Draft outline

By Luis Willis,2014-04-05 02:03
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LINKS TO INVESTMENT POLICY IN STATEMENT OF INVESTMENT PRINCIPLES. The Council has adopted a fund-specific benchmark with a broad [75/25] balance between

    Outline Draft




The purpose of this Funding Strategy Statement (FSS) is:

? To establish a clear and transparent fund-specific strategy, which will

    identify how employers’ pension liabilities are best met going forward

    ? To support the regulatory requirement to maintain as nearly constant

    employer contribution rates as possible

    ? To take a prudent longer-term view of funding those liabilities


The aims of the fund are:

? To enable employer contributions to be kept as nearly constant as

    possible and at reasonable cost to the taxpayers and fund employers

    ? To manage employers’ liabilities effectively

    ? To ensure that sufficient resources are available to meet all liabilities as

    they fall due

    ? To maximise the returns from investments within reasonable risk


The purpose of the fund is:

? To receive monies in respect of contributions, transfer values and

    investment income

    ? To pay out monies in respect of scheme benefits, transfer values, costs,

    charges and expenses


The administering authority should:

? Collect employer and employee contributions

    ? Invest surplus monies in accordance with the regulations

    ? Ensure that cash is available to meet liabilities as and when they fall due ? Manage the valuation process in consultation with the fund’s actuary

    ? Prepare and maintain an FSS and an SIP, both after proper consultation

    with interested parties

    ? Monitor all aspects of the fund’s performance and funding

The individual employers should

? Deduct contributions from employees’ pay correctly

    ? Pay all contributions, including their own as determined by the actuary,

    promptly by the due date

    ? Exercise discretions within the regulatory framework

    ? Make additional contributions in accordance with agreed arrangements in

    respect of, for example, augmentation of scheme benefits and early

    retirement strain

    ? Notify the administering authority promptly of all changes or proposed

    changes in scheme membership

The fund actuary should:

    ? Prepare valuations including the setting of employers’ contribution rates

    after agreeing assumptions with the administering authority and having

    regard to the FSS

    ? Prepare advice in connection with bulk transfers and individual benefit-

    related matters


The overall funding level of the fund as at the valuation date of 31 March 2004

    was [x%]. The fund’s target is to achieve 100% funding by [date]. The current

    funding position for individual employers in the fund is set out below, together

    with target funding levels to be achieved at each successive valuation. The

    fund employers are the London Borough of Bromley (LBB), Bromley College

    (BC), Orpington College (OC), Ravensbourne College (RC), Broomleigh

    Housing Association / Downland Affinity Group (BHA), Bromley Mytime (BM)

    and Beckenham & District Mind (Mind).

Target Target Funding Level (%)

    Date LBB BC OC RC BHA BM Mind 31.03.04 (actual)

    31.03.07 100 100 31.03.10 100 100 31.03.13 100 100 31.03.16 100 100



The Council has adopted a fund-specific benchmark with a broad [75/25]

    balance between investment in equities and bonds. The full benchmark is

    attached to the fund’s Statement of Investment Principles. The actuary has

    assumed future investment returns of [x%] and [y%] for these two asset

    classes, and has determined employer contributions by reference to these

    returns, to the target funding levels in the table above, and to the other

    financial and economic assumptions set out in the Valuation Report. The

    fund’s investment managers, Fidelity Investment Management and Baillie

    Gifford & Co, have been instructed to work to this benchmark, with a target to

    achieve returns [0.5% higher than the relevant indices over rolling three-year



There are many factors that could have an adverse impact on achievement of

    the funding strategy and target funding levels. Some of the key potential risks

    are listed in the Appendix, together with comments on their materiality, on the

    procedures for monitoring them and on measures available to mitigate them.

    The risks have been categorised in four main areas, i.e. financial,

    demographic, regulatory and governance risks.


Key Areas of Risk Comments on materiality,

    monitoring and counter-measures Financial

    Investment markets fail to perform in )

    line with expectations ) Actuary to provide data on

     ) materiality by reference to Market yields move at variance with ) sensitivity analysis, e.g. assumptions ) effect of investment returns

     ) +/- 1% different from assumed. Investment managers fail to achieve )

    their targets over the longer term ) Quarterly review of investment

     ) returns

    Asset reallocations in volatile markets )

    may lock in past losses ) Policy for reviewing strategic /

     ) tactical asset allocation and for Pay and price inflation significantly ) rebalancing to be determined more or less than anticipated )

Effect of possible increase in the Council’s contribution rate for 2005/06

    employer’s contribution rate on will be equal to x% of pay each service delivery and on other further 1% will cost ?x,000 employers Invite comments from other

    employers during consultation


    Longevity horizon continues to Monitor at triennial reviews expand Support government proposals for

     increased employee contributions and

    a normal retirement age of 65

    Deterioration in pattern of early Quarterly review of retirement levels retirements Non-ill-health retirements paid for up

    front by Council over three years

    Bromley Mytime required to pay for

    non-ill-health retirements in full up


    Other employers encouraged to

    follow Council’s policy

    Ill-health retirements monitored

    against allowance in basic

    contribution rates and actuary to

    determine revised rates if deemed


    Support government proposals to

    tighten up criteria for early retirement


    Changes to regulations, e.g. more Monitor draft regulations favourable benefits package Actuarial advice on potential cost

     where appropriate

    Respond to consultation where


Potential new entrants to scheme, Assessment of impact of successful

    e.g. part-time employees part-time claimants in hand

     No other significant issues likely as a

    result of new Council entrants

    Changes to national pension Monitor and assess as they arise requirements and/or Inland Revenue Respond to consultation where

    rules appropriate


    Administering authority unaware of Encourage other employers to keep

    structural changes in an employer’s Council informed of changes membership, e.g. large fall in Bromley Mytime employer’s

    employee members, large number of contribution rate to be reviewed

    retirements annually towards end of contract

     Broomleigh / Downland Affinity

    membership levels to be reviewed

    annually as it is closed to new


    Beckenham & District Mind has only

    one fund member

Administering authority not advised of All other employers apart from the

    an employer closing fund to new three referred to above are scheduled

    members bodies, for whom this is not an option

An employer ceasing to exist with Admission Agreement with Bromley

    insufficient funding Mytime includes measures intended

    to maintain funding close to 100%,

    e.g. payment for early retirement up

    front, annual reviews of contribution

    rate towards end of contract

    Review Broomleigh’s position when

    results of valuation are available

    Beckenham & District Mind funding

    level to be maintained at 100%

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