Public Employees’ Pension Fund (PEPF) Actuarial Valuation 2021.

Public Employees Pension Fund

Actuarial valuation at 31 December 2021

R.63/2023

Prepared for:  Committee of Management Prepared by:  Jonathan Teasdale

Date:  28 February 2023

Public Employees Pension Fund | Executive summary

Executive summary

The key conclusions from the actuarial valuation at 31 December 2021 are set out below.

We have carried out a valuation of the Public Employees Pension Fund ("the Fund") as at 31 December 2021 under Regulation 3 of the Public Employees (Pension Scheme) (Funding and Valuation) (Jersey) Regulations 2015 (the "Funding and Valuation Regulations").

The purpose of the valuation is to review the operation of the Fund since the previous valuation, and to report on the financial condition of the Fund and the adequacy or otherwise of the contributions to support the benefits of the Fund.

The assets of the Fund are used to provide pensions and other benefits under both the Public Employees Contributory Retirement Scheme ("the Final Salary Scheme") and the Public Employees Pension Scheme ("the Career Average Scheme"). As required by legislation, this valuation separately considers the funding positions of the Final Salary Scheme and the Career Average Scheme.

The Funding Strategy Statement dated 17 January 2023 sets out the framework for the action to be taken at a valuation.

Final Salary Scheme

As required by the Funding and Valuation Regulations, the assumptions adopted for the Final Salary Scheme valuation have been determined by the Actuary. The Actuary has determined the assumptions following consultation with the Treasurer, and having reached agreement with the Committee of Management and the Minister for Treasury and Resources. It has been confirmed that the assumptions adopted to determine the funding target for the Final Salary Scheme should be best-estimate assumptions.

Under best-estimate assumptions the future outcome is just as likely to be better or worse than assumed. The rationale for using best-estimate assumptions is discussed in Appendix 4.

In the Final Salary Scheme, there was a surplus of £183.8M based on the assumptions adopted for the valuation, which is equivalent to a funding ratio of 106.9%.

In accordance with the Funding Strategy Statement, it has been agreed that the surplus will be retained as a cushion against future adverse experience and the Committee of Management and Chief Minister have agreed that no adjustments to benefits are required following this valuation.

Career Average Scheme

The Career Average Scheme was introduced on 1 January 2016. New employees have been admitted into the Career Average Scheme since that date and, from 1 January 2019, most employees who had been accruing

Public Employees Pension Fund  |  Executive summary

benefits in the Final Salary Scheme up to that date started to build up benefits in the Career Average Scheme.

As required by the Funding and Valuation Regulations, the assumptions adopted for the Career Average Scheme valuation are prudent assumptions. The assumptions have been agreed by the Committee of Management and the Minister for Treasury and Resources, following consultation with the Treasurer.

In the Career Average Scheme, there was a deficit of £6.1M based on the assumptions adopted for the valuation, which is equivalent to a funding ratio of 97.5%. In accordance with the Funding Strategy Statement, no adjustments to benefits are required as a result of the past service position.

The cost of accrual of future benefits in the Career Average Scheme as at the valuation date was 26.4% of pensionable earnings. However, the cost had reduced to 18.8% of pensionable earnings based on updated views as at 30 June 2022 on investment returns relative to inflation, and the cost has remained below the current contribution rate at subsequent quarter-end dates.

In accordance with the Funding Strategy Statement, the Committee of Management and the Chief Minister have agreed that contributions will continue at the current rates i.e. employer contributions equal to 16% of pensionable earnings and member contributions equal to 7.75% of pensionable earnings for ordinary members and 10.1% of pensionable earnings for uniformed members. It has also been agreed that no changes to benefits are required at this valuation.

Developments since the valuation date

The funding positions of both schemes are estimated to have improved somewhat since the valuation date. This is due mainly to an increase in expected future investment returns relative to inflation.

The cost of future benefit accrual has reduced substantially since the valuation date due to the increase in expected future investment returns relative to inflation and on that basis we consider the accrual of future benefits under the respective schemes to be affordable within the contribution cost caps provided for in the Fund's legislation.

28 February 2023 Signature  Date

Public Employees Pension Fund  |  Contents

Contents

Executive summary  2 Introduction  5 Developments since the previous valuation  7 Information used  8 Valuation approach  10 Asset data  16 Valuation results - Final Salary Scheme  17 Valuation results - Career Average Scheme  19 Risks and sensitivity analysis  21 Summary and conclusions  24

Appendix 1 – Scope of advice  27

Appendix 2 – Provisions of Fund  28

Appendix 3 – Membership data  36

Appendix 4 – Rationale for best-estimate assumptions for Final Salary Scheme  44

Appendix 5 – Valuation method  46

Appendix 6 – Financial assumptions  47

Appendix 7 – Demographic assumptions  51

Appendix 8 – Summary of assumptions  58

Appendix 9 – Discontinuance test  60

Appendix 10 – Agreed arrangements for dealing with the pre-1987 debt  63

Appendix 11 – Rates and adjustments certificate  65

Glossary  67

Public Employees Pension Fund | Introduction

Introduction

This report has been prepared for the Committee of Management. It considers the financial position of the Fund as at 31 December 2021.

Legislation

The valuation has been carried out under Regulation 3 of the Public Employees (Pension Scheme) (Funding and Valuation) (Jersey) Regulations 2015 (the "Funding and Valuation Regulations").

The Funding and Valuation Regulations require:

the overarching principles for the setting of assumptions for the valuation to be set out in the Funding Strategy Statement;

the assumptions for the Career Average Scheme to be prudent and to be agreed by the Committee of Management and the Minister for Treasury and Resources, following consultation with the Treasurer; and

following consultation with the Treasurer, the assumptions for the Final Salary Scheme shall be determined by the Actuary, who will aim to have firstly reached agreement with the Committee of Management and the Minister for Treasury and Resources.

Under the legislation, a valuation of the Fund must be carried out as at 31 December 2021 and at least once every three years thereafter.

The results of the valuation are based on the Regulations of the Fund in force at the valuation date.

