2019 Valuations: preparing for the journey ahead
03 Sep 2018 - Estimated reading time: 3 minutes
With the 2019 valuations drawing ever closer, now is the time to start planning your best valuation yet. Effective planning will lead to a smooth 2019 valuation process and early completion of valuation calculations, leaving you more time to focus on what really matters – liaising with your stakeholders and reaching the best possible funding solutions for the fund and its employers.
So what can you do today to save yourself time and effort in 2019?
- Carry out early data cleansing: Looking back to the 2016 valuation, and with the complexities introduced by the CARE scheme, the most significant efficiency barrier was poor data quality. Use our Data Portal to cleanse and validate your membership data in 2018 for no cost so you’re in a stronger position when it comes to submitting your valuation data next year.
- Plan your stakeholder liaison: Work with your actuary now to agree a valuation timetable and plan the agenda for your 2019 Pensions Committee and Employer meetings. This will give you increased clarity on deliverables and allow you to identify and plan for times of peak activity.
- Do some of the valuation now: Our approach to setting contribution rates for long-term, secure employers, such as councils, doesn’t rely on market conditions on the valuation date. This means you don’t need to wait until after 31 March 2019 to test and review contribution strategies for these employers. It also gives these employers more time to reflect any changes in contribution rates into their budgets. Speak to your actuary about carrying out comPASS modelling early to complete some of the valuation work before 2019.
- Engage with your employers: During the valuation exercise, often a disproportionate amount of Officers’ time is spent liaising with a small number of employers. Carry out a covenant review now to understand your employers’ financial strength so you can discuss how to reflect this in funding plans ahead of the valuation.
- Update employer assets: In the past, employer assets have been calculated once every 3 years as part of the triennial valuation process. This is because the approach to allocating assets relied on the membership data provided for the triennial valuation. With our HEAT system, this is no longer the case – we can track your employers’ assets on a monthly basis meaning they will be readily available when it comes to valuation time. Further information about this important part of the valuation is below.
What is HEAT?
The Hymans Robertson Employer Asset Tracker (HEAT) is a LGPS specific system which allocates and tracks employer assets. HEAT uses a cashflow approach to track employer assets on a monthly basis making your valuations more accurate, transparent and efficient.
HEAT provides a number of benefits, including:
- Improved accuracy of asset calculation: No reliance on membership data or experience analysis, leading to more accurate allocation of assets and less cross-subsidy between employers.
- Improved transparency of asset calculation: A cashflow approach is easier for all stakeholders to understand and follow how assets change over time. HEAT produces a monthly asset statement for each employer in the fund, meaning asset shares can be easily verified
- Employer perception: Employers expect their assets to be tracked like a bank account. In our experience, new employers joining the LGPS are very often surprised to hear that their assets are calculated using the Analysis of Surplus approach, which is difficult for many to understand.
- More efficient valuations: HEAT enables more efficient triennial valuations as asset values are readily available before valuation calculations begin. We also see having readily available asset shares as a positive stepping stone to being able to provide actuarial advice ‘on demand’.
- Better risk management: Regularly tracking employer assets enables us to easily identify issues and monitor employers (e.g. monitoring when employers will become cashflow negative).
- Framework for multiple investment strategies: HEAT can be used to facilitate different employers following different investment strategies within the same LGPS fund. This allows you to offer bespoke investment strategies to meet the needs of different employer groups.
- Efficiencies for your team: Automating the provision of data for HEAT means less and easier provision of data for accounting and triennial valuation exercises.
Not only is HEAT a better way of tracking assets, but we believe that HEAT represents best practice for LGPS funds in terms of governance, transparency and risk reduction.
For more information on any of the valuation preparation topics discussed, please get in touch with your usual Hymans Robertson contact.