The Northern Ireland Local Government Officers Superannuation Committee plans to ask for upfront deficit contributions for this year’s LGPS valuation from its employer members as the public sector in Northern Ireland shrinks.
The actuarial valuation for the Local Government Pension Scheme happens every three years, and the current one started on March 31 this year. As part of the valuation, schemes’ funding and investment strategies will be assessed to ensure they are appropriate to meet the needs of their roughly 1.8m active members.
2016 is going to be pretty special as we’ve got all sorts of other issues to consider
David Murphy, Nilgosc
Speaking on a panel at the Pensions and Lifetime Savings Association’s local authority pension conference this week, David Murphy, chief executive of Nilgosc, said: “We’ve just gone out to consultation with our employers saying that it’s our intention to ask for deficit payments by a capital lump sum this valuation round.”
He added: “That’s just to reduce the risk to us of falling headcount over the next three years, because the public sector in Northern Ireland is contracting at the moment.”
Murphy said the upcoming valuation would be a crucial moment for the LGPS as it grapples with a raft of new issues and requirements.
High pressure
“2016 is going to be pretty special as we’ve got all sorts of other issues to consider. We’re supposed to follow CIPFA guidance, but the guidance hasn’t been issued yet. We are going to be scrutinised by our pension boards, by the scheme advisory board and of course by the Government Actuary’s Department," Murphy said.
"If the demographics have gone against us we’re looking at breaching the cost cap and perhaps a new scheme negotiation with the trade unions on scheme benefits. There’s clearly a lot riding on the valuations this time around,” he added.
The valuation also comes as schemes are facing calls for increased transparency following reports of wide disparity between member charge levels.
Leanne Johnston, principal at consultancy Mercer, said paying contributions up front was popular among employers, but warned they should be made aware of the risks inherent in such a move.
“We found at the last actuarial valuation it was quite a popular thing for councils who were sat on reserves saying ‘rather than achieving a low interest rate of half a per cent, we’d quite like to put that money up front as deficit contributions’ and thereby getting a discount on that money of 4 per cent or 5 per cent.”
She continued: “It was something that was popular last time and I suspect and from what I’m hearing from the funds I speak to it’ll be popular again this valuation. There are some issues though, one is just making sure councils understand the risks because there is potentially a risk you put that money in up front and then the stock market plummets.”
Euan Miller, assistant executive director at the Greater Manchester Pension Fund, said the fund had allowed some employers to pay deficit contributions early at the last valuation and some were considering it again.
“A few of our local authorities are considering it and are considering doing it soon rather than waiting for the results of the valuation to be completed,” he said.
However, he added: “That brings challenges as well, because we might need to span more than one rates and adjustment certificate.”