Purpose

The purpose of the valuation is to report on the financial condition of the Fund. In accordance with the Funding and Valuation Regulations, this report:

separately identifies the assets and liabilities of the Final Salary Scheme and the Career Average Scheme;

includes an assessment of whether any change in the funding levels is due to long-term trends of a demographic, investment or other nature; and

includes an assessment of whether the accrual of future benefits under the Final Salary Scheme and the Career Average Scheme is affordable within the cost cap of 24.75% of pensionable earnings (inclusive of member contributions).

Previous valuation

Our previous valuation report dated 17 December 2019 considered the financial position of the Final Salary Scheme and the Career Average Scheme as at 31 December 2018.

Public Employees Pension Fund  |  Introduction

Contributions since the previous valuation

Since the previous valuation contributions have been paid at the rates specified in the Fund's Regulations from time to time.

The Government repaid its share of the pre-1987 debt, referred to in the "Information used" section of this report, through a lump sum repayment of £337,523,873 on 31 May 2022.

Next valuation

The next valuation is due to be carried out no later than 31 December 2024.

Scope of advice

The report is prepared for the Committee of Management. Please see Appendix 1 for further details of the scope of advice.

Words used

Our report includes some technical pension terms. The words shown in bold print are explained further in the glossary.

For brevity, we have also used the following shorthand:

Shorthand  What it means Jersey RPI  All Items Retail Price s Index for Jersey Regulations  See Appendix 2 Salaries, Service  As defined in the Regulations Fund  Public Employees Pension Fund Final Salary Scheme  Public Employees Contributory Retirement

Scheme (referred to within the Funding and Valuation Regulations as the "1967

Scheme")

Career Average Scheme  Public Employees Pension Scheme (referred to within the Funding and

Valuation Regulations as the "Scheme") Valuation date  31 December 2021

Snapshot view

The report concentrates on the Fund's financial position at the valuation date. As time moves on, the Fund's finances will fluctuate. If you are reading this report some time after it was produced, the Fund's financial position could have changed significantly.

Public Employees Pension Fund | Developments since the previous valuation

Developments since the previous valuation

This section summarises the key developments since the previous valuation.

The financial health of the Fund depends fundamentally on how much cash is paid in, how well the assets perform, and on what benefits are paid out. The key developments since the previous valuation therefore include:

The amount of contributions paid to the Fund.

The actual returns on the Fund's investments.

Whether there are changes to future expectations of benefit payments or investment returns.

These items are discussed later in this report. As well as these high-level points, please note the developments below.

Dealing with the 2018 valuation results – no adjustments to benefits required

The valuation of the Final Salary Scheme as at 31 December 2018 revealed a deficit of £1.1M, equivalent to a funding ratio of 99.95%. In accordance with the Funding Strategy Statement, as the funding position was within the "funding corridor" of 95% to 105%, the Committee of Management and Chief Minister agreed that no adjustments to benefits were required.

In the Career Average Scheme, there was a surplus of £3.26M as at

31 December 2018, equivalent to a funding ratio of 120.5%. In accordance with the Funding Strategy Statement, the past service surplus of £3.26M at the valuation date was retained in the Career Average Scheme. Furthermore, in accordance with the transitional arrangements set out in the Funding and Valuation Regulations, the valuation had no impact on the benefits payable from the Career Average Scheme or the contributions payable to the Fund and the surplus was carried forward.

Amendments to Regulations regarding benefit provision

Some minor amendments have been made to the Regulations regarding benefit provision but none of these changes have had a material impact on the funding position of the Fund.

Public Employees Pension Fund | Information used

Information used

The information used for the valuation is summarised below.

To carry out the valuation, we have obtained information separately for the Final Salary Scheme and the Career Average Scheme on:

The assets held by the Fund.

How benefit entitlements are calculated.

Member data.

This section sets out a high-level summary of the information used. Further details are included in Appendices 2 and 3.

Assets

The Fund's assets had an audited market value of £2,711.4M at the valuation date.

The asset value for the Final Salary Scheme was £2,473.0M and the asset value for the Career Average Scheme was £238.4M.

For further details, please see the Asset Data section.

Benefits valued

Members are entitled to benefits defined in the Regulations. We are not aware of any established practice of granting additional discretionary benefits and no allowance for such benefits has been made in this valuation. A summary of the benefits valued is set out in Appendix 2.

Pre-1987 debt

In 2003, agreement was reached between the Policy & Resources Committee (Act of Committee dated 20 November 2003) and the Committee of Management for dealing with the pre-1987 debt. By "pre-1987 debt" we mean the shortfall transferred to the Final Salary Scheme arising from the changes made to the Final Salary Scheme in 1987.

The agreement between the Policy & Resources Committee and the Committee of Management for dealing with the pre-1987 debt is set out in Appendix 10. The provisions of the agreement were reflected in changes to the Final Salary Scheme Regulations approved by the States of Jersey on 27 September 2005.

The Regulations were amended with effect from 1 January 2016 to reflect additional repayments of £3M p.a. from 2016 and a revised end date for the repayments by the Government of 29 September 2053.

The Government repaid its share of the pre-1987 debt through a lump sum repayment of £337,523,873 on 31 May 2022.

Public Employees Pension Fund  |  Information used

Membership data

The valuation calculations use membership data supplied by the Public Employees Pension Team of the Government Treasury & Exchequer Department at 31 December 2021.

Final Salary Scheme

The following chart illustrates the membership profile of the Final Salary Scheme.

Active Members  Deferred Pensioners  Pensioners (excl.

dependants)

6,604

5,210 4,027 4,424 4,890

4,039 2,870 3,331 3,505

2016  2018  2021  2016  2018  2021  2016  2018  2021 Note: The number of pensioners shown above excludes spouses and dependants.

The illustration of the position at 31 December 2021 shows that there has been an increase in the number of pensioners and deferred pensioners since the last valuation, but a reduction in the number of actives. The number of active members shown at that date includes active members who are accruing benefits in the Career Average Scheme but retain a final salary link on pre-1 January 2019 service.

