Valuation year can be a fraught time for any fund.
While the government guarantees that stand behind the Local Government Pension Scheme (LGPS) take away some of the pressure private sector schemes face, triennial valuation period remains a difficult time for some.
The 2013 valuations took place against a backdrop of significant change: the prospect of delivering new scheme benefits from 1 April 2014, an anticipated overhaul in governance and an as-yet confirmed restructuring of the scheme dwarfed the analysis.
"The valuation hasn't been high on the agenda for many funds," Squire Sanders partner Kirsty Bartlett says.
"It's very difficult to draw conclusions about the LGPS as a whole from the process. The strength of the covenant behind the LGPS means it is very much just an analysis in a moment in time."
Despite this, the impact of valuations on individual employers can be huge. Valuations are essentially a process of setting contributions and deficit recovery plans.
As the dust begins to settle on the 2013 valuations, the LGPS is grappling with the issues it threw up against a backdrop of increasing uncertainty.
Funds ‘relatively unscathed'
First the good news: after woeful predictions about the state of the LGPS (PP Online, 13 August 2013), the final results of last year's study have been met with muted positivity.
"It was a half-decent valuation; it was certainly better than the last few valuations," Barnett Waddingham head of public sector Graeme Muir says.
While most funds avoided any funding shocks, there have still been important issues to grapple with.
Muir explains: "Assets have performed reasonably well, but there have been some bigger issues relating to austerity.
"The number of people employed by local authorities has dropped - as a result, payroll size has declined, and employers paying contributions as a percentage of payroll may have faced some spikes in contribution levels."
Despite this, most employers "got through it relatively unscathed", Muir says.
Hymans Robertson head of public sector John Wright says the valuation results largely fell within the predicted average of 75-80% funded.
"You've got some huge variation between employers, but the outcomes were largely as we expected."
In addition, many funds have seen improvements in their funding levels to date, more than 12 months on from the 31 March 2013 valuation date.
Mercer investment consultant Joanne Holden says: "Some funds are factoring improvements into their recovery plans.
"All funds performed well on the assets side, but the reason they may not have seen improvements in funding levels is because bonds yields have continued to go down."
Since 2010, government policies around education and local government outsourcing have dramatically increased the number of employers within funds, something which "brings its own challenges" aside from funding concerns.
Among Barnett Waddingham's clients, which accounts for around 25% of the LGPS market, employer numbers have increased by around 50%, Muir says. Essex alone has around 550 participating employers.
Muir says: "The valuation is an assessment of each employers' assets and liabilities; predictably, last year's was more complex."
The sharp increase in employer numbers also creates communication issues, Wright notes.
He says: "You have to communicate with each of those employers; some will have shorter deficit recovery periods, some will be heading towards exit.
"It's extra work for actuaries, but it's also an extra burden for the authorities who need to obtain all the information."
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