University of Aberdeen Superannuation & Life Assurance Scheme (UASLAS)

Funding and Investment

11 June 2013

2

Funding and investment

“Can you explain why the monetary value of the fund at present is more than last year, whilst the perceived hole is larger?”

“Can you explain why the monetary value of the fund at present is more than last year, whilst the perceived hole is larger?”

3

Monetary value of fund

31-Jul-10 31-Jul-11 31-Jul-12 30-Apr-13

81.0

88.692.3

106.1

£m

4

Investment returns

+7.9% per annum– 2 years (approx*) to 30 June 2012

+17.4%– 9 months to 31 March 2013

*From 7 September 2010, date of change of investment manager

5

How are the assets invested?20%

50%

15%

15%

Equities (UK) Equities (World ex UK)Corporate Bonds Government Bonds (Gilts)

6

Investment returns: equity indices31

-Dec

-93

03-J

ul-9

403

-Jan

-95

03-J

ul-9

503

-Jan

-96

03-J

ul-9

603

-Jan

-97

03-J

ul-9

703

-Jan

-98

03-J

ul-9

803

-Jan

-99

03-J

ul-9

903

-Jan

-00

03-J

ul-0

003

-Jan

-01

03-J

ul-0

103

-Jan

-02

03-J

ul-0

203

-Jan

-03

03-J

ul-0

303

-Jan

-04

03-J

ul-0

403

-Jan

-05

03-J

ul-0

503

-Jan

-06

03-J

ul-0

603

-Jan

-07

03-J

ul-0

703

-Jan

-08

03-J

ul-0

803

-Jan

-09

03-J

ul-0

903

-Jan

-10

03-J

ul-1

003

-Jan

-11

03-J

ul-1

103

-Jan

-12

03-J

ul-1

203

-Jan

-13

-

100

200

300

400

500

FTSE All Share FTSE All World (Ex UK)

7

Investment returns: bond indices30

-Nov

-98

30-N

ov-9

9

30-N

ov-0

0

30-N

ov-0

1

30-N

ov-0

2

30-N

ov-0

3

30-N

ov-0

4

30-N

ov-0

5

30-N

ov-0

6

30-N

ov-0

7

30-N

ov-0

8

30-N

ov-0

9

30-N

ov-1

0

30-N

ov-1

1

30-N

ov-1

2

-

100

200

300

£Stg Non-Gilts (>15yr) Index-Linked (I-L) Gilts (>5yr)

8

Asset classes compared01

-Jan

-07

01-J

an-0

8

01-J

an-0

9

01-J

an-1

0

01-J

an-1

1

01-J

an-1

2

01-J

an-1

3

-

100

200

FTSE All Share FTSE All World (Ex UK)£Stg Non-Gilts (>15yr) I-L Gilts (>5yr)

9

The question again?

“Can you explain why the monetary value of the fund at present is more than last year, whilst the perceived hole is larger?”

“Can you explain why the monetary value of the fund at present is more than last year, whilst the perceived hole is larger?”

10

Deficit

31-Jul-10 31-Jul-11 31-Jul-12 30-Apr-13

15.820.1

38.2 37.8

£m

11

Putting it in context

Source: National Institute of Economic and Social Research (NIESR)

12

UASLAS not unique

13

14

Two sides to every deficit

31-Jul-10 31-Jul-11 31-Jul-12 30-Apr-13

81.088.6 92.3

106.196.8

108.7

130.5

143.9

Assets Liabilities

£m

15

Annual increases

31-Jul-11 31-Jul-12 30-Apr-13(9 mths)

7.5

3.7

13.811.9

21.8

13.4

4.4

18.1

-0.4

Assets Liabilities Deficit

£m

16

Liabilities

Significant increases in “value”– Does this make sense?

Halifax house price index (Scotland)– 393 Q2 2012– 407 Q1 2013 +3.6% in 9 months

17

Bank of England base rates

18

0

2

4

6

8

10

12

14

16

18

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

%

Changes in Bank Rate, Minimum Lending Rate, Minimum Band 1 Dealing Rate, Repo Rate and Official Bank Rate1,2,3,4

Min Lending Rate

Min Band 1 Dealing Rate

Repo Rate

Official Bank Rate

1 - Bank Rate, Minimum Lending Rate, Repo Rate and Official Bank Rate are interest rates. The Minimum Band 1 Dealing Rate are discount rates.2 - Data refer to the miminum published rate the Bank discounted bills to relieve money market shortages (excludes late assistance and repurchase and sale agreements).3 - 16.9.92, UK leaves the European Exchange Rate Mechanism. MLR set at 12%, raised to 15% (with effect from 17.9.92; never implemented).4 - The official bank rate paid on commercial bank reserves.

Date

19

Mortgage example

2007/2008 2012/2013

72,300

-

£500 a monthBase rate + 2%7% p.a. interest

25 year term

£500 a monthBase rate + 2%

2.5% p.a. interest25 year term

2007/2008 2012/2013

72,300

111,900

20

Annuity rates (monetary cost)

Jul-10 Jul-11 Jul-12 Apr-13

24.225.5

29.5

34.1

26.427.8

32.434.1

Male Female

£m

21

In a nutshell

One person’s liability

is another person’s asset

22

Any questions?