Our round-up of the latest public sector news and insights
Current Issues in the LGPS - July 2019
03 Jul 2019
If the LGPS used hashtags …
… the word ‘McCloud’ would surely be the highest trending right now? A high level summary of where we are:
the GAD report earlier this month belatedly told us that the impact might, or might not, be material for any given employer;
the national audit bodies have not directed auditors one way or the other;
individual audit firms have generally pushed for inclusion of a figure in the notes at least, and often for complete revised accounting reports;
on Thursday 27 June we heard that that the Government will not be able to appeal the case: this means there will be retrospective benefit changes;
it is not clear whether benefit changes will have been clarified in time to be incorporated in this year’s English & Welsh formal valuations (there is an agreed 31 August 2019 deadline in SAB guidance which must be met), however we are speaking with the relevant central bodies about this;
it is almost certain that some form of past service adjustment will be required in revised 31 March 2019 accounting reports under IAS19 (employer) and IAS26 (Pension Fund); and
if accounting reports are being revised then this re-opens the questions of incorporating GMP equalisation adjustments and actual asset returns for the last quarter.
The overall message is: speak to your auditor and liaise with your actuary!
MHCLG consultation – a month to go
MHCLG’s wide-ranging consultation covering changes to the valuation cycle, the management of employer risk and the ability of higher education bodies in England to close to new entrants, ends on 31 July 2019. We feel that moving to a four-yearly valuation cycle is a backwards step for the LGPS, although the power to do interim valuations should help to ease concerns. We welcome the ability for funds to have more flexibility to manage exit arrangements for employers, in order to make them as affordable as possible and minimise the risk of unpaid debt. The new exit credit regime is causing a lot of consternation for funds as some existing contractors are sitting on big surpluses– we think that exit credits should not be applied retrospectively to any contracts that were in force prior to 14 May 2018. And finally, English funds should keep in close contact with their higher education bodies if the option to close to new entrants goes ahead – the liabilities involved can be worth tens of millions of pounds. Agreeing an exit strategy in advance to address any affordability and security concerns is well worth the effort. Our full response can be viewed here.
2019 valuations: putting the ‘fun’ in funding strategy
Most funds are currently hard at work preparing data for the 2019 valuations, while their actuaries wait with sharpened pencils. It’s easy to get lost in the reams of membership records and cashflows but we should keep one eye on the bigger picture: the most important part of the valuation is the funding strategies agreed with your employers. Our recent webinar on 27th June covered three key factors that should feed into this: employer investment strategies, ill-health risk management and exit credits. Funding strategies needn’t be boring!
CMA order – when an exemption is no longer an exemption
An Order by the Competition and Markets Authority (CMA) has established new requirements affecting LGPS funds. From December 2019, funds will need to establish objectives for their investment consultants that are linked to their longer-term investment objectives. There may also be wider reaching implications of the Order, including how some of the new pooling arrangements might be viewed and what advice will be deemed as being regulated. We have set out some initial considerations in this summary.
Infrastructure – back to basics
Infrastructure’s profile within the LGPS has increased dramatically over recent years, including explicitly being mentioned in the Government’s pooling criteria. We believe funds’ allocation to infrastructure is likely to increase due to a combination of their increasing need for income and stability of returns, along with the potential for more efficient routes for access. However, as with all investments, it is important to understand the key drivers of return and key sources of risk. We discuss some of the basics of the asset class in the following blog.
The cap still doesn’t fit
MHCLG’s consultation on restricting exit payments in the public sector closed on 3 July. Along with other commentators we are concerned that, as currently drafted, there is insufficient detail about how these restrictions will interact with the LGPS and the inclusion of pension strain into the cap. We also raised concerns that without changes the restrictions will impact upon some workers who have long service but are not highly paid. You can read our consultation response here. It will be for the Scottish Government to decide how exit payments will apply in Scotland.
2018/19 Corporate Social Responsibility Report
Here at Hymans Robertson, we believe everyone has the right to a better future, which cannot be left to chance. As a result we are committed to the role we play in the wider community. We have recently published our 2018/19 Report, reviewing our progress and achievements in each of our focus areas. It highlights the work of our Foundation, along with the support and involvement of people across the firm, and the real difference we are making to our communities, the steps we're taking to develop our positive and inclusive working environment and our commitment to reducing the firm's impact on the environment. A copy of this report can be found here.