LPFA Fund Member Forum2012

Welcome and Introduction

LPFA ChairmanAnthony Mayer

LPFA Chief ExecutiveMike Taylor

Review of the year

• Organisational Excellence - To enhance core administration competency whilst ensuring competitive levels of efficiency

• Valuing Our People - To enhance our workforce capability and align incentives and working practices to the needs of the business

• Investment Returns - To actively manage investments to meet our liabilities – through continual monitoring of investment performance and assessment of risks

• Corporate Social Responsibility - To manage LPFA’s investment and business processes to produce an overall positive impact on stakeholders and society.

• Market Focused - To effectively communicate with the marketplace to ensure delivery of value to customers and positive return to the pension fund.

Board Strategy – Key themes

• A busy year in the press

• A New Local Government Pension Scheme

• Proposals for a Pan-London Fund

• Investing in infrastructure

• Improving our customer care

• Improving service standards

• New web site and social media strategy

• Investment highlights

• Administration

• High Performance Administration

• Controlling Costs

• New business

• New staff

• What is on the horizon?

• Conclusions

Agenda

• Lord Hutton’s proposals

• Implemented from 1 April 2014

• Career average

• CPI revaluation

• 1/49th accrual

• Retirement age link to State

Retirement Age

• New 50-50 scheme

New Local Government Pension Scheme

• Pre 2008 membership

• Final salary 1/80th plus lump sum

• Post 2008, pre 2015 membership

• Final salary 1/60th

• Post 2014 membership• CARE, 1/49th accrual rate revalued

by CPI

Complexity

• Changes accepted by Trade Unions

and Employers

• Still under discussion

• Final regulations

• Improving scheme governance

• Value for money

• Reducing complexity

New Local Government Pension Scheme

• CPI continues to be less than RPI – around 0.5% per annum

• Judicial review by Trades Unions failed

• Likely changes to RPI components

to bring closer into line

• July 2012 CPI 2.6%; RPI 3.2%

Impact of inflation indexation change – RPI to CPI

-4%-2%0%2%4%6%8%

10%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

RPI -v- CPI

CPI RPI

-4%-3%-2%-1%0%1%2%3%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

RPI less CPI

RPI - CPI Average

• Proposal to merge and consolidate 34 schemes

• Better service to members

• More cost effective

• Better investment returns

• Creation of London infrastructure fund

A Pan London Fund

Infrastructure

“Pension funds have not been investing the savings of British people in British infrastructure.”

“We are hopefully going to change that.”

George Osborne:Autumn statement: November 2011

• LPFA• Need for inflation linked, stable,

long term returns• Working with NAPF and large

private sector funds

Customer Care – Improving Service Standards

• Reducing the time to undertake tasks

• Better data security

• New website

• www.lpfa.org.uk

• www.yourpension.org.uk

• Self service

• Social media strategy

• YouTube

• Twitter

• LinkedIn

• Facebook

• Volatile economic background

• Euro crisis

• Quantitative easing

• Global slowdown

• Investment principles and beliefs

• Long term responsible investor

• Fund grew to £4.2 billion

• Performance mixed

• Active sub fund below target

• Pensioner sub fund above target

Investment Highlights

• Assets up by 2.7% (£110m)• Active fund returned 2.2%• Pensioner fund returned 6.5%

• Continual review of investment strategy• Remained long term responsible investor• Markets remain volatile

Continued recovery from credit crunch

• LPFA taking the lead

• Ensuring we vote all our shares

• Engaging with companies through Robeco

• Ensuring fund managers understand our needs

• Highlights

• Remuneration strategies

• New energy sources

Responsible Investment

• High Performance Administration

• Customer care and website initiatives

• Controlling Costs

• New business

• New staff

Administration

Controlling costs

• Actual achievement of savings on controllable costs

• 10% in 2010/11 (£460,000)• 12% in 2011/12 (£580,000)• 14% in 2012/13 (£708,000)

Expanding Business

• Core business• LPFA 80,000 members

• Third party administration• Administration services to Hertfordshire CC, 4

Boroughs and LFEPA (160,000 members)

• Provide other services worth over £200,000 per annum

High performance administration

• Pensions Administration Strategy• 98% of employer information received

electronically

• Key Performance Indicators• 99% of cases completed on time• Reduction in time to complete cases • Reduction in cases on hold• Customer satisfaction – 97%

• Award winning service• LGC Investment

Quality of Service Award 2010 and 2011

• Winner of Portfolio Institutional Best Pension Scheme 2012

• Regulations on new scheme

• Continual pressure to secure investment returns

• Continual improvements in administration

• Customer care

• More use of website, self service

• Further longevity improvements

• Next valuation - 2013

What is on the horizon?

The facts – increasing longevity

Average Age of death - rolling 3 years

78.50

79.00

79.50

80.00

80.50

81.00

81.50

82.00

82.50

83.00

2000/1to 2/3

2001/2to 3/4

2002/3to 4/5

2003/4to 5/6

2004/5to 6/7

2005/6to 7/8

2006/7to 8/9

2007/8to 9/10

2008/9to 10/11

2009/10to 11/12

Increase in life expectancy – 3 years per decade

• Valuation every 3 years

• Actuary assesses value of assets and liabilities

• Sets employer contribution rates

The Scheme Valuation

• Cost of future service reducing as

result of increase in retirement age

• Longevity

• Pensioners are living a lot longer

• Active fund

• Solvency remaining at 83%

• Investment strategy on track

• Pensioner fund

• Solvency increased from 77% to 79%

• Funding strategy – further

discussions with government

2013 Valuation Expectations

Benefit payments

0

20

40

60

80

100

120

140

160

180

20

07

20

12

20

17

20

22

20

27

20

32

20

37

20

42

20

47

20

52

20

57

20

62

20

67

20

72

20

77

20

82

20

87

20

92

20

97

21

02

Year ended

£ m

pe

r a

nn

um

Deferreds : pensions

Deferreds : lump sums

Employees: pensions

Employees : lump sums

Pensioners

• LPFA continues to have a high profile

• Good happy workforce

• Busy

• LGPS pensions continue to be secure

Conclusions

Please complete the assessment forms

Economic Review

The Evening StandardAnthony Hilton