The published 2019 valuation showed a marked improvement to the scheme as a whole, assets had grown significantly more than liabilities, hence the scheme as a whole had moved from a 90% funded scheme to 100% funded. This meant that for the scheme as a whole any deficit recovery costs would be significantly reduced, although it was recognised that the position would vary for each Authority.
The valuation had also identified that future service rates needed to increase by an average of 2.5%, recognising changes to scheme benefits and also changes in future assumptions such as mortality and investment returns. The overall valuation was extremely volatile, linked to investment returns and changing assumptions.
It was noted that the Government had consulted on moving from the current three year valuation cycle to a four year cycle from 2024. If this was agreed the next valuation, effective from 2023, would only set rates for two years to 2025, with the four year cycle commencing thereafter. As part of the process consideration was being given to the ability to undertake interim valuations or for administering authorities to amend employer contributions rates in between valuations, both of which would incur significant additional administrative costs.
Lancashire Fire Authority Fund
At the time of the last tri-annual valuation of the Local Government Pension Scheme the Fire Authority had a funding surplus of £4.3m, which was being drawn down over the agreed 16 year recovery period, £336k per annum.
The latest valuation showed a marked increase in the surplus, now standing at £9.7m, a funding level of 120%. The recovery period over which this was drawn down had also shortened to 13 years (in theory it reduced by 3 years each valuation). As a result the in-year draw down would increase to £745k in 2020/21 rising to £804k in 2022/23.
Offsetting this was the increase in future service rate, which had increased from 14.7% to 17.1%, an increase of 2.4% which, based on the current projected payroll equated to £135k additional cost. The profile of anticipated employer contributions for future service costs and draw down of the surplus was detailed in the report. No allowance has been made for the potential impact of the McCloud pension ruling, which has previously been reported to Members.
The Service had an option to pre-pay these amounts, either at the start of each year or as a one-off covering all three years, and receive a discount for doing so. Pre-paying this at the start of each year resulted in an overall saving of £11k, whilst pre-paying all three years in April 2020 resulted in a saving of £36k, this equated to a return of approx. 3.8% per annum, and as such it was recommended that the Authority took advantage of the one-off prepayment covering all three years. Any variation between actual costs due and the amount pre-paid would be actioned at the end of the valuation period.
RESOLVED: that the position be noted and the pre-payment of contributions, net of the surplus drawdown covering the 3-year period be approved.