Career Average Scheme

As at 31 December 2022, there were 6,966 active members (2018: 6,127), 1,051 deferred pensioners (2018: 162) and 62 pensioner members (2018: 1) in the Career Average Scheme.

Please see Appendix 3 for a comprehensive summary of the membership data.

Reliability of information

We have carried out general checks to satisfy ourselves that:

The information used for this valuation is sensible compared with the information used for the previous valuation.

The results of this valuation can be traced from the results of the previous valuation.

However, the results in our report rely entirely on the accuracy of the information supplied.

Valuation approach

This section describes the approach taken for the valuation calculations.

Adequacy of contributions

The contributions to the Fund are specified in the Regulations governing the Fund and are paid so as to provide the benefits which will become payable to members when they retire or otherwise leave the Fund.

The factors affecting the Fund's finances are open to changing circumstances. Consequently it is necessary to review the operation of the Fund from time to time, by means of an actuarial valuation, to determine the adequacy or otherwise of the contributions to support the benefits payable under the Fund and to determine the affordability of future pension increases from the Fund.

Funding target and funding objective

In our review we start with the known facts about the Fund at the valuation date, i.e. the benefit and contribution structure, the membership and the assets. We then must make assumptions about the factors affecting the Fund's future finances such as investment returns, pay increases and rates of mortality, leaving service and retirement.

In order to calculate the value placed on the benefits, the benefits paid out by the Fund are estimated for each year into the future. The estimated benefit payments are then 'discounted back' to the valuation date using an assumed investment return known as the discount rate.

The benefit payments from the Fund are expected to be made for a very long period and Fund cashflows are linked to future levels of inflation – the charts below shows the cashflow pattern for the Final Salary Scheme and then the Career Average Scheme respectively, covering benefits accrued up to the valuation date.

Final Salary Scheme

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Years into the future

Pensioner Deferred Active

Career Average Scheme

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Years into the future

Pensioner Deferred Active

For the purpose of assessing whether the contributions are adequate to support the current benefits, it is appropriate to set a "funding target" and "funding objective".

The funding target is that the assets should be sufficient over the long term to support the benefits payable from the schemes in respect of service up to the valuation date.

The funding objective is that the funding target should be met and that any variations in outcome should be dealt with following each valuation in accordance with the Regulations and the Funding Strategy Statement, by adjustments to contributions and/or benefits or by carrying forward surpluses and deficits where appropriate.

The adequacy of contributions to cover future benefit accrual is considered separately.

Valuation methods

A description of the methods used for the main valuation calculations is set out in Appendix 5.

Valuation assumptions

The results of a valuation are very sensitive to the assumptions made. The financial assumptions have a significant effect on the results of a valuation. However, the other assumptions, particularly the mortality assumptions, are also very important.

Use of market-led financial assumptions

In both this valuation, and the previous valuation, we have adopted a market-led approach, which involves:

market-led financial assumptions for valuing the liabilities, future contributions, and future pre-1987 debt repayments for the Final Salary Scheme; and

valuing the assets at market value.

Prudent assumptions for the Career Average Scheme

To ensure there is prudence (caution) within the assumptions, the Funding Strategy Statement provides for the discount rate for the Career Average Scheme to be determined such that the probability of the actual investment return on the Career Average Scheme assets being higher than the discount rate over the 30-year period from the valuation date is at least 60%.

For this valuation it has been agreed that the discount rate should be set such that the probability of the actual investment return being higher than the discount rate is equal to 60%.

All assumptions for the Career Average Scheme other than the discount rate are intended to be best-estimate assumptions i.e. for all assumptions other than the discount rate, the future outcome is just as likely to be better or worse than assumed. The caution within the assumptions for the Career Average Scheme is therefore captured entirely within the choice of discount rate.

Best-estimate assumptions for the Final Salary Scheme

It has been agreed that the assumptions adopted to determine the funding target for the Final Salary Scheme should be best-estimate assumptions. The rationale for using best-estimate assumptions for the Final Salary Scheme is summarised in Appendix 4.

The discount rate is structured as follows:

The initial discount rate is equal to the best-estimate investment return based on the strategic asset allocation for the Final Salary Scheme (excluding the pre-1987 debt repayments) at the valuation date.

This discount rate applies until the date when the Final Salary Scheme is anticipated to reduce risk in the investment strategy, at which point it is assumed the discount rate will reduce immediately to the long-term discount rate.

The long-term discount rate is based on the best-estimate return on the assumed long-term asset allocation for the Final Salary Scheme agreed for the purposes of the valuation.

Key financial assumptions

The following tables show the key financial assumptions used at this valuation and the assumptions used at the previous valuation for comparison. Important points to bear in mind are:

The differences between the rates have a bigger impact on the results of the valuation than the absolute levels of each assumption.

The assumptions were derived from market yields at the valuation date to ensure compatibility with the market value of the assets.

The derivation of the financial assumptions is compatible with taking assets at market value.

Assumption  2021  2018

Discount rate for Final  For the period until  For the period to Salary Scheme  31 December 2031,  31 December 2021:

4.35% p.a.  5.00% p.a.

Reducing immediately to  then gradually declining 3.10% p.a. with effect from  over the following 20 years 1 January 2032.  to 4.10% p.a

Discount rate for Career  4.40% p.a.  5.20% p.a. Average Scheme

Jersey RPI  2.85% p.a.  2.95% p.a. Increases to pensions in  2.85% p.a.  2.95% p.a.

payment and deferred

pensions

General salary increases 3.35% p.a.  3.95% p.a. (in addition to promotional

increases)

Full details of the financial assumptions used for this valuation, and the reasons for the changes compared to the previous valuation, are set out in Appendix 6 to this report.

Comparison of financial assumptions with 2018 valuation

Overall (ignoring any changes to the demographic assumptions), the financial assumptions we have used for the 2021 valuation result in higher liabilities for both the Final Salary Scheme and Career Average Scheme than if the assumptions used for the 2018 valuation had been retained. The main reason for this is that the discount rates relative to inflation are lower at this valuation overall.

