Actuarial Update London Borough of Barnet Pension Fund - Gemma Sefton FFA 29 April 2021
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Actuarial Update London Borough of Barnet Pension Fund Gemma Sefton FFA 29 April 2021
Agenda
1. Covid-19 and longevity
2. McCloud and Goodwin cases
3. Regulatory update
2
1. Covid-19 and Longevity
Pandemic in context
1918-19 flu pandemic– death rate by age • Before COVID-19, the most serious pandemic in
modern history was the ‘Spanish Flu’,
devastating the global population over 1918 and
1919.
• W shape curve – many deaths amongst younger
adults as well as the very young and very old
• Second and most deadly wave following virus
mutation.
• Significant variation in statistics due to primitive
record keeping – much more accurate/real time
now
4
The latest pandemic picture 5 Source: Club Vita analysis: https://www.clubvita.co.uk/news-and-insights/covid-19-the-latest-picture-as-at-10th-march-2021
Covid-19 deaths in isolation 6 Source: Club Vita analysis: https://www.clubvita.co.uk/news-and-insights/covid-19-the-latest-picture-as-at-10th-march-2021
Impact beyond Covid-19 7 Source: Club Vita analysis: https://www.clubvita.co.uk/news-and-insights/covid-19-the-latest-picture-as-at-10th-march-2021
How does Barnet compare?
Covid-19 deaths per 100,000 population (by UK council area)
350
300
250
Barnet: 187.4 UK Average: 181.8
200
150
100
50
0
Deaths within 28 days of a positive COVID-19 test result
8 Source: https://coronavirus.data.gov.uk/deaths Data to 26 April 2021.Longevity Scenario testing
Lower trend scenarios Central (ish) scenarios Higher trend scenarios
Back to the Challenging Alzheimer’s Health Cancer 80 is the
fifties times wave cascade revolution new 60
Challenging Times Health Cascade 80 is the new 60
(-5%) (+1%) (+23%)
Climate change and Uptake of healthy Mortality rates for 80
resource behaviours cascades year olds fall over time
constraints from wealthier to to levels seen by
significantly impact poorer individuals. current 60 year olds
on life expectancy
Back to the Fifties Alzheimer’s Wave Cancer Revolution
(-14%) (+1%) (+4%)
Life expectancy Deaths attributed to Following a period of
shows a prolonged Alzheimer’s modest
and material decline increase rapidly improvements, a
for all groups over 5 years before ‘cure’ for cancer is
a ‘cure’ is found. released in 2027.
9Longevity impact – long term
Lower longevity Higher longevity
improvements improvements
Global recession Survivorship bias
Long-term COVID effects Changed social behaviour
Existing health worsening Reduced air pollution
New virus strains emerging Reduction in smoking
10Bad scenario (Covid resurgence)
Higher mortality
muted in the short
term (due to
survivorship effect c4-5% drop
within the Fund)
in liabilities
Higher mortality in the c1 year
longer term (due to long drop in life
lasting suppression of the
Higher immediate economy and long term expectancy
mortality (2020- health impairments for
2021) as a direct survivors).
consequence of
the pandemic
Source: Club Vita COVID scenario analysis of a sample pension fund. The scenario is for illustration only, no probability is assigned to the likeliness of
these effects. Impact figures rounded to nearest integer.
11Good scenario
Lower mortality in
the short-medium
term (due to
survivorship effect c2-3%
within the fund)
increase in
liabilities
Lower mortality in the
longer term (due to c0.5 year
future improvements to increase in
Higher immediate
mortality boosted by
mortality (2020- life
cash injection to health
2021) as a direct
and social care systems) expectancy
consequence of
the pandemic
Source: Club Vita COVID scenario analysis of a sample pension fund. The scenario is for illustration only, no probability is assigned to the likeliness of
these effects. Impact figures rounded to nearest integer.
12Impact on funding level 13 Source: Output from 3DA Tool for a sample LGPS Fund.
