members’ agm university of aberdeen superannuation & life assurance scheme david gordon 14...
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Members’ AGMUniversity of Aberdeen Superannuation & Life Assurance Scheme
David Gordon 14 June 2011
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Agenda
Trustees and their responsibilities
Highlights from the accounts
Scheme benefit changes
Actuarial update
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Trustees
Dr Alistair Mair – Convenor
Ms Irene Bews – Director of Finance
Mr Steve Cannon – Secretary to the University
Prof Chris Gane – Vice Principal
Mrs Diane Massie – Member Nominated
Mr Brian Paterson – Member Nominated
The Trustees met on five occasions over the year
Member nominated trustees serve for three year terms – next election due 2013
The Trustees are also assisted on investment matters by:
Prof Alex Kemp
Prof Angela Black
Towers Watson
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Roles and responsibilities
Trustees The Scheme is set up under a Trust Assets are held separately from University assets Trustees run the Trust in the line with the Scheme rules Trustees look after the benefits of the members Under the rules of the Scheme the Trustees determine the University’s contribution
rate in consultation with the University
University Funds the Scheme Responsible for deciding what future benefits are provided
The Pensions Regulator Protects members’ benefits
Pension Protection Fund Provides a benefit for members whose employer is insolvent and there are insufficient
assets to pay benefits
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Scheme membership
Scheme membership continues to grow
742 739574 559
905 900
0
100
200
300
400
500
600
700
800
900
1000
Actives Deferred Pensioners Pensioners /Dependants
31-Jul-10 31-Jul-09
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Cash flows over the year to 31 July 2010
Members contributions: £1.0m 7.05% of pay Includes Pensions Plus
University contributions: £2.6m 17.1% of pay plus life assurance premiums
Cash flows Pensions / other benefits: £4.2m Expenses: £0.2m
Investment return: 22.1% Fund value
31 July 2010: £81.2m 3 May 2011: £89.6m
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Investment changes
The Trustees carried out a review of their investment arrangements in 2010
They concluded that the Scheme should be invested passively This means the Scheme aims to track the stock market
The Scheme previously invested actively This means the manager aims to out-perform the stock market
Investing passively: Reduces risk of underperforming the stock market
Reduces costs, in terms of management charges and governance time for the trustees
The Scheme’s assets were transferred to Legal & General Investment Management (LGIM) in September 2010
The Trustees will save ~£150k a year in investment charges
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How the Scheme is invested
The Trustees also reviewed their allocation to different asset classes when investing with LGIM
The proportion invested in overseas equities was increased
Target asset allocation:
50% Overseas equities
20% UK equities
30% bonds
Investments take account long term nature of liabilities
Target asset allocation:
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Benefits explained – RPI or CPI?
The Government has changed the rules on inflationary increases
The Trustees have looked at what the Trust Deed says
Increases to pensions after retirement Mostly based on RPI and subject to minimum of 3%
Element known as “Post 88 GMP” is now based on CPI up to 3%
Some pensioners may get a pension increase a few pounds lower in some years
After leaving but before retirement increases are based on the Government rules
Now mainly based on CPI
Benefits accrued up to 31 July 2011
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Scheme benefit changes
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Confirmed benefit changes
The University consulted with active UASLAS members in Autumn 2010
The University confirmed in February that the following changes will take effect from 1 August 2011 The Scheme will operate on a Career Average Revalued Earnings (CARE)
basis Increases to pensions in payment will move to a CPI basis (up to 5% a year)
Potential changes to retirement age were withdrawn by the University Members will receive annual benefit statements showing final salary
and CARE benefits separately A new on-line member booklet will be published before 1 August 2011
Benefits accrued up to 31 July 2011 will not be affected
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What is Career Average (CARE)?
Each year you will earn a block of pension and lump sum based on your Pensionable Salary for the year, which will build up towards your total pension and lump sum.
Each block of pension will be earned at the rate of 1/80th (3/80th for lump sum) of Pensionable Salary for that year.
Each block of pension and lump sum would increase by the annual increase in inflation up to a maximum of 2.5% pa until your date of retirement.
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What is Career Average (CARE)?
Year 1 - £20,000 +3% Pay Increase (=£20,600) 80 = £258
Year 2 - £258 + 2.5% Inflation = £264 £258 + 3% Pay increase = £265
Lump Sum = £3,287 x 3 = £9,861
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
3287
336
334
333
331
330
328
326
325
323
322
2879
326
325
323
321
320
318
317
315
314
2491
317
315
314
312
311
309
308
306
2121
307
306
304
303
302
300
299
1769
299
297
296
294
293
291
1435
290
288
287
286
284
1117
281
280
279
277
816
273
272
271
529
265
264
258
258
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What about benefits built up to 31 July 2011?
These remain on a final salary basis:
1/80th Final Pensionable Salary Pensionable Serviceto 31 July 2011
X X
3/80th Final Pensionable Salary Pensionable Serviceto 31 July 2011
X X
Pension:
Lump Sum:
No change
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Actuarial update
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What is the purpose of an actuarial valuation
Assets
Liabilities
Is there enough money in the Scheme to cover accrued benefits?
How much should be paid into the Scheme in future years?
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Results of the actuarial valuation
The reasons for the change in funding position from 2007 to 2010 are as follows:
Poor investment returns Lower yields, increasing
value of future benefits Effect of longer life
expectancies
Your benefits are not directly affected by the Scheme’s funding position
Shortfall £6m £16m
Funding Level
93% 84%
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Future contributions from 1 August 2011
Cost of accruing benefits on CARE basis 11.7% of Pensionable Salary
Members’ contributions (by Pensions Plus) 7.05% of Pensionable Salary
The University is meeting the shortfall by additional contributions of 5.8% of Pensionable Salary
Assuming investment returns are met as expected, this will meet shortfall over a 17 year period
Overall, the University is contributing 17.5% of Pensionable Salary, an increase of 0.4%
Trustees and University engaged in long-term management of Scheme
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Questions
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Contact Details
David Gordon
Senior Consultant +44 131 221 7815 [email protected]
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