Demographic assumptions

Other important assumptions used to value the liabilities include:

the assumed future rates of mortality;

the allowance made for the extent to which members will choose to exchange pension for a cash lump sum at retirement (at the rate of £13.50 cash lump sum for each £1 annual pension given up);

the allowance for additional increases to the salaries of Final Salary Scheme members due to promotion, service or seniority; and

the allowance made for the range of ages at which members in each membership category will retire in future.

Comparison of demographic assumptions with 2018 valuation

We have reviewed the extent to which the demographic assumptions adopted for the 2018 valuation of the Fund remain appropriate for the current valuation as at 31 December 2021 after analysing recent Fund experience and taking account of other relevant data. Full details of the demographic assumptions used for this valuation, and the reasons for any changes compared to the previous valuation, are set out in Appendix 7 to this report.

In the light of this review we have made some changes to the demographic assumptions. The overall net effect of these changes is to slightly decrease the surplus in the Final Salary Scheme and to slightly increase the deficit in the Career Average Scheme.

Regulatory framework

The Regulations specify the broad framework for the action to be taken at a valuation. A summary of the framework is set out below:

Subject to the agreement of the Chief Minister, the Committee of Management may determine that no adjustments to benefits or contributions are required to be made in the Final Salary Scheme and/or the Career Average Scheme if the funding level of the relevant scheme is within the "funding corridor" of 95% to 105%;

If the funding level of either or both the respective schemes is outside the "funding corridor" then the Actuary determines the adjustments required to benefits and contributions to restore either or both of the respective schemes to a 100% funding level, unless the Committee of Management and Chief Minister agree that no adjustments are required. The current policy agreed between the Committee of Management and the Chief Minister is that if the funding level is over 100% based on the maximum annual benefit increases, no adjustment will be made; surpluses will be retained as a cushion against later adverse experience or used to reduce risk.

Employer contributions may be adjusted subject to a cap of 16.5% of total pensionable earnings;

Member contributions may be adjusted subject to the weighted average contribution rate for the membership as a whole being not greater than the cap of 8.25% of pensionable earnings (unless an increase in this cap is agreed following consultation with relevant trade unions, as defined in the Funding and Valuation Regulations);

The Career Average Scheme accrual rate may be adjusted provided it is not greater than 1/66th;

The revaluation rate in service for the Career Average Scheme may be adjusted subject to a minimum of 50% of (Jersey RPI increase + 1%) and a maximum of 100% of (Jersey RPI increase + 1%)

The annual pension increase for the Career Average Scheme may be adjusted subject to a minimum of 50% of Jersey RPI increase and a maximum of 100% of Jersey RPI increase; and

The annual pension increase for the Final Salary Scheme may be adjusted subject to a minimum of 0% of Jersey RPI increase and a maximum of 100% of Jersey RPI increase.

If the change in Jersey RPI is negative, the Jersey RPI increase will be taken to be 0% for the purpose of calculating pension increases and revaluations in service. In this situation, pension increases will therefore be 0% and the revaluation rate will be between 0.5% and 1%.

For this valuation, the transitional arrangements set out in the Regulations provide that there will be no change to the contributions payable to the Fund prior to 1 January 2024.

The detail of how it has been agreed the framework will apply in practice is documented in the Funding Strategy Statement.

Public Employees Pension Fund  |  Asset data

Asset data

The audited accounts for the Fund for the year ended 31 December 2021 show the assets were £2,711.4M.

The Fund's assets are held separately from those of the Government of Jersey. The audited Fund accounts for the year ended 31 December 2021 show its assets as £2,711.4M.

The assets can be categorised as follows:

Asset backed securities:

£74.2M

Cash: £60.1M

Alternatives: £317.3M

Active equities: £701.9M Private debt: £299.4M

Bonds: £406.9M Passive equities:

£549.5M

Property: £302.1M

The Final Salary Scheme

The value of assets allocated to the Final Salary Scheme at the valuation date (before addition of the pre-1987 debt) was £2,473.0M.

In addition, the value placed on the pre-1987 debt at the valuation date was £362.9M. The Government repaid its share of the pre-1987 debt through a lump sum repayment of £337,523,873 on 31 May 2022. Certain admitted employers retain responsibility for repaying their respective shares of the pre-1987 debt over a period of time.

The Career Average Scheme

The value of assets allocated to the Career Average Scheme at the valuation date was £238.4M.

Public Employees Pension Fund  |  Valuation results - Final Salary Scheme

Valuation results - Final Salary Scheme

There was a past service surplus in the Final Salary Scheme at 31 December 2021 of £183.8M, equivalent to a past service funding ratio of 106.9%.

A detailed breakdown of the results of the main valuation calculations is given below

£M

1 Including the Final Salary Scheme benefits of members who transferred to the Career Average Scheme on 1 January 2019.

2 The Government's share of the debt was £335.7M and the Admitted Employers' share was £27.2M. The Government repaid its share of the pre-1987 debt through a lump sum payment of £337,523,873 on 31 May 2022.

The above table shows there is a past service surplus of £183.8M at 31 December 2021, equivalent to a funding ratio of 106.9%.

Public Employees Pension Fund  |  Valuation results - Final Salary Scheme

Reasons for change in funding position

The past service deficit in the Final Salary Scheme at 31 December 2018 was £1.1M.

The chart below shows the key reasons for the change in past service funding position between 31 December 2018 and 31 December 2021.

The analysis shows that the main factor which has contributed to the improvement in the funding position since the previous valuation has been the greater than expected investment returns. There have also been lower than expected salary increases and pension increases (in payment and deferment).

The increase in the surplus as a result of these factors has been partially offset by the reduction in assumed future investment returns relative to inflation, which has worsened the position.

We do not see the improvement in funding level since 31 December 2018 as being indicative of a long-term trend of a demographic, investment or other nature.

Public Employees Pension Fund  |  Valuation results - Career Average Scheme

Valuation results - Career Average Scheme

There was a past service deficit in the Career Average Scheme at 31 December 2021 of £6.1M, equivalent to a funding ratio of 97.5%.

