Current Issues in the LGPS
04 Sep 2018 - Estimated reading time: 5 minutes
Go with the (cash)flow
The SAB’s 2017 Annual Report noted that LGPS contributions in England and Wales were around £484m lower than cash outflows (i.e. a 0.2 per cent shortfall as a percentage of total assets). Given this relatively small shortfall, which is also similar to the position in Scotland, we classify the LGPS as a whole as being broadly cash flow neutral. However, there is variation across individual funds and employers. In the following summary we discuss cash flow negativity in more detail, setting out actions committees may wish to take to understand their Fund’s cash flow position in more detail.
Reflecting your beliefs
The process of committees seeing how they can replicate (or improve) their current fund’s investment arrangements via their Pools is well underway, with equities being the current main focus. For this, we encourage committees to go back to their beliefs and consider what they want from their equities e.g. exposures (regional, size, style) and consider how the Pool’s offering fits with these needs. Going back to your beliefs allows committees to get the most from their Pools' offering. Please speak to your Hymans consultant for more information.
Tackling the scamming of the LGPS
The FCA and TPR have launched a new advertising campaign, ScamSmart, to tackle pension scams. New research reveals that scammer victims lost an average of £91,000 in 2017, that 32 per cent of the key age group (45 to 65) would not know how to check that they are speaking to a legitimate advisor and that 12 per cent of them would trust an offer of a ‘free pension review’! This campaign can only help LGPS members avoid scammers; getting them access to LGPS-specific financial advice is a different challenge – if you need any help with this then please get in touch.
The taxing issue of exit credits
LGA’s Bulletin 174 confirmed HMRC’s advice that payment of an exit credit will not be subject to a tax charge and it does not need to be reported to HMRC. Assuming this guidance only applies to funds in England and Wales we decided to check the position in Scotland. It appears the advice to Scottish funds is subtlety different. HMRC has suggested that where a refund of surplus is made to a private sector employer, such as a contractor, administering authorities should check the tax position with HMRC first, albeit they suggest there probably still won’t be a tax charge. Funds should perhaps bear this uncertainty in mind when dealing with exit credits.
Living longer, or shorter?
You may have seen coverage in the press recently on the ONS report into mortality trends across the UK. Its key message is that, after a prolonged period of longevity improvements, the rate of increase is slowing down. What’s causing the slow down? Opinions vary – commentators suggest heavy winters and virulent flu outbreaks, the rise of Alzheimer’s disease and dementia, or the impact of austerity cuts. Research carried out by our sister company, Club Vita, in conjunction with the PLSA demonstrates that trends also depend heavily on socio-economic group. Looking ahead to the 2019 valuations, we expect these trends to lead to a small reduction in overall liabilities.
Measure a thousand times, cut once
There are many well-known quotes on the importance of preparation and all these are resonating in our minds with the 2019 valuations looming ever closer. The next couple of months are a perfect time to put plans in place and consider carrying out work such as reviewing funding strategies for long term employers, data cleansing using the Data Portal, reviewing the financial strength of employers and understanding how you can better track employer assets. Read our blog if you want to find out more.
The finish line is in sight
We met with GAD in the middle of August along with MHCLG, SAB and the other actuarial advisors to discuss our feedback on the draft version of GAD’s Section 13 report. Hopefully GAD took our feedback on board and found the meeting helpful in developing their report. They are now finalising the long awaited report which will go to the Minister shortly. We expect that the report will be published in the second half of September and we will be in touch with our thoughts.
Breaking up is hard to do
The SAB is looking to develop two options for separating the management and administration of funds and their host authorities before potentially making recommendations to the Secretary of State. These options came out of work carried out for the SAB in 2015 and both seek to improve fund governance. One option involves separation within existing structures through greater ring-fencing of the pension functions. The other option involves separation through the creation of a new body to take on the scheme manager function, whilst retaining some form of democratic accountability. We will be discussing this topic at our Governance Seminar in London on 19 September – please click here to register your place.