SPCB(2018)Paper 010 SCOTTISH PARLIAMENTARY PENSION SCHEME ...

SPCB(2018)Paper 010 22 February 2018

SCOTTISH PARLIAMENTARY PENSION SCHEME (SPPS) ACTUARIAL VALUATION AS AT 31 MARCH 2017 ? PRELIMINARY REPORT

Executive summary

1. The purpose of this paper is to present to the SPCB, in its capacity as the scheme sponsor of the SPPS, the preliminary results of the actuarial valuation of the SPPS as at 31st March 2017 and to ask the SPCB to agree the contribution rate it will pay into the pension fund from 1st April 2018. The current SPCB contribution rate is 20.2% of pensionable salaries.

2. The attached letter dated 4 October 2017, preliminary report dated 4 September 2017 and accompanying information slides provide full details about the review carried out by the Government Actuary's Department (GAD).

3. Daniel Selby from GAD will present the preliminary results at the meeting and take any questions. Once the SPCB has commented on the preliminary results and proposed contribution rate, GAD will produce a final report confirming the results and the recommended contribution rate for the record.

Issues and Options

4. Under Schedule 1, Part S, Rule 103 of the Scottish Parliamentary Pensions Act 2009 (the 2009 Act) the scheme actuary is required to produce an actuarial valuation report of the SPPS at intervals of no more than 3 years. The previous actuarial report on the SPPS was as at 31 March 2014 and was considered by the SPCB at its meeting on 3 March 2015. The preliminary actuarial valuation report on the SPPS at 31 March 2017 is attached for consideration together with supporting documentation.

5. For this valuation, the same actuarial funding methodology (Projected Unit Method) was adopted as for the previous valuation. With this method (which is the most common method used in the UK) separate assessments are made for benefits accrued up to the valuation date and for the cost of benefits accruing in respect of future services. The basic methodology is to calculate, on stated assumptions, the emerging benefits and establish the equivalent contribution rate (expressed as a % of salary) needed to fund these.

6. The key conclusions of the preliminary report are:

there is a surplus of ?8.8m; the main positive factors for the surplus are good investment returns

and low salary increases and price inflation;

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 the main negative factor is a reduction in the expected return on the scheme's assets going forward, which reduces the discount rate used in the valuation.

7. The actuarial review is based on projections of the future financial circumstances of the SPPS, but does not make predictions about the future. The results and recommendations will therefore be reviewed and amended at future valuations, to reflect the actual financial experience of the SPPS as it develops over time. In particular, the SPCB contribution rate which is recommended at future valuations may be more or less than the rate recommended at this valuation.

8. Schedule 1, Rule 32 of the 2009 Act allows the SPCB to determine the contribution rate it should pay into the pension fund. However, in setting the contribution rate the SPCB must have regard to the scheme actuary's views and the views of the Fund Trustees.

9. The preliminary actuarial valuation report was considered by the scheme actuary and the Fund Trustees at the Fund Trustee meeting on 19 September 2017. Both parties concluded that the SPCB's contribution rate could reasonably remain at 20.2% from 1 April 2018 for the time being, subject to any comments from the SPCB. The Fund Trustees and scheme actuary would not be comfortable with a lower contribution rate, but would be content if the SPCB wished to pay a higher rate in order to maintain a surplus in the scheme to act as a buffer against any possible future adverse experience.

Resource Implications

10. Assuming the contribution rate remains at 20.2% there would be no additional resource implications.

Governance issues

11. There are no governance issues.

Publication Scheme

12. This paper can be published in accordance with the SPCB's Publication Scheme.

Next steps

13. Under Schedule 1, Part S, Rule 103(4) of the 2009 Act the Fund Trustees must lay a copy of each formal actuarial report before the Scottish Parliament within 3 months of obtaining it. The Human Resources Office will therefore liaise with the Fund Trustees to obtain and lay the finalised actuarial report.