A detailed breakdown of the results of the main valuation past service calculations is given below.

£M Actives  224.3  Deferred pensioners  17.0 Pensioners  3.2 Value of past service benefits  244.5

Total value of assets  238.4

Past service surplus / (deficit)  (6.1) Funding ratio  97.5%

The above table shows there is a past service deficit of £6.1M at 31 December 2021, equivalent to a funding ratio of 97.5%.

Reasons for change in funding position

The past service surplus in the Career Average Scheme at 31 December 2018 was £3.26M.

The chart below shows the key reasons for the change in past service funding position between 31 December 2018 and 31 December 2021.

Public Employees Pension Fund  |  Valuation results - Career Average Scheme

The analysis shows that the main factor which has contributed to the worsening in the funding position since the previous valuation has been the reduction in assumed future investment returns relative to inflation.

This factor has been largely been offset by greater than expected investment returns and the level of contributions paid exceeding the value of the benefits accrued over the period based on the assumptions used for the 2018 valuation.

We do not see the change in funding level since 31 December 2018 as being indicative of a long-term trend of a demographic, investment or other nature.

Cost of future benefits

Snapshots of the cost of future accrual in the Career Average Scheme as at the valuation date and a more recent date, 30 June 2022, (excluding the 0.8% transitional costs allowance referenced in the Funding Strategy Statement) are shown in the table below.

31 December 2021 30 June 2022 Cost of accrual   26.4% of pensionable earnings 18.8% of pensionable earnings

The cost of accrual has reduced significantly since the valuation date due to an increase in assumed future investment returns relative to inflation, and the cost has remained below the cost cap of 24.75% of pensionable earnings at subsequent quarter-end dates since 30 June 2022. See Appendix 8 for details of the assumptions as at 30 June 2022.

Risks and sensitivity analysis

The Fund faces a number of key risks which could affect its funding position.

This section comments on some of the key risks faced by the Fund. It concentrates on the deterioration to the Fund's finances that may arise in various hypothetical downside scenarios (where the actual experience is less favourable than the assumptions made at this valuation).

For the Final Salary Scheme, as the assumptions used to determine the funding target are best-estimate assumptions, it needs to be recognised that upside scenarios (where the experience is more favourable than the assumptions) are considered just as likely as downside scenarios. For the Career Average Scheme, as the assumptions used to determine the funding target are prudent assumptions, upside scenarios are considered more likely than downside scenarios.

Key risks

Here is a recap of some of the key factors that could lead to deficiencies in future:

Investment risks – the risk that the return achieved on the Fund's assets may be lower than allowed for in the valuation, and also that the assets may not move in line with the value of the benefits. The Fund invests in assets (e.g. equities) that are expected to achieve a greater return than the assets (i.e. index-linked gilts and investment grade derivatives) that most closely match the expected benefit payments (index-linked gilts and derivatives would provide a broad match but these assets are linked to UK RPI whereas the Fund's benefits are linked to Jersey RPI). The less matched the investment strategy is, the greater the risk that the assets may not move in line with the value of benefits.

Inflation risk – the risk that inflation is higher than assumed (which could be due to changes in the definition of Jersey RPI), increasing the pensions that need to be paid.

Liquidity risk – the risk that cashflows are higher than expected as members commute more than is assumed or take transfer values, possibly leading to the sale of assets at inopportune times.

Longevity risk – the risk that members could live longer than foreseen, for example, as a result of a medical breakthrough. This would mean that benefits are paid for longer than assumed, resulting in a higher cost of providing the benefits.

Employer covenant risk – the risk that employers do not pay the contributions required under the Regulations.

Public Employees Pension Fund | Risks and sensitivity analysis

Membership changes – the risk that changes in recruitment or admission policies, or large scale redundancy/divestment programmes, increase the average cost of benefits. For example, an increase in the average age of the membership or an increase in the proportion of uniformed members would increase the cost of providing the promised benefits.

Assumption changes – the risk that changes to the actuarial assumptions or method may increase the assessed value of liabilities.

Options for members – the risk that members may exercise options resulting in unanticipated extra costs. For example, members could swap less of their pension for cash at retirement than is assumed.

Other risks – issues relating to climate change and other environmental risks as well as long-term uncertainty around geopolitical, societal and technological shifts may also impact on the funding and investments of the Fund.

Quantifying the risks

To help the Committee of Management understand the susceptibility of the funding position to changes in the valuation assumptions, we have considered the hypothetical impact on the liabilities of a reduction in future investment returns relative to inflation.

Final Salary Scheme

A 0.25% p.a. decrease in the assumed rate of future investment returns (or a 0.25% p.a. increase in the inflation assumption) reduces the funding ratio by approximately 5% (to 102%).

Career Average Scheme

A 0.25% p.a. decrease in the assumed rate of future investment returns (or a 0.25% p.a. increase in the inflation assumption) reduces the funding ratio by approximately 7% (to 91%).

Opposite step changes, such as what happens if the inflation assumption is reduced by 0.25% p.a. for example, would improve the funding position by broadly similar amounts to the reductions identified above.

Investment strategy

The Fund's liabilities are influenced by Jersey inflation either directly via pension increases or indirectly via pay increases. The assets that most closely match the Fund's liabilities are index-linked gilts and investment grade derivatives. However, a large proportion of the Fund's assets are invested in asset classes such as equities which are expected to produce higher returns over the long term than those more closely matching assets.

The Committee of Management recognises the degree of risk, as well as the potential reward that this holds for the Fund. In particular the financial position of the Fund can be affected by sudden (or gradual) changes in market values of return seeking assets, changes in expected future returns and/or changes in inflation.

The investment strategy of the Fund is set by the Committee of Management and is kept under regular review.

Summary

In summary the Fund is highly susceptible to:

Equity markets falling or inflation expectations rising; and

Members living longer than expected.

Summary and conclusions

The Final Salary Scheme has a funding ratio of 106.9% and the Career Average Scheme has a funding ratio of 97.5% at the valuation date.

