Employer Contribution Rates 1/4/14 – 31/3/17

Report
Employer Contribution Rates
1/4/14 – 31/3/17
The bit you are really interested in
Colin Pratt – Investments Manager
Pressures within 2013 actuarial
valuation
• Future service rate increased from 14.3%
of pay in 2010 to 18.2% in 2013
• Financial factors generally increased the
size of deficits
• Payrolls generally decreased, putting
pressure on deficit recovery amounts (as a
percentage of pay)
• Many employers were already paying well
below the full rate set in 2010
Different type of employers
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1st and 2nd tier of Local Government
Other tax raising bodies (Police, Fire)
Universities (De Montfort and Loughborough)
FE Colleges
Parish and Town Councils
Other employers – Transferee Admission Bodies
(TABS) and Community Admission Bodies
(CABS)
• Academies
Large tax raising bodies
• Modelling tool (comPASS) used to identify
what contribution ‘rules’ would be sufficient
to give a 2/3rd probability of returning to full
funding over 21 years
• ‘Rules’ set at a minimum of 1% p.a.
increase as long as actual contribution
rate was within 10% of full rate in year 3,
but subject to a maximum increase of 2%
p.a.
Universities
• Their size and position in the education
system makes universities financially
secure (with Government likely to step in if
there are problems)
• Same ‘rules’ as large tax-raising bodies
FE Colleges
• Government policy inherently supports the
continuation of FE Colleges, so they are a
‘low risk’ employer
• Not, however, as secure as large taxraising bodies
• ‘Rules’ are a minimum of 1% p.a. increase,
but must get within 5% of their full rate in
year 3
Parish and Town Councils
• Tax-raising bodies, but are small
• Could pass a resolution to withdraw from
scheme (which would bring about a termination
valuation), so are not without risk to the Fund
• ‘Rules’ are a minimum of 1% p.a. increase,
subject to getting within 3% of their full rate in
year 3 and a maximum increase of 3% p.a.
• Two do not require any increase in employer’s
rate
Transferee Admission Bodies
• Fund has the outsourcing authority as an
ultimate guarantor
• Intention is to try to get their sub-funds to
exactly 100% funding when their contract
ends – in reality this is nigh-on impossible
• Increases generally spread over equal
instalments for 3 years
• Some TABS are over 100% funded and a
reduction in their rate is justified
Community Admission Bodies
• Only five, all of which are charities
• Judged on a case-by-case basis, but
protection of the Fund from a default
considered vital
• Fine line between protecting Fund and
impacting unduly on the aims of the charity
• All face increases in contributions
Academies
• Currently pay the full contribution rate set
for their former education authority as part
of the 2010 actuarial valuation (21.2% for
County, 19.8% for City, 19.0% for Rutland)
• DfE has put huge pressure on
administering authorities/education
authorities to try to get pooling between
academies and the former education
authority
Academies
• As an administering authority Leicestershire is
vehemently opposed to pooling as it leads to
cross-subsidies
• Leicestershire has consistently stated that it is
not in the best long-term interests of academies
to be pooled with their former education
authority
• Deficit spreading period for academies set as 7
years (in line with their funding guarantee)
Academies
• Pension Fund Management Board
previously agreed that the rate payable by
academies for the period covered by this
actuarial valuation would be based on the
full rate set for the former education
authority (i.e. the same basis as the
current rate paid)
• This gives rates that are much higher than
those currently being paid, BUT
Academies
• This man became your hero when he
agreed to guarantee the LGPS deficit of
academies in the event of one ceasing to
exist. If he had done this at the outset
things would have been much easier!
• A game-changer that allows a 20 year
deficit spreading period
• Contribution rate saving, relative to the
Fund’s previously policy, is significant
Academies
• At Pension Fund Management Board meeting
held on 15th November, there was agreement to
link academy rates for this valuation to those TO
BE PAID BY the former education authority
• Provision for different treatment of ‘outliers’; this
has not proved necessary
• Subject to no reduction from current rates being
paid
• Most will still pay below the rate that would have
been set on a stand-alone basis and using a 20
year deficit-spreading period, but the DfE
guarantee means that this has minimal risk
The Rates
• Most rates stated in the handouts are shown as
a percentage of pay only
• Many employers will actually have a contribution
rate certified that is set as a percentage of pay
plus a cash contribution
• The combination of these two amounts will
broadly come back to the percentage of pay
rate, BASED ON PAYROLLS AT 31ST MARCH
2013
• Percentage plus cash amounts will be available
within weeks
Why switch to percentage of pay
plus cash sum?
• Percentage of pay only recovers an
element of the deficit, but if payroll
reduces less money is recouped than has
been anticipated
• To a certain extent it helps to differentiate
between the cost of future service and
how much is being used to repair the
deficit
Not every employer will have a
percentage plus cash contribution
• Due to the way in which schools receive their
funding, it is impractical to set the rate of the three
education authorities as a percentage plus cash
• Setting a percentage plus cash amount for almost
100 academies, some of which are very small, is not
sensible. Their payrolls are also relatively stable
• Employers with a reduced or static contribution rate
will continue to pay as a percentage of pay only
• If the cash sum required is very small, there is little
point carving it out
Summary
• We have been as reasonable as possible in
setting rates, but there is significant upward
pressure for most employing bodies
• Outcome will still be unpalatable to many
• For many employers it is likely to be a long, hard
slog back to full funding
• Increase in bond yields would see liability values
fall quite sharply; this is likely in the long-term
but nobody knows how long it will take

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