Select Committee on Public Accounts First Report


7.  RESULTS OF THE VALUATION

  7.1  The liabilities and assets of the Fund have been valued on the actuarial assumptions described in section 6 above. The results of this valuation are set out below:

 

Valuation Statement as at 30 September 2000         
Liabilities £000's  
Capitalised value of benefits to:    
1939 Act widows 63  
1948 Act former members and widows 104  
1948 Act pre-1988 widows 833  
1981 Act former members 249  
1981 Act widows 297  
   

          

1,546

Reserve for future administration expenses   265

Total liabilities

  1,811

Assets

   
Value of investments held at 30.9.2000
(see paragraph 6.4)
  3,793
Result    
Excess of assets over liabilities   1,982




  This statement excludes income amounting to about £15,700 a year from Members' contributions payable after 30 September 2000. It also makes no allowance for Grants in Aid made after that date.

  7.2  The £1,982,000 excess of assets at 30 September 2000 is higher than the excess of £1,341,000 at 30 September 1997. Over the inter-valuation period, income amounting to about £692,000 has been received from Grants in Aid and contributions paid by Members. The continued level of the Grant in Aid and the favourable investment experience has led to an increased surplus in the scheme. This surplus is equivalent to nearly 110% of the value of the liabilities.

8.  CONCLUSION

  8.1  In my judgement, the assets held at 30 September 2000 were likely to be more than sufficient to meet the liabilities in respect of existing commitments, including future awards to surviving spouses of former members receiving benefit. Unless the number of new awards, including lump sum gratuities, is likely to be very high, consideration should be given to reducing the level of the Grant in Aid.

  8.2  In paragraph 4.4, I indicated that some consideration should be given to the nature of the investment portfolio that is appropriate for a fund where assets could, in the near future, have to be realised to meet liabilities. If a large proportion of the fund is invested in equities, there could be a problem if assets have to be sold at a time when market values are low. If it is intended to continue to increase benefits broadly in line with changes in the Retail Price Index, then the liabilities are effectively linked to the movement in the RPI. A measure of protection against adverse investment experience could be achieved by holding index-linked gilts as a significant proportion of the portfolio. This would have the effect of limiting potential losses, while leaving some scope for the equity holdings to deliver better-than-expected returns. However, the large margin of the value of assets over liabilities could act as a buffer to allow continuation of a substantial equity investment if the Trustees are willing to accept the risk to the value of those excess assets.

  8.3  I will be pleased to advise further on an appropriate holding of gilts in relation to the expected run-off of liabilities, or any proposals from the Trustees affecting the financing of the Fund. In particular, the review of the legislation, framework and objectives of the Fund which is currently in progress (see paragraph 1.2 above) may require further actuarial assessments to be made concerning the future operation of the Fund.

C D Daykin, CB FIA

GOVERNMENT ACTUARY

January 2002


 
 

 
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