The headlines at the valuation date are:

In the Final Salary Scheme there is a past service surplus of £183.8M, corresponding to a funding ratio of 106.9%.

In the Career Average Scheme there is a past service deficit of £6.1M, corresponding to a funding ratio of 97.5%.

Developments since the valuation date

The funding positions of both schemes are estimated to have improved somewhat since the valuation date. This is due mainly to an increase in expected future investment returns relative to inflation.

The cost of future benefit accrual has reduced substantially since the valuation date due to the increase in expected future investment returns relative to inflation and on that basis we consider the accrual of future benefits under the respective schemes to be affordable within the contribution cost caps provided for in the Fund's legislation.

Projections

If experience were in line with the valuation assumptions (and there are no changes to those assumptions) then we would expect the funding ratio of the Final Salary Scheme to be stable over time. In practice the development of the funding ratio at future valuations will depend also on the experience of the Fund and any assumption changes.

For the Career Average Scheme, the development of the funding ratio over the period until the next valuation will depend critically on how the assumptions evolve regarding expected future investment returns relative to Jersey RPI. Based on views as at 30 June 2022, we expect the funding ratio to improve over that period.

Actions arising from the valuation

The Final Salary Scheme

In accordance with the Funding Strategy Statement, as the past service funding ratio of 106.9% is outside the "funding corridor" of 95% to 105%, consideration must be given to the methodology for adjusting benefits and contributions.

The current agreed policy of the Management Committee and the Chief Minister is that where the funding ratio (based on the maximum annual benefit increases) exceeds 100%, no adjustment to benefits or

Public Employees Pension Fund | Summary and conclusions

contributions will be made; surpluses will be retained as a cushion against later adverse experience or to reduce risk.

In accordance with that policy, the Committee of Management and Chief Minister have agreed that no adjustments to benefits are required following this valuation and that the surplus will be retained and used to act as a cushion against future adverse experience.

The Career Average Scheme

In accordance with the Funding Strategy Statement, subject to agreement of the Chief Minister, the Committee of Management may determine that no adjustments to future increases in benefits are required in the Career Average Scheme if the past service funding ratio is within the "funding corridor" of 95% to 105%.

The Committee of Management and Chief Minister have agreed that no adjustments to future increases in benefits are required following this valuation.

Affordability of future benefits

Under the Funding and Valuation Regulations, we are required to include an assessment of whether the accrual of future benefits under the Final Salary Scheme and the Career Average Scheme is affordable within the overall long-term cost cap set out within the Regulations.

The cost of accrual of future benefits in the Career Average Scheme as at 31 December 2021 was 26.4% of pensionable earnings (excluding the 0.8% of pensionable earnings allowance for transitional costs as referenced in the Funding Strategy Statement), but it has subsequently reduced significantly. Based on updated views as at 30 June 2022 on investment returns relative to inflation, the cost of accrual in the Career Average Scheme was 18.8% of pensionable earnings and at subsequent quarter-end dates the cost has remained below the overall long-term cost cap of 24.75% of pensionable earnings. On that basis, we consider the combined cost of accrual in the Final Salary Scheme and the Career Average Scheme to be affordable within the overall long-term cost cap.

Given the above assessment, the Committee of Management and Chief Minister have agreed that no changes to benefits or contributions are required at this valuation.

Allocation of contributions to cover Final Salary transition costs

In accordance with paragraph 4.2 of the Funding Strategy Statement, from the total contributions paid into the Fund with effect from 1 January 2022, we confirm that the following contributions should be allocated to the Final Salary Scheme rather than the Career Average Scheme to cover transition costs:

5.2% of salaries of continuing members (equal to the cost of benefit accrual in the Final Salary Scheme of 29.9% of salaries less the standard contributions paid to the Final Salary Scheme of 24% of salaries less the allowance for future administration expenses in the Fund of 0.7% of salaries); plus

Actual administration costs allocated to the Final Salary Scheme (in accordance with paragraph 4.7 of the Funding Strategy Statement); plus

£840,000 per year over the period up to 31 December 2032.

"Continuing members" are those members who opted to continue accruing benefits in the Final Salary Scheme (members eligible to choose to continue in the Final Salary Scheme were those within 7 years of Normal Retirement Age at 31 December 2018, as well as certain other members accruing benefits on older benefit structures).

The cost of accrual of Final Salary benefits has been assessed based on views as at 30 June 2022 on investment returns relative to inflation. See Appendix 8 for details.

In addition, allocations of money may need to be made to (or from) the Final Salary Scheme in accordance with paragraphs 4.6 to 4.10 of the Funding Strategy Statement.

Rates and adjustments certificate

The rates and adjustments certificate required under the Funding and Valuation Regulations is attached as Appendix 11. To the extent that the relevant rates are not prescribed within the Regulations, the rates have been calculated based on the actuarial assumptions set out in this valuation.

Public Employees Pension Fund | Appendix 1 – Scope of advice

Appendix 1 – Scope of advice

Framework

This report has been requested by the Committee of Management. It has been prepared under the terms of the agreement between Aon Solutions UK Limited (formerly Aon Hewitt Limited) and the Committee of Management, on the understanding that it is solely for the benefit of the addressee.

Unless prior written consent has been given by Aon, this report should not be disclosed to or discussed with anyone else unless they have a legal right to see it.

Notwithstanding such consent, Aon does not accept or assume any responsibility to anyone other than the addressee of this report.

TAS compliance

This document, and the work relating to it, complies with Technical Actuarial Standard 100: Principles for Technical Actuarial Work' (TAS 100') and Technical Actuarial Standard 300: Pensions' (TAS 300').

The compliance is on the basis that the Committee of Management are the addressee and the sole users and that the document is only to be used as a summary of the outcome of the valuation. If the Committee of Management intend to make any decisions after reviewing this document, please let us know and we will consider what further information I may need to provide to help you make those decisions.

Appendix 2 – Provisions of Fund

Regulations

This valuation has been carried out under Regulation 3 of the Public Employees (Pension Scheme) (Funding and Valuation) (Jersey) Regulations 2015 (the 'Funding and Valuation Regulations').

