|
Return
to Agenda
ITEM PF17
PENSION
FUND COMMITTEE – 29 AUGUST 2003
ODPM DISCUSSION
PAPER – PROPOSALS FOR A FUNDING STRATEGY STATEMENT
Report by
the Head of Finance
Introduction
- In May 2002 the
Office of the Deputy Prime Minister published the initial findings of
the Stocktake exercise of the Local Government Pension Scheme. To progress
this exercise into a second phase the ODPM reported that it would issue
a series of discussion papers on key areas, which would demand further
analysis and consultation.
- To date two discussion
papers have been circulated. The first sought responses on how a more
flexible benefit package, particularly for new employees, might be developed.
The second examined the scope for further simplification of the Scheme’s
legal framework. Both these papers have previously been presented to
this Committee. Comments on both these papers are in the process of
being analysed and reported to Ministers.
- This report considers
a third discussion paper, which proposes to introduce a LGPS regulation
requiring administering authorities to prepare a funding strategy
statement, which will identify the approach to be taken to meet
their scheme’s pension liabilities going forward.
Discussion
Paper – Proposals for a Funding Strategy Statement (FSS)
- The discussion
paper is attached as an annex to this report. In summary the purpose
of the funding strategy statement would be to "provide for each contributing
LGPS employer a transparent indication of the proposed long term
management of their funds liabilities linked to the actuarial valuation".
- It is the intention
that such a statement "would improve the transparency and accountability
in the long term management of employers’ liabilities by each administering
authority and would allow for the introduction of a publicly available
strategy to deal with on-going employers’ pensions liabilities"
- Paragraph 11 of
the discussion paper says the FSS could support the regulatory requirement
to maintain constant employer contribution rates and encourage administering
authorities to take a prudent longer-term view of their liabilities.
- Paragraph 13 of
the discussion paper provides a useful summary of the issues that might
be included within an FSS. These are: -
- The purpose
of the fund.
- The target solvency
rate
- The overall
aims of the fund
- The approach
to balancing solvency and smoothing
- The identification
of risks
- What action
would be required in response to adverse/positive outcomes
- Links to investment
policy set out in the funds’ Statement of Investment Principles (SIP)
- An appropriate
funding strategy
- Monitoring arrangements
- Consultation
and communication with participating employers and other interested
parties.
Officers’
initial comments on the discussion paper
- Officers take
the view that making the long-term management of the employers’ liabilities
more accountable and transparent would be a positive and desirable measure.
It would not only be desirable with regards to all the employing bodies
within the Pension Fund but also in the context of the increasing scale
of public interest in pensions. It would assist council taxpayers to
understand the "connectivity between pension provision, their costs,
budgets and resources, service provision and council tax bills"
- It is not clear
from the discussion paper whether the wording "each contributing LGPS
employer" relates to the administering authority only or all employing
bodies within a fund. If it were the latter then there would need to
be an extensive consultation exercise with all the fifty or so employing
bodies within the Fund. There would undoubtedly be major differences
on the individual outcomes e.g. each employing body would have its own
smoothing and solvency rate.
- Even if it is
the intention that Oxfordshire County Council as the Administering Authority
would be responsible for drawing up the FSS then it would still be reasonable
to expect some degree of consultation with the other major contributors
into the Fund. A one-size fits all FSS might be difficult to achieve.
For example whilst a local government employing body is probably able
to take a long term view on its liabilities an admitted body might be
working to a much shorter time horizon, especially where services have
been outsourced for specific contractual periods
- A further concern
is how a funding strategy, which should take into account such issues
as liabilities, solvency and risk, would operate in practice for a diverse
set of employers with varying average age profiles and maturity levels.
For example at the last actuarial valuation there were huge differences
in the active membership of employing bodies e.g.. Oxfordshire County
Council 53%, Thames Valley Magistrates’ Courts Committee 73% and South
Oxfordshire District Council 24%.
- If this policy
were implemented then some form of guidance would be necessary from
an appropriate professional body such as the Chartered Institute of
Public Finance and Accountancy.
Timetable
for Consultation
- The discussion
paper says that subject to the outcome of the consultation exercise
the objective would be that the new provisions would be in place from
1 April 2004 and the Statement effective from 1 April 2005.
- Any responses
to the Discussion Paper must be sent to the Local Government Pensions
Division of the Office of the Deputy Prime Minister by no later than
22 September 2003.
RECOMMENDATIONS
- The Committee
is RECOMMENDED to endorse the officers’ comments as set out in paragraphs
8 to 12, add any of their own, and to instruct the officers to send
these comments to the Office of the Deputy Prime Minister before the
consultation deadline.
CHRIS
GRAY
Head of Finance
Background Papers: Local Government Pension Scheme - Proposals for
a Funding Strategy Statement Consultation Paper, ODPM
Contact
Officer Tony Wheeler, Pension Fund Investments Manager. Tel (01865)
815287
August
2003
Return to TOP
|