Session 2 – Tax Raising Employers
Q1
A1
Q2
A2
Q3
A3
Q4
A4
Is the valuation based on the current scheme or is any account taken
of any future changes, such as Cap and Share?
The valuation will be based on the current scheme as it is almost
certain that any future changes will not be retrospective but will only
apply to future service after the date of any change. Cap and Share
might be taken into account if it is introduced in time and makes a
difference to contribution rates.
For long term secure employers the last slide was suggesting the
possibility of limiting increases to 1% per annum is this feasible?
It should be possible to look at the impact on funding strategy for
secure employers of restricting increases to 1% p.a..8 different
scenarios have been modelled but it is possible that increases for
some employers could be restricted 1%.
With the budgetary pressures on councils is it feasible to have a nil
increase for the year 2011/12, with possible resulting adjustments for
the following years, still to remain in the overall 3% increase over the 3
years of the valuation?
This could be feasible with some written agreement. But again this is
only1 of the scenarios that the Administering Authority is examining.
The Administering Authority needs to balance the risk with the security
of the fund.
A longer term commitment from employers would be necessary if such
a proposal was adopted.
Would it be intended that the 1% increase p.a. continued into the next
valuation?
The agreed stabilisation mechanism would be expected to apply at
future valuations. The actual change in contribution rates would be
dependant on the position at next valuation.
This option provides for a contribution range between -1% and +1%
dependent on individual employer circumstances at the time of the next
valuation.
Q5
A5
Could it be + or – 0.5% instead of + or – 1%?
This option is included in the modelled scenarios, the results are very
similar. The results can also be affected by how mature the employer
is. A mature employer is one with a greater proportion of pension
liabilities for deferred beneficiaries and pensioners than for active
members
Q6
Could any discussions on possibility of + or - 1% be as individual
employers?
Administering Authority is looking to determine if we can offer this but
need to consider stability of contributions, what should the stabilisation
mechanism be, this is the next question for the Administering Authority
A6
Q7
A7
Will the discussions be now?
Steve Dainty responded that this would be part of consultation we will
undertake with each employer, challenging with nearly 100 employers,
we still need some uniformity.
Q8
What does risk profile do if the current contribution rate continues
unchanged for the next 3 years before moving to a stabilised
contribution rate of +/- 1% pa.?
There is a very similar probability, compared to the probability when the
full theoretical contribution rate is paid, that the fund will return to full
funding. However there is a greater potential negative impact that the
potential downside funding levels will be lower. There is also the
possibility that future contribution rates will be higher for longer.
A8
Q9
A9
If there are no changes to the contribution rate over the next 3 years
could this be changed later down the line as things recover?
There is no guarantee good times will return this could be a generation
event, all we can do is risk analyses. The Administering Authority have
to be comfortable with the risk.
Q10
A10
Is the 1% at the beginning of each year?
The Funding Strategy Statement of the Fund allows for stepping
contributions over the period of the valuation. It would be a 1%
increase at the beginning of each of the next 3 years.
Q11
A11
If 0% or 0.5% for first year could the employer review after year 1?
The regulations state a rate must be set for the 3 years, but the
employer could voluntarily pay more, the regulations do not permit
employers to pay less than the certified rate recorded in the actuary’s
valuation certificate.
Q12
A12
Will the work being undertaken on Mortality Rates be included?
This will be taken into account in the valuation although, at this stage, it
is likely that broadly the same outlook for mortality woll be used in the
2010 valuation as was used in the 2007 valuation. We will continue to
monitor the Fund’s experience but it is probably too early to change
expectations.
Q13
How does the suggestion of + or – 1% contributions balance with
FRS17?
FRS17 results do not affect contributions. FRS17 assumptions are
different to those used in the formal triennial valuation and are more
prescribed. Currently the FRS17 assumptions are stronger (as the
discount rate is based on corporate bond yields) resulting in higher
reserves.
A13
Q14
A14
If FRS17 uses an increased mortality, is that a requirement to be used
for the Valuation?
No the valuation assumptions are the responsibility of the Actuary and
are set after discussion with the Administering Authority, and will take
into account the funding objective outlined in the FSS.
Q15
A15
Contributions are set for 3 years, can you revise after 1 year?
The Fund sets rates at the time of the valuation that apply for the three
years relevant to that valuation. The Fund must apply those rates. The
next opportunity to revise the rates would be at the time of the next
valuation.
Steve Dainty accepted that the employers were looking from their own
perspective, but the Administering Authority has to make decisions for
the Fund – it is still being looked at and 1% is an initial thought for
secure employers. (see also Q11)
Q16
Do you think employers should be considering expressing the deficit
recovery payment as a Lump sum payment?
This may make sense if employers think that the pensionable payroll
may reduce in the near future. This will ensure that the amount paid
towards the deficit is retained. The past deficit could be looked at as a
lump sum but as the regulations specify the employers contributions as
a % of pensionable pay it would need the lump sum to be converted to
a % of payroll. The idea of a lump sum for past liabilities could be
something to be looked at for the future.
A16
The cost of future accrual of pension benefits will continue to be
expressed as a percentage of payroll.
Q17
A17
Q18
A18
Cost Sharing, will any results from the Department of Communities and
Local Government model fund valuation have any affect on the
valuation as some of the information from this may be available?
Unlikely to have any material effect.
The valuation timetable in the slides identifies providing initial results at
end of October. It is critical for employers to bring this forward to inform
their budget setting needs. Is this possible?.
The timetable reflects all employers, for this group it should be possible
to make the initial decisions earlier if a stabilisation mechanism is
implemented.