The Regulations require each valuation of the Fund to separately identify the assets and liabilities of the Public Employees Contributory Retirement Scheme (the Final Salary Scheme) and the Public Employees Pension Scheme (the Career Average Scheme').

The Funding and Valuation Regulations require:

the overarching principles for the setting of assumptions for the valuation to be set out in the Funding Strategy Statement (the "FSS");

the assumptions for the Career Average Scheme to be prudent and to be agreed by the Committee of Management and the Minister for Treasury and Resources, following consultation with the Treasurer; and

following consultation with the Treasurer, the assumptions for the Final Salary Scheme shall be determined by the Actuary, who will aim to have firstly reached agreement with the Committee of Management and the Minister for Treasury and Resources.

The Final Salary Scheme is governed by Regulations made under the Public Employees (Retirement) (Jersey) Law, 1967 (as amended). At the valuation date, the provisions of the Final Salary Scheme were specified in the following Regulations, namely:

The Public Employees (Contributory Retirement Scheme) (Former Hospital Scheme) (Jersey) Regulations, 1992 (as amended) - known as the FHS Regulations

The Public Employees (Contributory Retirement Scheme) (Jersey) Regulations, 1967 (as amended) - known as the 1967 Regulations

The Public Employees (Contributory Retirement Scheme) (Existing Members) (Jersey) Regulations, 1989 (as amended) - known as the Existing Members Regulations

The Public Employees (Contributory Retirement Scheme) (New Members) (Jersey) Regulations, 1989 (as amended) - known as the New Members Regulations.

In addition, the provisions of the Final Salary Scheme which are common to each of the above Regulations are specified in the Public Employees (Contributory Retirement Scheme) (General) (Jersey) Regulations, 1989 (as amended) - known as the General Regulations.

The Career Average Scheme is governed by Regulations made under the Public Employees (Pensions) (Jersey) Law 2014 (as amended). At the valuation date, the provisions of the Career Average Scheme were specified in the:

Public Employees (Pension Scheme) (Membership and Benefits) (Jersey) Regulations 2015

The following Regulations apply to both the Final Salary Scheme and the Career Average Scheme:

Public Employees (Pension Scheme) (Administration) (Jersey) Regulations 2015

History of the Final Salary Scheme

All members joining the Final Salary Scheme after 30 August 1989

(1 January 1990 for former members of the Former Hospital Scheme) are subject to the New Members Regulations. However, members joining the Final Salary Scheme on or before that date were given the following options:

Members who joined the Scheme prior to 1 January 1988 (1 January 1990 for former members of the Former Hospital Scheme) were given the option either to elect for benefits under the Existing Members Regulations or the New Members Regulations, or to remain subject to the 1967 Regulations (FHS Regulations for former members of the Former Hospital Scheme).

New entrants to the Scheme between 1 January 1988 and 30 August 1989 inclusive had the choice of benefits under the Existing Members Regulations or the New Members Regulations.

Special arrangements were made for employees who were not previously eligible for membership of either the Scheme or the Former Hospital Scheme (e.g. part-timers).

Main features

The main features of the Fund in force at the valuation date are summarised on the following pages where the term "uniformed" members includes members of the Police, Fire, Prison, Airport Fire Service, Port Control Unit, Air Traffic Control and Emergency Ambulance Services.

Main features of the Fund – the Final Salary Scheme

Existing Members

1967 or FHS Regulations

or New Members Regulations Normal Retiring Age

"Uniformed" Members  55 or 60 as appropriate  55 or 60 as appropriate "Ordinary" Members  65 (males)  65 (males and females)

60 (females)

Existing Members

1967 or FHS Regulations

or New Members Regulations

Note: Normal Retiring Age was increased to age 60 for prison officers with effect from 1 February 2013. The existing early retirement options were retained for those prison officers employed before 1 February 2013.

Average Salary  Average salary received during the 3  Salary received in best successive 365 days

years prior to retirement  during the 3 years prior to retirement

Normal Retirement Pension

"Uniformed" Members  1/45th of average salary for each year of  Existing Members Regulations

reckonable service  1/45th of average salary for each year of Note: "Uniformed" members cannot be  pensionable service

subject to the FHS Regulations  New Members Regulations

1/60th (or 1/70th for category C prison officers) of average salary for each year of pensionable service

"Ordinary" Members  FHS Regulations (females)  Existing Members Regulations

1/80th of average salary for each year of  1/60th of average salary for each year of reckonable service  pensionable service

1967 & FHS Regulations (males)  New Members Regulations

1/60th of average salary for each year of  1/80th of average salary for each year of reckonable service  pensionable service

Cash at retirement  FHS Regulations (females)  Option to exchange up to 30% of

A tax-free cash sum of 3/80ths of average  commencing pension for a tax free cash salary for each year of reckonable service sum of £13.50 for each £1 of pension given

up.

1967 & FHS Regulations (males)

Not available

Existing Members

1967 or FHS Regulations

or New Members Regulations

retirement only  enhanced pensionable service in most

cases

Death in Service  1. Cash sum – paid to spouse, child,  1. Cash sum – paid to spouse, child,

dependant or estate according to  dependant or estate according to circumstances:  circumstances:

1. Less than 5 years' reckonable service: a refund of contributions with 3% p.a. interest**
2. At least 5 years' reckonable service: one year's current salary or a refund of contributions with 3% p.a. interest**, whichever gives the greater amount

2. Widow's Pension

Subject to 10 years' reckonable service: 50% of member's pension, based on salary at death and reckonable service to

normal retiring age

3. Dependant's Pension

None

4. Children's Pension

Subject to 10 years' reckonable service: a flat rate allowance of £100 p.a. (1967 Regulations) or £80 p.a. (FHS Regulations) per child, if there is a widow. If the spouse is also deceased, or on the subsequent death of the spouse, the allowance is £150 p.a. (1967 Regulations) or £110 p.a. (FHS Regulations) per child

1. Less than 5 years' qualifying service: a cash sum of 2/5ths of current salary for each year of service
2. At least 5 years' qualifying service: a cash sum of twice current salary

2. Spouse's Pension (widow/widower/civil partner)

Subject to 2 years' qualifying service: 50% of member's pension, based on salary at death and pensionable service to normal

retiring age

3. Dependant's Pension

Subject to 2 years' qualifying service: an amount equal to a spouse's pension may be paid to an adult dependant (male or female)

– except that no dependant's pension can be awarded where a spouse's pension is payable

4. Children's Pension

Subject to 2 years' qualifying service: a pension is payable to each eligible child. The total payable is restricted to the equivalent of the spouse's pension, but no one child may receive more than half of that sum. The child's pension is doubled if a spouse's or dependant's pension is not payable.

