Medium Term
Financial Plan
1.
Executive Summary
Introduction
This Medium Term Financial Plan (MTFP) provides details of the LPFA’s financial plans for the four years from 2013-14 to 2016-17. This MTFP will accompany the Strategic Policy Statement (SPS), and the executive summary of the MTFP is published as part of the SPS.
Current Economic Climate
The MTFP is proposed in the context of challenging financial circumstances. Public sector budgets are seeing significant reductions and this is having an impact on the LPFA through changes in public sector pensions, a challenging pensions administration market, and impacts on employers in the LPFA fund. The Mayor’s budget guidance also specifically addresses these challenges by targeting savings across the GLA Group, with the LPFA expected to investigate working collaboratively on identified services and to target savings of 10% in its costs over four years.
The SPS has a focus of delivering One Fund for London as the means of achieving savings over the medium and long term.
Pension Fund
The pension fund budget has a much longer planning horizon than some other elements of the LPFA budget. The key determinants of the pension fund budget include LGPS regulations, investment strategy and the triennial valuation.
The pension fund will continue to feel the impact of the current economic climate. The 2013 valuation is expected to reflect some positive movement on the pension fund. Auto-enrolment and the new LGPS in 2014 should have a positive affect on the fund, however this is of course very difficult to predict.
We will continue to seek value for money and in the short term this will be through reviewing the way we hold investments and the associated fees. In the longer term we will be targeting VFM through One Fund for London.
The LPFA will continue to build on its pensions administration expertise, and be a centre of excellence in this area. The new LGPS and Fire Schemes will be
implemented, in 2014 and 2015 respectively, and these will introduce additional complexity into the administration. The LPFA will manage this for its own fund and will also offer expertise to other public bodies.
The LPFA will also implement better risk management, having better tools to hand to assess liabilities and risks, and the ability to manage the unrewarded risks of inflation and longevity.
Pension Fund Budget
2013-14 2014-15 Budget 2015-16 Budget 2016-17 Budget £000 £000 £000 £000 Employee contributions (35,000) (35,190) (35,894) (36,612) Employer contributions (111,500) (111,500) (113,173) (114,870) Additional contributions (9,000) (9,000) (9,000) (9,000) Transfers in (13,000) (13,000) (13,000) (13,000) Administration expenses 5,709 5,817 5,114 5,030 Pensions payable 218,700 227,350 236,000 244,700 Lump sums 38,000 38,000 38,000 38,000 Transfers out 23,000 23,000 23,000 23,000 Investment income (50,000) (50,000) (52,000) (54,000) Investment expenditure 21,421 21,927 22,425 22,925 Net (inflow)/ outflow 88,330 97,404 101,472 106,173 Investment return
(Change in market value)
(128,000) (129,000) (130,000) (131,000) (Increase)/decrease
to Net Assets of the Fund
(39,670) (31,596) (28,528) (24,827) Residual Liabilities
The residual liabilities account includes resources to continue to meet the costs of unfunded pensions. It also includes resources to meet the costs of asbestosis claims – this is both those in the coming year plus an amount to smooth the impact of future claims.
The main challenge on the residual liabilities budget continues to be estimating future asbestosis claims, and work will continue to develop these figures as information becomes available. We will continue to work with our legal advisors to manage asbestosis claims, and in particular will be pursuing payments from insurance policies taken out by the GLC to help met the costs of claims.
The levy for 2013-14 is planned to be held at the 2012-13 level. This means a greater London levy of £10,318k and an inner London levy of £13,065k. The levy is planned to be held at this level until 2016-17.
Work will continue on the possibility of reducing the levy in future years, and when this may be possible.
A summary of the residual liabilities budget for the four years of the MTFP is provided in the table below.
Residual
Liabilities 2013-14 Budget 2014-15 Budget 2015-16 Budget 2016-17 Budget £000 £000 £000 £000 Greater London Pensions costs 7,759 7,656 7,556 7,460 Direct costs 235 185 185 185 Management expenses 299 299 299 299 Asbestosis provision 1,162 1,323 1,492 1,668 Interest (117) (117) (117) (117) Levy (10,318) (10,318) (10,318) (10,318) Net (inflow)/ outflow (980) (972) (903) (823) Inner London Pensions costs 12,913 12,828 12,751 12,681 Direct costs 53 53 53 53 Management expenses 198 198 198 198 Asbestosis provision 115 131 147 165 Interest (10) (10) (10) (10) Recharge to HEFCE (615) (615) (615) (615) Levy (13,065) (13,065) (13,065) (13,065) Net (inflow)/ outflow (411) (480) (541) (593) Operational Expenses
The operational budget addresses the LPFA’s strategic objectives and supports delivery of these over the planning period.
The strategic and other projects identified for 2013-14 focus on delivering the strategic aim of One Fund for London. This will include projects in three main areas – investment and liabilities, business growth and focussing on excellence. The proposed operational budget for 2013-14 remains unchanged from 2012-13. The budget includes resources to support the above projects and the
development of One Fund for London and the long term savings this would provide across London.
The outline budgets for the following three years reflect the expiry of the lease on Dexter House in 2014, increasing costs of Altair (LPFA’s main pension system), future strategic projects, and the new pension schemes.
The Mayor’s budget guidance refers to delivering savings in the GLA council tax precept of 10% over the coming four years. The LPFA will not contribute to this directly, as it is not part of the GLA precept, However substantial savings will be pursued as part of the strategic aim of One Fund for London.
Operational
Budget 2013-14 Budget 2014-15 Budget 2015-16 Budget 2016-17 Budget £000 £000 £000 £000 Expenditure Board expenses 150 150 150 150 Staff costs 5,576 5,468 5,444 5,423 Premises 1,241 1,166 909 909 Information technology 862 1,032 1,072 1,108 Other expenses 437 448 433 433 Office expenses 461 444 412 414 VAB expenditure 70 70 70 70 8,797 8,778 8,490 8,508 Income Income (204) (208) (211) (235) Agency income (2,243) (2,266) (2,292) (2,312) VAB income (485) (493) (501) (507) (2,933) (2,966) (3,004) (3,053) Reserves 5 32 (8) (25) Total 5,869 5,843 5,478 5,430 Risks
The MTFP also considers risks impacting on the LPFA budget, and their possible impact. The risks considered include auto-enrolment, LGPS 2014, fire scheme 2015, LPFA Herts savings, value added business, new accommodation, pay award, future savings and contract renewals.
Where possible the financial implications related to a risk have been outlined. Legal Issues
The legal issues on setting the budget are considered in the MTFP. The key requirements are that the LPFA must prepare a draft budget statement and present this to the Mayor by 31 December; the LPFA must have received any comments from the Mayor by 31 January; and the LPFA is required to set a levy before 15 February.
Conclusions
The conclusions from the MTFP are provided and these show the operational budget at £5,869k, the levy held at £10,318k on Greater London and £13,065k on Inner London, and an increase in the pension fund budgeted at £29,734k.