UK - Local authority pension schemes have been urged to take a "prudent longer-term view" of liabilities ahead of the results of the triennial valuations.
The valuations – to be made public by the end of the year – are expected to show deficits 10-20% higher than three years ago but Mercer Human Resource Consulting urged schemes to avoid a “knee-jerk reaction”.
Mercer senior consultant Steve Jacquest said: “Two years of very bad investment returns mean funding levels – which in 2001 saw 93% of liabilities covered by assets – will be substantially worse.
“This would mean an increase in employer contributions of 5-15% which, on top of the current 14% of payroll contribution level, would be impossible to meet.”
But Jacquest told a Local Government Pension Scheme conference that the outlook was “not all grim”.
He welcomed last month’s legislation from the Office of the Deputy Prime Minister, which lays down policy for the £83bn Local Government Pension Scheme, for a longer-term view incorporated in new “funding strategy statements”.
The statements, which will be implemented by 2005, mirror “scheme-specific funding standards” and set out funding policies in a bid to increase transparency for employers contributing to public sector schemes.The ODPM said administering authorities should take a “prudent longer-term view of their liabilities” when producing their FSS.
Jacquest said that whereas schemes used to work to a 12-to-15-year period going forward, they now had a 20-to-30-year window to tackle the deficit.
He said: “If a scheme has a £100m deficit, it would look to recover £8m in the first year if working to a 15-year period. But if this was extended to 30 years, contributions would be paid for longer, rates reduced significantly and 2005 budgets would be helped without asking the taxpayer to foot the bill.”
He added: “Local government schemes will not disappear overnight and the longer-term outlook is clearly beneficial.”
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