1. Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Conduct Authority Leicestershire County Council Pension Fund - 2013 Valuation Results Employer Forum John Wright, Fund Actuary Barry McKay, Actuary 27 November 2013

2. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 2 Agenda Why do we do a valuation? Valuing the Fund Where we were and where we are now Employer results

3. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 3 Summary Funding level has reduced; so Deficit has increased; so Contribution rates increasing; but Can be managed as outlined

4. Why do we do a valuation?

5. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 5 Why do we do a valuation? We have to! Assess how well pension promises are covered Monitor experience vs. assumptions Set credible funding plan Recommend employer contribution rates for next 3 years Consider potential risks to the Fund & employers Central part of risk management of the Fund

6. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 6 Who does what? Funding Strategy Statement Administering Authority Actuary Employers Provide advice & formal report Regular communication Rates & Adjustment Certificate (2014-17) Statutory requirement every 3 years

7. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 7 How the Fund works a) Investment returns b) Member contributions c) Employer contributions Leicestershire County Council Pension Fund Benefits to members and dependants (as per LGPS Regulations) (Benefits to local economy too) a)Determined by investment strategy and manager performance b)Determined by LGPS Regulations c)Must meet balance of cost over longer term: valuation calculation

8. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 8 The ultimate objective How much money does the Fund need, and how should it be invested, in order to be able to meet the promised benefits? Assets Which ones? How is it done efficiently? ? What are the liabilities?

9. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 9 Achieving the objective Assets Future outperformance Future contributions Assets Liabilities St ructur e Managers

10. Valuing the Fund

11. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 11 Valuing a single member

12. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 12 Valuing the whole fund and paying the pensions

13. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 13 Anticipating investment returns 4.8% p.a.

14. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 14 Long term assumptions Financial Salary increases Pension increases Discount rate Demographic Longevity Early leavers Retirement age Dependants

15. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 15 Financial assumptions (All rates p.a.) 20102013 Discount Rate6.3%4.8% Inflation (CPI)3.3%2.5% Salary Increases5.3%4.3% Net pre-retirement discount rate 6.3% - 5.3% = 1.0% 4.8% - 4.3% = 0.5% Net post-retirement discount rate 6.3% - 3.3% = 3.0% 4.8% - 2.5% = 2.3%

16. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 16 Vita’s lifestyle effect (postcode based) High life expectancy Mid life expectancy Low life expectancy Source: Club Vita research based on VitaBank as at January 2012

17. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 17 New LGPS from 2014 Existing SchemeProposed New Scheme Benefit TypeFinal SalaryCARE with CPI revaluation Accrual Rate1/60 th 1/49 th Retirement Age65State Pension Age Member Contribution Rate Average 6.5% Full-time equiv. pay Average 6.5% Actual pay Vesting Period3 months2 years Accrued rights protected (incl. retirement age, R85, final salary link) Existing scheme underpin for members within 10 years of NPA (age 65) at 1 April 2012 Introduction of a “50/50” option to bolster LGPS participation Cap and Collar?

18. Where we were and where we are now

19. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 19 Discount rate sets the Target Assets Investment returns Interest rates Contributions

20. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 20 Then and now – balance sheet £529m £1,024m Funding level of 80% Funding level of 72%

21. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 21 What has happened since 2010? Key driverEffect on Surplus/Deficit (£m) Deficit at 31 March 2010(529) Market conditions (net discount rate) (410) Investment returns29 Life expectancy(50) Member experience50 Other (interest, demographics etc) (114) Deficit at 31 March 2013(1,024)

22. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 22 Then and now - contributions New scheme saves 2% but is no silver bullet Future service cost Deficit contributions 14.3% 5.7% 10.2% 18.2%

23. Employer results

24. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 24 Funding levels and deficits vary Every employer is different Funding levels across 4 employers Employer 1 Employer 2Employer 3Employer 4 2010 Funding level 78%86%96%107% 2013 Funding level 69%75%83%86% Increase in deficit £6.9m£1.9m£0.4m£21k

25. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 25 Early results – 2014 scheme impact Source: Hymans Robertson – Typical County Council Fund Increased cost Reduced cost Expected saving?

26. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 26 Why are there differences? Balance sheet positon How much you have paid in over the years Membership and changes (profile, ages, M/F, etc) Falling payrolls High or low pay awards Retirements, IH retirements and deaths Strength of covenant Deficit repayment periods Stabilisation used if long term, secure employers

27. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 27 Managing contributions Modelling using 5000 economic scenarios Allows for best estimate asset returns Allows for gilt yields rising Sets contributions with a 2/3rds chance of being fully funded over long term Similar model can be used for shorter term employers

28. Summary and conclusions

29. 63 166 204 108 188 216 155 210 229 210 234 242 240 106 0 247 183 125 243 152 68 250 218 188 110 192 64 151 210 118 183 224 160 218 239 207 242 1 108 247 61 150 249 127 185 251 191 220 75 100 125 150 29 Take home messages Funding levels will fall for most employers; Contribution rates will increase for most employers; Large variability between employers; Increases can be managed in most cases