As required by Regulation 77 of the Local Government Pension Scheme Regulations 1997 (“the Regulations”), an actuarial valuation of GMPF’s assets and liabilities was carried out as at 31 March 2004.
Security of Prospective Rights
In our opinion, the resources of GMPF are likely in the normal course of events to meet the liabilities of GMPF as required by the Regulations. In giving this opinion we have assumed that the following amounts will be paid to GMPF:
- Contributions by the members in accordance with the Local Government Pension Scheme Regulations 1997.
- Contributions, for the three years commencing 1 April 2005, by the employers as specified in our certificate dated March 2005 contained in our report on the valuation of GMPF as at 31 March 2004.
- Further planned contribution increases from 1 April 2008 agreed as part of the phasing in of contribution increases in the 2004 valuation, in line with our advice.
The Local Government Pension Scheme is a statutory scheme, i.e. members’ benefits are as set out in the Regulations. This statement should be read in that context.
Summary of Methods and Assumptions Used
Full details of the method and assumptions are described in our valuation report dated March 2005. A summary of this report is published on GMPF’s wesite.
Our opinion on the security of the prospective rights is based on the projected unit valuation method (for the majority of employers and at a whole GMPF level). 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. For employers which are no longer admitting new entrants to GMPF, we adopted the attained age valuation method which assesses the cost of benefits accruing to existing members over their expected future working lifetime.
A “market related” valuation method has been used for the valuation. The value of GMPF’s assets has been taken into account at its market value. We have then taken our lead from the market in setting the financial assumptions: these have been derived by considering economic indicators and the implied expected future levels of price inflation based on government bond yields at the valuation date.
The key financial assumptions adopted for this valuation are as follows:
For employers whose assets are invested wholly or predominantly in index-linked gilts, a real discount rate of 1.8% p.a. was used.
The 2004 valuation revealed that GMPF’s assets, which at 31 March 2004 were valued at £6,593 million, were sufficient to meet approximately 93% of liabilities accrued up to that date.
Individual employers’ contributions have been set in accordance with GMPF’s Funding Strategy Statement. The deficits for each individual employer are being recovered over a period agreed with the administering authority and contribution increases are being phased in over a period of up to four years.
The next valuation of GMPF will be carried out as at 31 March 2007. Current expectations are that employer contributions for the majority of employers are likely to rise following this valuation despite the rally in equity markets since 31 March 2004. The reasons for this are as follows:
- employer contribution increases were phased in over a four year period and hence are planned to rise in 2008/09;
- the liabilities and expected cost of future benefits have increased due to falling real bond yields since the valuation date;
- we expect to make allowance for longer life expectancy at the 2007 valuation which will increase the value placed on the liabilities;
- the introduction of changes to the benefits in the LGPS from 31 March 2008.
Accordingly, the level of employers’ contributions following the 31 March 2007 valuation is expected to be higher than their current levels. As indicated above, our opinion on the security of prospective rights is dependent upon any increased contribution requirements being met by the employers. This statement should also be read in the context of the statutory nature of the scheme.
Alison Murray
Ronald S Bowie
Fellows of the Faculty of Actuaries
31 July 2007
For and on behalf of Hymans Robertson LLP
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