Key points
- We were delighted to have Steven Law, Partner and Actuary at Hymans Robertson, present at our recent Local Authority Investment Seminar. Steven advises some of the largest and historically best-funded administering authorities in the LGPS.
- Steven sees funding levels coming out of the 2022 valuation for English and Welsh schemes in a wide range, between 80-150 per cent, with the majority being around 100 per cent.
- In light of the improvement in overall funding levels, Steven discussed an appropriate asset allocation response to being in surplus.
Steven Law, Partner at Hymans and Robertson
All investment strategies have the potential for profit and loss, capital is at risk.
He cautioned against funds de-risking too quickly: “We take risk to keep the contribution rates affordable. If you de-risk too fast you could store up problems for later on because you are not getting the investment returns to keep those contribution rates stable and low”.
In light of the improvement in overall funding levels, Steven discussed an appropriate asset allocation response to being in surplus.
The modelling he discussed highlighted the need to maintain a high ratio of growth assets to diversifying assets (typically around 60:40 for a fully funded scheme) in order to protect hard-won funding gains. He also looked at what was in the 'actuaries' toolbox' to build in prudence for future years.
A copy of Steven’s presentation can be viewed here.
We caught up with Steven to recap on his key messages.
Questions
- Where do you see funding levels typically being for English and Welsh schemes in the 2022 valuation?
- Huge temptation to reduce risk – is there a downside to this?
- Is it reasonable for employers to look for contribution rates to fall?
- September’s inflation number, the figure used to determine benefit rises next year, was an eye watering 10.1 per cent. What is the implication of this? Where will the money come from?
- We have seen many private sector schemes under a huge amount of pressure in the wake of the mini-budget. What are the issues for the LGPS?
Important Information and Risk Factors
The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.
This communication was produced and approved in February 2023 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
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All investments have the potential for profit and loss, capital is at risk. Past performance is not a guide to future returns.
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