Covid-19 - Summary
• Impact on mortality will be seen at next valuation
• Market movements were significant but (so far) funding
positions will have mostly recovered
• Get in touch with the Fund if you think your long-term business
outlook has been affected particularly badly
142. McCloud and Goodwin cases
LGPS before McCloud
Cut off: Scheme closure:
31/3/2012 31/3/2014
! !
Pre-2014 Final Salary Scheme
From 2008 to 2014 all members received 1/60ths
of final salary for each year of service
>10LGPS after McCloud (not 100% confirmed yet)
Cut off: Scheme closure:
31/3/2012 31/3/2014
! !
Pre-2014 Final Salary Scheme
From 2008 to 2014 all members received 1/60ths
of final salary for each year of service
>10The impact of McCloud
• Some increase in benefits, most will see no difference (no one is worse off!)
• Possible tax implications
Members • Understanding what the changes mean
• Administering an underpin is a significant challenge which will last for years
• Additional data may be required from employers
• Helping members understand their benefits
Fund
• Significant pressure on resources
• May need to submit historical membership and payroll data to Fund
• Liabilities: increase of 0.1% for whole fund, but individual employer’s
Employers impact could be nil or could be say 1% of liabilities
• Contributions: built in some allowance at 2019 valuation– no intention to
review before 2022 valuation
• Accounting: each employer agreed approach with auditor in 2020
18What is Goodwin?
What service is counted when calculating a dependant’s pension?
member dependant 1978 1988
From 2005
Retired
Service used to calculated
dependant’s benefit
19What is the remedy?
member dependant 1978 1988 2005
From 2005
Retired Died
Service used to calculated after
dependant’s benefit 2005
20The impact of Goodwin
• Husbands of deceased female members may see an increase to their benefit,
and backdated payments
Members • No change to current actives, deferreds or other pensioners
• Significant admin work to find affected members & calculate backdated
payments
• Significant pressure on resources at the same time as McCloud
Fund
• Liabilities: increase of3. Regulatory update
Employer flexibilities
• New LGPS regulations introduced 23 September 2020
• Funding Strategy Statement being updated to state Fund policies
Contribution review Cessation payments Managed exit
Current Can only change cont rate at Employer pays cessation Employer must cease if no
Regs triennial valuation debt in a single lump sum active members left
Potential Circumstances change, Employer could struggle to “Can’t afford to stay, can’t
issue should contributions change pay all at once afford to leave” cases
too?
New Regs Review rates if “significant Fund has discretion to allow Fund has discretion to allow
solution change” to employer’s spread of payments over a a “Deferred Debt Agreement”:
liabilities or covenant few years employer continues in fund
even with no actives
23Exit pay reform
(a) £95k cap (b) Wider LG exit pay reform
• Introduced 4 November 2020 • Q1 2021? Not in force yet
• No transition • Propose 6 months transition
• All public sector incl councils, • All public sector employers …
police & fire, academies but only in LGPS
• Not colleges or admission • Forced member choice
bodies between redundancy pay &
• Limit size of exit package incl immediate full pension
pension early ret strain cost • Addresses £95k cap Regs
• Collides with LGPS Regs collision, but not in place yet
24Exit pay reform
(a) £95k cap (b) Wider LG exit pay reform
• Introduced 4 November 2020 • Q1 2021? Not in force yet
• No transition • Propose 6 months transition
• All public sector incl councils, • All public sector employers …
police & fire, academies but only in LGPS
• Not colleges or admission • Forced member choice
bodies between redundancy pay &
• Limit size of exit package incl immediate full pension
pension early ret strain cost • Addresses £95k cap Regs
• Collides with LGPS Regs collision, but not in place yet
25Thank you This Powerpoint presentation contains confidential information belonging to Hymans Robertson LLP (HR). HR are the owner or the licensee of all intellectual property rights in the Powerpoint presentation. All such rights are reserved. The material and charts included herewith are provided as background information for illustration purposes only. This Powerpoint presentation is not a definitive analysis of the subjects covered and should not be regarded as a substitute for specific advice in relation to the matters addressed. It is not advice and should not be relied upon. This Powerpoint presentation should not be released or otherwise disclosed to any third party without prior consent from HR. HR accept no liability for errors or omissions or reliance upon any statement or opinion herein.
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