Employer Contribution Rates 1/4/14 – 31/3/17

The bit you are really interested in

Colin Pratt – Investments Manager

Pressures within 2013 actuarial valuation

• Future service rate increased from 14.3% of pay in 2010 to 18.2% in 2013

• Financial factors generally increased the size of deficits

• Payrolls generally decreased, putting pressure on deficit recovery amounts (as a percentage of pay)

• Many employers were already paying well below the full rate set in 2010

Different type of employers

• 1st and 2nd tier of Local Government• Other tax raising bodies (Police, Fire)• Universities (De Montfort and Loughborough)• FE Colleges• Parish and Town Councils• Other employers – Transferee Admission Bodies

(TABS) and Community Admission Bodies (CABS)

• Academies

Large tax raising bodies

• Modelling tool (comPASS) used to identify what contribution ‘rules’ would be sufficient to give a 2/3rd probability of returning to full funding over 21 years

• ‘Rules’ set at a minimum of 1% p.a. increase as long as actual contribution rate was within 10% of full rate in year 3, but subject to a maximum increase of 2% p.a.

Universities

• Their size and position in the education system makes universities financially secure (with Government likely to step in if there are problems)

• Same ‘rules’ as large tax-raising bodies

FE Colleges

• Government policy inherently supports the continuation of FE Colleges, so they are a ‘low risk’ employer

• Not, however, as secure as large tax-raising bodies

• ‘Rules’ are a minimum of 1% p.a. increase, but must get within 5% of their full rate in year 3

Parish and Town Councils

• Tax-raising bodies, but are small• Could pass a resolution to withdraw from

scheme (which would bring about a termination valuation), so are not without risk to the Fund

• ‘Rules’ are a minimum of 1% p.a. increase, subject to getting within 3% of their full rate in year 3 and a maximum increase of 3% p.a.

• Two do not require any increase in employer’s rate

Transferee Admission Bodies

• Fund has the outsourcing authority as an ultimate guarantor

• Intention is to try to get their sub-funds to exactly 100% funding when their contract ends – in reality this is nigh-on impossible

• Increases generally spread over equal instalments for 3 years

• Some TABS are over 100% funded and a reduction in their rate is justified

Community Admission Bodies

• Only five, all of which are charities

• Judged on a case-by-case basis, but protection of the Fund from a default considered vital

• Fine line between protecting Fund and impacting unduly on the aims of the charity

• All face increases in contributions

Academies

• Currently pay the full contribution rate set for their former education authority as part of the 2010 actuarial valuation (21.2% for County, 19.8% for City, 19.0% for Rutland)

• DfE has put huge pressure on administering authorities/education authorities to try to get pooling between academies and the former education authority

Academies

• As an administering authority Leicestershire is vehemently opposed to pooling as it leads to cross-subsidies

• Leicestershire has consistently stated that it is not in the best long-term interests of academies to be pooled with their former education authority

• Deficit spreading period for academies set as 7 years (in line with their funding guarantee)

Academies

• Pension Fund Management Board previously agreed that the rate payable by academies for the period covered by this actuarial valuation would be based on the full rate set for the former education authority (i.e. the same basis as the current rate paid)

• This gives rates that are much higher than those currently being paid, BUT

Academies

• This man became your hero when he agreed to guarantee the LGPS deficit of academies in the event of one ceasing to exist. If he had done this at the outset things would have been much easier!

• A game-changer that allows a 20 year deficit spreading period

• Contribution rate saving, relative to the Fund’s previously policy, is significant

Academies

• At Pension Fund Management Board meeting held on 15th November, there was agreement to link academy rates for this valuation to those TO BE PAID BY the former education authority

• Provision for different treatment of ‘outliers’; this has not proved necessary

• Subject to no reduction from current rates being paid

• Most will still pay below the rate that would have been set on a stand-alone basis and using a 20 year deficit-spreading period, but the DfE guarantee means that this has minimal risk

The Rates

• Most rates stated in the handouts are shown as a percentage of pay only

• Many employers will actually have a contribution rate certified that is set as a percentage of pay plus a cash contribution

• The combination of these two amounts will broadly come back to the percentage of pay rate, BASED ON PAYROLLS AT 31ST MARCH 2013

• Percentage plus cash amounts will be available within weeks

Why switch to percentage of pay plus cash sum?

• Percentage of pay only recovers an element of the deficit, but if payroll reduces less money is recouped than has been anticipated

• To a certain extent it helps to differentiate between the cost of future service and how much is being used to repair the deficit

Not every employer will have a percentage plus cash contribution

• Due to the way in which schools receive their funding, it is impractical to set the rate of the three education authorities as a percentage plus cash

• Setting a percentage plus cash amount for almost 100 academies, some of which are very small, is not sensible. Their payrolls are also relatively stable

• Employers with a reduced or static contribution rate will continue to pay as a percentage of pay only

• If the cash sum required is very small, there is little point carving it out

Summary

• We have been as reasonable as possible in setting rates, but there is significant upward pressure for most employing bodies

• Outcome will still be unpalatable to many• For many employers it is likely to be a long, hard

slog back to full funding• Increase in bond yields would see liability values

fall quite sharply; this is likely in the long-term but nobody knows how long it will take