Local Government Investment Forum

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Meeting the Challenges of the Local Government
Pension Scheme
Bob Holloway
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and here are a few themes.
When I get older, losing my hair. You
dont always get what you want.. Money,
money, money.. My generation.. Crisis,
what crisis?....... I hope I die before I get
old (one for the actuaries)
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Or put another way.

• Longevity
• Managing change
• Investment return v Risk v Responsibility
• Solving tomorrows problems today
• If it aint broke..
• A long term view

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Longevity

• The evidence is overwhelming.
• More pensionersand living longer
• 1950 Pensioner population 19
• 2006 Pensioner population 27
• 2050 Pensioner population 50?
• Unsustainable dependency ratio?
• The baby boom effect
• And the consequences are?
• Pensioner poverty?
• Taxes increase?
• Savings must rise?
• Average retirement ages must rise

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Longevity The LGPS Approach

• Alarm bells 2001 valuation
• 2004 FSS and Flexibilities
• October 2004 Facing the Future
• June 2006 Where Next?
• Consulatation June September 2006
• November 2006 Ministers Statement
• December 2006 Statutory Consulation
• April 2007 New scheme introduced
• April 2008 New scheme comes into effect

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Longevity The LGPS Approach

• Savings from -
• Increasing retirement age?
• Abolishing the rule of 85
• Commutation
• Better managing ill-health retirements
• Tiered contribution rates for employees
• Future cost sharing arrangements
• Increase scheme membership
• Aim is to ensure -
• Affordability
• Sustainability
• Fairness to employers. Employees, taxpayers.

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Managing Change

• But I have a contract!
• Protection where do you draw the line?
• Accrued rights certainly
• Future expectations for negotiation
• Pensions is a long haul issue expect change!
• Short term sacrifices for long term
  sustainability
• More honesty at the outset
• Need for independent assessment and news

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The Investment Challenge

• Prescription or flexibility?
• Increasing role of alternative investments
• Who arbitrates?
• 1998 Regs v DWPs 2005 Regs
• Is risk a dirty word?
• What is the function of investment?
• Maximise return?
• Reasonable returns in the long term?
• To invest responsibly?
• A mix of the above?
• We all need to know where we stand!

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Crisis, What Crisis?

• Healthy investment returns
• Falling ill-health retirement levels
• 2000 26 of all retirements
• 2006 13 of all retirements
• Steady increase in membership
• Income in 2005/06 1.5bn
• Expenditure in 2005/06 4.1bn
• The pensions guarantee
• Constitutional permanance

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Crisis, What Crisis?
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Crisis, What Crisis?
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The Future of the LGPS.

• Doing nothing was not an option
• No-one can predict the future with certainty
• But some things are predictable -
• Increasing longevity
• Increasing pressure on employer contribution
  rates
• Increasing pressure on council tax levels
• Resistance on meeting these pressures
• No new government money
• New arrangements do work (on paper)
• But only time will tell..
• Whether they stand the test of time..

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Thank You
Any Questions?