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14. Once the SPCB has agreed the contribution rate it will pay into the pension fund the Fund Trustees, who are solely responsible for managing the pension scheme and its investments, will turn their attention to reviewing the current investment strategy for the SPPS. In order for the SPCB, as the scheme sponsor, to gain a better understanding of investment matters and promote engagement with the Fund Trustees it is proposed to set up a series of short training sessions and meetings involving the SPCB, Fund Trustees and Government Actuary's Department. A draft timetable setting out the proposed meetings is attached for consideration. Decision 15. The SPCB is asked to:

15.1 note the preliminary actuarial valuation report of the SPPS as at 31 March 2017;

15.2 agree the SPCB's contribution rate from 1 April 2018; 15.3 note that the scheme actuary will then produce and send the

SPCB a copy of the final actuarial valuation report; 15.4 note that a copy of the final actuarial valuation report will be laid

before the Scottish Parliament within 3 months of it being obtained; and 15.5 agree the draft timetable for holding the short training sessions and meetings.

Human Resources Office February 2018

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SPPS ? Draft timeline for meetings and discussions involving SPCB, Fund Trustees and Government Actuary's Department (GAD)

Date

Meeting

22/02/18 SPCB

End of

Fund Trustees

February

Beginning SPCB of March

07/03/18 Quarterly Fund Trustee Meeting

End of March

SPCB, Fund Trustees and GAD

06/06/18 Quarterly Fund Trustee Meeting

End of June September (tbc)

SPCB

SPCB, Baillie Gifford, Fund Trustees and GAD

Subject GAD to present interim results of triennial valuation and invite SPCB to agree its contribution rate from 01/04/18. Invite SPCB to consider proposed timetable for training/meetings with the Fund Trustees about SPPS and investment strategy. GAD to deliver pre-training session to Fund Trustees on investment strategy in advance of quarterly trustee meeting on 07/03/18. GAD to deliver training session for SPCB on setting investment strategy and issues that the Fund Trustees would take into account when setting it. Meeting will include GAD reviewing investment strategy with Fund Trustees and presentation by Baillie Gifford on investment performance. Meeting to share views on setting investment strategy (possible September meeting with Baillie Gifford, GAD and SPCB if required). Meeting will include finalising investment strategy until the next triennial valuation taking into account views of SPCB. Also review and update Statement of Investment Principles (SIP). Fund Trustees inform SPCB of agreed investment strategy and SIP. September meeting to be arranged if felt necessary following March meeting.

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The Scottish Parliamentary Corporate Body The Scottish Parliament EDINBURGH EH99 1SP

4 October 2017

Finlaison House 15-17 Furnival Street London EC4A 1AB

T 020 7211 2673 E ken.kneller@.uk

.uk/gad

Dear Sirs

Scottish Parliamentary Pension Scheme Actuarial valuation as at 31 March 2017

1. I am writing to the Scottish Parliamentary Corporate Body (SPCB), in its capacity as the scheme sponsor, regarding the triennial funding valuation of the Scottish Parliamentary Pension Scheme (SPPS) as at 31 March 2017. Please find attached a paper on the provisional results of the valuation, which was presented to the meeting of the scheme's trustees on 19 September 2017, along with an explanatory slide deck.

Background

2. In accordance with rule 103 (3) of the Scottish Parliamentary Pensions Act 2009 (the 2009 Act), the scheme actuary is required to perform an actuarial valuation of the scheme, and to make a report to the trustees of the scheme, at intervals of not more than three years. As the previous report related to the position of the scheme as at 31 March 2014, the next valuation is due as at 31 March 2017.

3. The formal valuation report is required to include the scheme actuary's recommended rate of future contributions in the scheme. Rule 32 of the 2009 Act allows the SPCB to determine the contribution rate it should pay into the fund, having regard to the scheme actuary's recommendations and the view of the fund trustees.

Summary of provisional 2017 valuation results

4. The key provisional conclusions of the valuation are:-

? The funding level is 114.4% and there is a surplus of ?8.8 million;

? the main positive factors over the past three years are good investment returns and low salary increases and price inflation;

? the main negative factor is a reduction in the expected return on the scheme's assets going forwards, which reduces the discount rate used in the valuation;

At GAD, we seek to achieve a high standard in all our work. We are accredited under the Institute and Faculty of Actuaries' Quality Assurance Scheme. Our website describes the standards we apply.

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