Valuation
The role of the actuary
The main objective when running a pension fund is to ensure that there are sufficient funds to pay for the benefits as they fall due and contributions are paid at an appropriate level.
In accordance with Regulation 62 (1) of the LGPS Regulations 2013, the fund actuary will carry out regular actuarial valuations of the fund with the following objectives:
- To comply with legislation (it is mandatory to have an actuarial valuation every three years);
- To monitor the ongoing health of the fund (i.e. is there enough money to pay the pensions);
- To recommend appropriate contribution rates for employers;
- To monitor the actual experience of the fund against the assumptions made.
Employer contribution rates are reassessed at each valuation, which traditionally takes place every three years. The last valuation was as at 31 March 2019, setting the employer contribution rates for the three years from 1 April 2020 to 31 March 2023. The next formal valuation is due to take place as at 31 March 2022.
The valuation process
Surrey Pension Fund provide finance and membership data to our actuary, Hymans, who use this data to carry out the valuation.
In the valuation year, we use the data we hold for your members and the data you have provided to us in the Annual Return to extract the information that the Actuary requires. If we have any queries regarding the information, we will contact you directly.
The actuary who performs the valuation for the Surrey Pension Fund needs accurate information to correctly assess each employer's liability. Where the information provided is not accurate, or is missing elements, the actuary will make assumptions and err on the side of prudence. This could mean that a higher employer contribution rate will result. Therefore, it is in your financial best interest to provide accurate and complete information within the timescales set by the Surrey Pension Fund.
The valuation reports for all pension funds can be found on the Scheme Advisory Board website.
Once the valuation has been completed, you will be issued with a Rates & Adjustments certificate from the Actuary detailing your new contribution rate.
The employer contribution rate is made of two components:
- The Primary rate – the rate set to cover the build-up of benefits for the three years after the valuation and
- The Secondary rate – which is the adjustment to reflect your particular circumstances, including any deficit that had previously built up.
The contribution rate set previously is assessed at the following valuation and if the rate was not enough to cover the future liabilities, the shortfall in funding becomes a deficit. This could be due to the under value of valuation assumptions (e.g. pay rises were higher or return on investments less than expected) or a change in your demographics, for example. Deficit payments must be recovered, but this can be over a period of time, set by the Surrey Pension Fund.
The valuation timeline 2022
The below outlines the key milestones in the 2022 valuation. These timings might change but we will let you know if they do:
- 31 March 2022: The effective date of the valuation. All benefits built up to this date will be valued.
- 30 April 2022: Employers provide up to date membership data for the year ending 31 March 2022. It is important that the data you provide is accurate and provided as soon as possible. We may need to contact you if we have any queries regarding the data that you have provided.
- July 2022: We will submit the data to the Fund Actuary. The actuary will use this data to calculate each employer's funding level and contribution rate.
- October 2022: Review initial employer valuation results. Draft Funding Strategy statement, specifically to recognise different employer strategies.
- October 2022: Employer Forums with the Fund Actuary. Commence Funding Strategy Consultation.
- January 2023: Review Funding Strategy Statement Consultation Responses
- March 2023: All valuation results are finalised. The Fund Actuary issues final Valuation Report and a Rates and Adjustments certificate to each employer.
- April 2023: The valuation is complete and new employer contributions take effect.