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