1. Hymans Robertson LLP and Hymans Robertson Financial Services LLP are authorised and regulated by the Financial Services Authority Leicestershire Pension Fund Annual General Meeting John Wright Barry McKay 15 January 2013 LGPS up-date

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 Some topical issues 2013 Valuation Pensions Reform: LGPS 2014, Governance, Cost Control Auto-enrolment New flat-rate state pension Other issues: Infrastructure and local investment

3. 2013 Valuation

4. 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 4 Investment performance since 2010 valuation Actuarys long term assumption Bonds Shares

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 But interest rates have fallen Government bond yields and inflation March 2010

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 Deficits have increased Lower funding levels, higher contributions Source: Sample LGPS Fund, 30 September 2012 Navigator Report

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 Summary Investment returns in line with long term assumption But interest rates down and liability values up Deficits have grown Savings from new scheme modest – increase in contributions at 2013 less than would otherwise have been the case Continuing upwards pressure on contributions Contributions likely to stay at current levels or above for longer

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 Changing LGPS scheme membership Active liability: 51% in 2007 to 42% in 2010 to 36%? in 2013 Employee membership falling, more pensioners ActiveDeferredPensioner Source: Hymans Robertson, based on a sample County Council pension fund – not Leicestershire.

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 Why is LGPS scheme membership changing? Redundancies Early retirements Fewer new recruits More outsourcing Council payroll shrinking e.g. transfers of staff to academies Admission agreements often closed to new recruits 50/50 option in LGPS 2014 What impact will auto-enrolment have?

10. 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 10 Cashflow worsening? Cashflow OK now...... small reductions in members changes picture But most Funds have enough investment income Source: Hymans Robertson, based on a large LGPS fund.

11. Reform: LGPS 2014

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 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 Accrued rights protected (NRA, Rule of 85, final salary link) Protection for members within 10yrs of NRA at 1 April 2012 New 50/50 option to bolster LGPS participation

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 How much pension is enough? Good design? Chart based on CARE scheme with 1/60 th accrual and allows for Basic State Pension of £140 per week. Assumes the member has a full public service career (45 years in this example) and remains in the scheme throughout. Sources: Hymans Robertson (2011) and Turner (2004)

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 Public Sector Pensions Bill Covers LGPS & unfunded (all parts of the UK) Design changes common to all schemes CARE (no future Final Salary DB), SPA link Cost control measures Cap and collar on employer contributions Stronger governance and arms length oversight: High regulatory hurdle to prevent further reform within 25 yrs Implement by 2015 (2014 for LGPS in E&W) Scheme specific details in secondary legislation

15. LGPS cost control

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 Life expectancy increasing faster than SPA Population life expectancy vs State Pension Age LGPS costs could continue to increase

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 Cap and collar cost control Employee contributions Employer cost 6.5%13% 19.5% total Employee contributions Employer cost 6.5%16% 22.5% total Trigger breached, reduce benefits and cost Employee contributions Employer cost 6.5%13% 19.5% total CeilingCap

18. 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 18 Threats to sustainability Benefits still generous and savings modest? Will SPA keep up with life expectancy? Cost management (caps/collars etc) effective? Envy (continuing decline in private sector pensions) Economy underperforming over long term Politics (either lack of will or too much interference)

19. Auto-enrolment

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 Workers confused? Thousands baffled over compulsory pensions Express, 10 December 2012 Need for good communication

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 Auto-enrolment and LGPS employers Many have staging dates in first half of 2013 Many employers will defer until 2018? To save money? To avoid implementation cost and effort? Still need to comply for new joiners, birthdays, pay changes

22. Other topical issues

23. 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 23 Other topical issues Local investment & infrastructure but... Responsibilities of pensions committee Sufficient diversification? Best available investment of its type? Availability of suitable investments? Riskiness of currently available investment opportunities? Excessive fees? Consultation on investment regulations (LLPs) Fund mergers and shared services

24. Any questions? Thank you