As required by Regulation 77 of the Local Government Pension Scheme Regulations 1997, an actuarial valuation of the Fund’s assets and liabilities was carried out as at 31 March 2001.Security of prospective rights
In our opinion, the resources of the Fund are likely in the normal course of events to meet the liabilities of the Fund as required by the Regulations. In giving this opinion we have assumed that the following amounts will be paid to the Fund:
- Contributions by the members in accordance with the Local Government Pension Scheme Regulations 1997
- Contributions for the three years commencing 1 April 2002, paid by the employers are as specified in our certificate dated March 2002 contained in our report on the valuation of the Fund as at 31 March 2001
- Any additional contributions required as a result of reduction in the funding level at the 2004 and future valuations will be paid in line with our advice
Summary of methods and assumptions used
Full details of the method and assumptions are described in our valuation report dated March 2002. Copies of this report are available on request from Greater Manchester Pension Fund.
Our opinion on the security of the prospective rights is based on the projected unit valuation method. This assesses the cost of benefits accruing to existing members during the year following the valuation, allowing for future salary increases. The resulting contribution rate is adjusted to allow for any difference in the value of accrued liabilities (allowing for future salary increases) and the assessed value of assets.
Like the previous (1998) valuation, a “market related” valuation method has been used. The market related method derives the financial assumptions by considering various average yields in the twelve month period leading up to the valuation date. Using average yields and market values builds in an element of smoothing and stability for the future.
The key financial assumptions adopted for the valuation are shown below:
Financial assumptions |
Nominal at March 2001 % pa |
Real at March 2001 % pa |
| Investment Return: |
|
|
Equities:
Bonds:
75% equities/25% bonds: |
6.25 - 6.50%
5.25 - 5.50%
6.00 - 6.25% |
3.45 - 3.70%
2.45 - 2.70%
3.20 - 3.45% |
Pay increases
Price inflation/pension increases |
4.30%
2.80% |
1.50%
- |
For liabilities which accrue in respect of service after the valuation date we have adopted a discount rate which is initially the expected return from the existing assets at current market conditions but which in the longer term reverts to our longer term assumptions.
The 2001 valuation revealed that the Fund’s assets, which at 31 March 2001 were valued at £6,261 million, were sufficient to meet approximately 105% of the liabilities accrued up to that date.
The next valuation of the Fund will be carried out as at 31 March 2004. Over 2003/04 equity markets have recovered most of their losses of 2002/03. However, the cumulative returns over the last three years remain materially less than the long term returns anticipated in the 2001 valuation. As a consequence of this and growing evidence of increased life expectancy, the funding level as at 31 March 2004 is expected to be lower than as at 31 March 2001. Accordingly, the level of employers’ contributions following the 31 March 2004 valuation is expected to be higher than that following from the 31 March 2001 valuation. As indicated above, our opinion on the security of prospective rights is dependent upon any increased contribution requirement being met by the employers.
The increased rates of employer contributions will be effective from April 2005. Employers may voluntarily increase their contributions in advance of this date and these additional contributions will be taken into account in the 2004 valuation.
Ronald S Bowie
W Douglas B Anderson
Fellows of the Faculty of Actuaries
Partners, Hymans Robertson Consultants and Actuaries.
221 West George St, Glasgow, G2 2ND
August 2004.
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