have been fulfilled; and

• 3 years from your staging date you will need to bring in all those who have opted out (once again).

Employers Responsibility

Automatic Enrolment is an Employer Responsibility

• All decisions on who to enrol;

• When to enrol optants; and

• What letters need to be issued.

LPFA’s role

LPFA administer the scheme.

Our responsibilities include:

• Enrol any members notified to us into the scheme;

• Provide details of possible opt outs;

• Maintain records; and

• Keep scheme regulations updated:• Opting out process• Casual employees (less than 3 months)

Assistance Provided

We will provide the following to employers

• Guidance notes;

• Draft letter’s for use by Employers;

• Dedicated website page;

• On-line opt out route;

• Regular newsletter articles; and

• Reference Timetable for communications around your staging date.

Scheduled and Admitted bodies

The LPFA have employers split into 3 general groups:

• Scheduled bodies:- these will have to use the LPFA as their pension scheme for members of staff;

• Open Admitted bodies:- these employers could have other pension arrangements; and

• Closed Admitted bodies:- these employers must provide a suitable pension arrangement for their staff or re-open LGPS.

Summary

• Employer responsibility;

• Know your staging date and whether you will use transitional delay;

• Is the LGPS your default scheme?

• Know your workforce and who is eligible;

• Reporting requirements; and

• LPFA can offer assistance with the LGPS.

LPFA Employer Forum 2012

Tea, Coffee and Networking

Please visit our Help Desk:• Can LPFA help you improve your Data Quality?

• Meet the Employer Services Team. • How can we improve our communication with

you?

Investment Review

Alex GracianLPFA Chief Investment Officer

What has the Fund Returned

To the end of September 2012?

• The LPFA Active Sub-Fund totalled:£2.41 bn on Sept 30th 2011.

• - 20% to -10%;• -10% to 0;• 0 to +10%; and • +10% to +20%.

Who’s the bad-boy & Who’s the hero?

3M CO CHEVRON CORP GENERAL ELECTRIC NATIONAL GRID SANOFI

ABB LTD-REG CITIGROUP INC GLAXOSMITHKLINE NESTLE SA-REG SCHNEIDER ELECTR

AEGON NV COCA-COLA GOLDMAN SACHS GP NEWS CORP SEVEN & I HOLDIN

ALLIANZ SE-REG COLGATE-PALMOLIV HEWLETT-PACKARD NIKE INC SIEMENS AG-REGANGLO AMER PLC CREDIT SUISS-REG HONDA MOTOR CO NISSAN MOTOR CO SOC GENERALE

ASTRAZENECA PLC DAIMLER AG HSBC HLDGS PLC NOKIA OYJ SONY CORP

AVIVA PLC DELL INC IBM NOVARTIS AG-REG STANDARD CHARTERAXA DEUTSCHE BANK ING GROUP PANASONIC CORP SWISS RE AG

BANCO SANTANDER DEUTSCHE TELEKOM INTEL CORP PEPSICO INC TELEFONICA

BARCLAYS PLC DIAGEO PLC JOHNSON&JOHNSON PFIZER INC TEXAS INSTRUMENT

BASF SE DOW CHEMICAL CO JPMORGAN CHASE PHILIP MORRIS IN TOSHIBA CORP

BAYER AG-REG DU PONT (EI) KIMBERLY-CLARK PROCTER & GAMBLE TOTAL SABBVA E.ON AG KONINKLIJKE PHIL PRUDENTIAL PLC TOYOTA MOTOR

BHP BILLITON LTD EMC CORP/MA L'OREAL REPSOL SA UBS AG-REG

BP PLC ERICSSON LM-B LVMH RIO TINTO PLC UNILEVER NV-CVA

BRIDGESTONE EXXON MOBIL CORP MCDONALDS CORP ROYAL DUTCH SH-A UNITED TECH CORP

BRISTOL-MYER SQB FORD MOTOR CO MERCK & CO ROYAL DUTCH SH-B VIVENDI

CANON INC FRANCE TELECOM MICROSOFT CORP RWE AG VODAFONE GROUP

CARREFOUR SA FUJIFILM HOLDING MORGAN STANLEY SAINT GOBAIN VOLKSWAGEN AG

CATERPILLAR INC GDF SUEZ MUENCHENER RUE-R SAMSUNG ELECTRON WAL-MART STORESXSTRATA PLC

Equities have done well! The Active Sub-Fund Holds

Distribution at 30th September 2012:

100Total

3Cash

16Diversifying Assets

10Diversified Growth Fund

71Global and private equity

% of FundAsset Class

European Crisis

• Spain is in a much worse state than most people think;

• France could be the next domino to fall;

• Tensions between the IMF and ECB;

• Merkel in a difficult position with re-election; and

• Though the fear of euro collapse has receded.

Numbers are still not good..

The US

• The Fiscal Cliff is on everyone's mind;

• Inflationary risk, not now but down the road;

• Earnings are weakening; and

• On the positive side, the US will eventually be a net energy exporter.

China & EM

• The leadership change in China is more significant than the election in the US;

• The Chinese property bubble is the Elephant in the room;

• Another worry is the Chinese loan book; and

• On the positive, look to peripheral EM for growth.

Conclusion

• Global financial markets are still fragile;

• Expect continuing volatility over the coming year;

• We live in a much lower return world than the past; and

• The belief in equities as a long-term core holding has added significant fund value.

Valuation

Graeme MuirBarnett Waddingham

Data Quality

Tony WilliamsLPFA Employer Services

Team Manager

Benefits of good quality data

• Benefits paid on time;

• Annual benefit statements issued earlier;

• Accurate fund valuation and FRS17/IAS19 results;

• Fewer end of year queries;

• Meeting the Pensions Regulator requirements on Common Data; and

• Fewer audit queries.

Where are we now

• Initial end of year error rate for employers in the LPFA fund;

• 2011 ~ 15.52%; and

• 2012 ~ 14.61%.

Where we want to be

• 31 March 2014 ~ end of year error rate 10%;

• 31 March 2015 ~ error rate 7%; and

• 31 March 2016 ~ error rate 3%.

Tools available

• Data matching;

• Training;

• Improvements to end of year returns; and

• Guides on End of year and data matching.

Getting there together

• Visit the data matching stand;

• Build data matching into your payroll routines;

• Liaise with my team on how can improve end of year returns; and

• Provide feedback on how we can assist you.

Questions