Agenda item

Pension Fund Valuation.

Representatives from Club Vita, the Fund’s Longevity Analysis will provide a presentation as part of this item. A copy of the presentation slides is attached.


The Committee considered a report of the Director of Corporate Resources updating the Committee on the proposed assumptions used in the 2022 Pension Fund valuation. A copy of the report marked ‘Agenda Item 8’ is filed with these minutes.


Mark Sharkey from Club Vita was in attendance and presented to the Committee on how its longevity analysis was used as part of the Leicestershire Pension Fund’s triennial valuation. A copy of the presentation is filed with these minutes.


Club Vita provided a bespoke set of assumptions specifically tailored to fit the membership profile of the Fund. The assumptions were continually updated to take allowance of changes in longevity, based on the actual experience of the Fund.


The Committee were also joined by Richard Warden and Tom Hoare from the Fund’s Actuary, Hymans Robertson.


Arising from the presentation the following points arose:


i.     Club Vita’s coverage was UK wide which allowed for a detailed view of the diversity in the demographic characteristics of pensioners, even if outside Leicestershire. 


ii.    There had been strong increases to life expectancy in the 2000’s which had slowed since 2010.  Members noted that if they looked at more specific socio economic groups Club Vita held, more affluent individuals’ life expectancy continued to experience higher improvements.


iii.   It was proposed to increase the life expectancy improvement assumption from 1.25% p.a. to 1.5% p.a.. The Committee were advised that the assumption was made up of various projections from short term improvements into the long term and would feed into other assumptions.


iv.   Club Vita also analysed current employees and the impact of early retirement, or ill health grounds. The analysis fed into the views for the assumptions of the Fund and included propensity for a spouse and spousal age differences.


v.    It was suggested that scheme members generally underestimated how long they were going to live by around ten years, given the figures presented at the meeting. A Member felt it highlighted how poor the lump sum choice could be (£12 for every £1 of annual pension given up). Hymans agreed, noting private sector schemes often presented £25 for every £1 of annual pension given up. The Committee recognised that the Fund had no control over the matter given it was set nationally across the LGPS by the Government Actuary’s Department.


vi.   The Committee had approved the Fund’s investment prudence level for the valuation in November. It was expected that the move from 80% to 75% prudence would take some pressure off employer contributions. The decision was made to ensure employers had enough certainty over contributions whilst having sufficient prudence to avoid deficit growth. The Actuary advised that most pension fund schemes also set a 75% level of prudence.


vii. The pressure on some contributing employers was noted given general financial pressures. In response the Director assured the Committee that the Fund had achieved good investment returns since the last valuation, which would help take pressure off employers. It was noted that the valuation took place on a triennial basis, at which point prudence levels and assumptions were adjusted as required after evaluation of experience versus assumptions previously set.


viii.The Committee agreed that the Fund needed to find a balance between affordability and risk, noting that some funds had underfunded their schemes which cost employers more in the long-term.


ix.   A Member questioned the impact of long-term inflation, noting the increase in the CPI Inflation assumption since the 2019 valuation. Members were advised that the Fund hedged against inflation within equity, and that capital appreciation was higher during high inflation which provided a level of protection for the Fund. The Actuary further modelled, and stress tested its assumptions against low and high inflation to ensure it met the prudence criteria. Were inflation to stay above what was modelled for a sustained period the Actuary would revisit it as part of the next triennial evaluation.


The Committee thanked Club Vita and Hymans Robertson and Officers for their detailed report and the assurance provided on the assumptions as set out.




That the ;


a. approach to the Fund Valuation be approved.

b. following assumptions be approved, subject to any changes before February 2023. 





A long-term trend of 1.5% annual improvements

Investment Return

4.4% p.a. assumed investment return over 0 to 20 years aiming to meet a 75% success rate, using Hymans latest economic scenario model

Discount Rate

Beyond 20 years, use the Fund’s agreed level of prudence of 75%

Benefit Revaluation and Pensions Increase

The median (average) CPI over the first 20 years of 2.7% p.a.

Salary Increases

0.5% above 2.7% CPI inflation


Model using the Leicestershire Fund data and based on the Club Vita analysis


c. Director of Corporate Resources, following consultation with the Chair of the Local Pension Committee, be authorised to make any amendments to the assumptions set out in b., noting any changes will be reported to Committee.


Supporting documents: