Local Government Pension SchemeLocal Government Pension SchemeFunding Summary and Funding Summary and

RecommendationRecommendation

James ParkerJames Parker

10/7/201410/7/2014

© Bishop’s Stortford Town © Bishop’s Stortford Town Council Council

BackgroundBackground

BSTC closed the Local Government Pension scheme to new BSTC closed the Local Government Pension scheme to new joiners wef June 2009joiners wef June 2009 # active employees in scheme steadily reducing# active employees in scheme steadily reducing

Scheme was underfundedScheme was underfunded Contribution rate for active employees increased – on average Contribution rate for active employees increased – on average

across scheme will eliminate underfunding over 20 yearsacross scheme will eliminate underfunding over 20 years BSTC not average – due to closure to new employees. Near-zero BSTC not average – due to closure to new employees. Near-zero

probability that we will make up underfunding based on current probability that we will make up underfunding based on current contribution ratecontribution rate

BSTC underfunding: £K469 as at 31/3/2013, £K409 as at BSTC underfunding: £K469 as at 31/3/2013, £K409 as at 31/3/2014 – Actuaries estimate (cost - £750)31/3/2014 – Actuaries estimate (cost - £750) Increased liabilities offset largely by increased value of underlying Increased liabilities offset largely by increased value of underlying

assets due presumably to stock market growth through recent assets due presumably to stock market growth through recent recoveryrecovery

Forward position likely to have deteriorated due to further Forward position likely to have deteriorated due to further reduction in active employees (8->5)reduction in active employees (8->5)

Underfunding remains a liability due on withdrawalUnderfunding remains a liability due on withdrawal Will become due when last of our 5 current members leaves Will become due when last of our 5 current members leaves

© Bishop’s Stortford Town © Bishop’s Stortford Town Council Council

RecommendationRecommendation

Having regard to Having regard to the current level of reserves the current level of reserves poor investment returns on BSTC cash deposits (due to current poor investment returns on BSTC cash deposits (due to current

money market – best currently available approx. 1% )money market – best currently available approx. 1% ) lack of expertise to invest directly in more risky investments with lack of expertise to invest directly in more risky investments with

higher returnhigher return the fact that the pension fund is effectively a professionally managed the fact that the pension fund is effectively a professionally managed

balanced fund of higher return higher risk investmentsbalanced fund of higher return higher risk investments the debt will have to be paid eventually and relates to past the debt will have to be paid eventually and relates to past

employeesemployees RECOMMENDATIONRECOMMENDATION

Make one off payment of (say) £350k to pension fund now – reduces Make one off payment of (say) £350k to pension fund now – reduces debt to level manageable within on year without significant risk of debt to level manageable within on year without significant risk of overfundingoverfunding

Revalue fund after 2 years, consider further payment depending on Revalue fund after 2 years, consider further payment depending on funding status at that pointfunding status at that point

Note that this payment will appear as (unbudgeted) expenditure on Note that this payment will appear as (unbudgeted) expenditure on the annual return => full Council approval requiredthe annual return => full Council approval required

Recommendation subject to final confirmation that contributions Recommendation subject to final confirmation that contributions remain ring-fenced and any overfunding (very unlikely) can be remain ring-fenced and any overfunding (very unlikely) can be refundedrefunded © Bishop’s Stortford Town © Bishop’s Stortford Town

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