The London Pensions Fund Authority (LPFA) has reported indicative results of the 2013 valuation of its GBP4.7bn fund.
The funding level is anticipated to be around 95 per cent, close to full funding, on the initial assessment carried out by Barnett Waddingham.
The primary drivers behind the improvement are refinements to the asset and liability strategy, good investment returns over the inter-valuation period and appropriate management of interest rate and inflation risks. These factors have compensated for an increase in future improvements in mortality.
The LPFA has hedged its inflation and interest rate risk through an active LDI strategy since 2006. In February this year it made a large tactical switch to reduce its interest rate hedge and increase its inflation hedge, crystallising a book profit of some GBP200m, and reducing the negative impact of any future potential inflation increases.
The LPFA’s active membership has declined by 12.5 per cent over the inter-valuation period as a result of opt-outs and job loss occasioned by austerity measures, whereas deferred and pensioner members have increased by two per cent and 3.5 per cent respectively, leaving overall membership marginally down.
The expected impact of the 2014 scheme changes has been factored into the valuation results, resulting in an overall reduction in the costs of future service for employers.
However the impact varies across the 200+ employers in the LPFA, which include charities, universities and schools, as well as the residual liabilities from GLC times.
The final valuation results will be published in the Autumn.
Mike Taylor, chief executive at LPFA, says: “The positive indicative results of our 2013 valuation, reflect the expertise and commitment of the entire team at LPFA. We have worked hard in recent months to refine our asset and liability strategy, and are delighted to see that these efforts are already paying dividends.”