** less 10%, being the tax levied by the Comptroller of Income Tax in regard to tax relief which may have been enjoyed when the contributions were paid

Existing Members

1967 or FHS Regulations

or New Members Regulations Death after Retirement  1.  Spouse's Pension

1. Widow's Pension

(widow/widower/civil partner)

From date of death, 50% of member's  From date of death, 50% of member's pension  pension, ignoring any reduction for lump

sum taken at retirement.

2. Dependant's Pension

2. Dependant's Pension  An amount equal to a spouse's pension may be paid to an adult dependant None  (male and female) – except that no dependant's pension can be awarded where a spouse's pension is payable
3. Children's Pension

Provided retirement is due to ill health: a flat rate allowance of

£100 p.a. (1967 Regulations) or

£80 p.a. (FHS Regulations) per child, if there is a widow. If the spouse is also deceased, or on the subsequent death of the spouse, the allowance is £150 p.a. (1967 Regulations) or £110 p.a. (FHS Regulations) per child

3.  Children's Pension

A pension is payable to each eligible child. The total payable is restricted to the equivalent of the spouse's pension, but no one child may receive more than half that sum. The child's pension is doubled if a spouse's or dependant's pension is not payable

Leaving Service

Refund of contributions with 3% p.a. interest**

or

subject to 10 years' reckonable service and over age 50 (45 in the case of women and "uniformed" members) a deferred pension (and, for women under FHS Regulations, a deferred cash sum) payable at normal retiring age

or

a transfer value payable to a new employer's pension scheme or to a personal pension scheme

Refund of contributions with 3% p.a. interest** (not available if joined after

1 August 2000 and left with 2 or more years' qualifying service)

or

subject to 2 years' qualifying service at any age: a deferred pension payable at age 60 or normal retiring age, if earlier

or

a transfer value payable to a new employer's pension scheme or to a personal pension scheme

**  less 10%, being the tax levied by the Comptroller of Income Tax in regard to tax relief which may have been enjoyed when the contributions were paid

Voluntary Early Retirement  Subject to being over age 55 (or 50 in special circumstances) and not being entitled to an

immediate pension from the Scheme: the employer may offer a supplementary pension, equal to the member's deferred pension entitlement (which may be enhanced), payable until the date the deferred pension is due, provided that:

1. the member has volunteered to retire in consequence of abolition of office, or to make possible the continued employment of another member of staff, or in the interests of efficiency; and
2. the employer pays the capital cost of the supplementary pension to the Scheme

Existing Members

1967 or FHS Regulations

or New Members Regulations

Additional Voluntary  Not available (except under the FHS  May be paid to purchase extra years of Contributions  Regulations by certain special  pensionable service

arrangements made prior to 1 January

1990)

Increases to Pensions  Annual increases in line with the Jersey  Annual increases in line with the Jersey

RPI guaranteed by the Government of  RPI, but not guaranteed where actuarial Jersey (or the member's former  review has disclosed the financial condition employer).  of the Scheme is no longer satisfactory.

The first increase will be proportionate to  The first increase will be proportionate to the the period of retirement in the first year  period of retirement in the first year.

Notes:    Category A member means a front line officer of the uniformed services such as the States

of Jersey Police Force, the States of Jersey Fire and Rescue Service, the States of Jersey Prison Service, the States of Jersey Airport Rescue and Firefighting Service and the States of Jersey Ambulance Service.

Category B member means a Chief Officer of the States of Jersey Police Force, the Prison Governor, the Chief Fire Officer, the Chief and Deputy Chief of the Airport Fire Service or the Chief or Assistant Chief Ambulance Officer or an Air Traffic Control Officer.

Category C member means a prison officer whose employment in the prison service commenced on or after 1 February 2013.

Main features of the Fund – the Career Average Scheme

Death in deferment or retirement  2.  Children's Pension (continued)

A pension is payable to each eligible child. The total pension is restricted to the amount of the partner / dependant pension, but no one child may receive more than half that sum. The children's pension is doubled if a partner's or dependant's pension is not payable.

Contributions by members  Ordinary members

7.75% of pensionable earnings Uniformed members

10.10% of pensionable earnings

Member contributions are subject to transitional arrangements and subject to adjustment depending on the financial condition of the Scheme.

Contributions by Employers  16% of pensionable earnings

Employer contributions are subject to transitional arrangements and subject to adjustment depending on the financial condition of the Scheme.

Appendix 3 – Membership data

Final Salary Scheme

Active members at 31 December 2021 (31 December 2018)

Active  Number Average  Total  Average  Average members  age salaries  salaries  service

(£000 p.a.)  (£ p.a.)  (years) (see note (see note 3

1) for

median)

Men  2021 1,772 50.3 99,284 56,029 15.5

2018 2,255  48.6 113,553  50,356  16.1 Women  2021 2,267 50.5 97,386 42,958 12.0

2018 2,955  48.4 108,811  36,823  11.9 Total  2021 4,039 50.4 196,670 48,693 13.5

2018 5,210  48.5 222,365  42,680  13.7 Notes:

1. Salary figures for the 2021 valuation include the 1 January 2022 increase that was granted and the 2018 salary figures include the 1 January 2019 increase.
2. Figures shown include actual salaries (not full-time equivalent salaries) for part-timers. Additional data relating to the pensionable allowances which give rise to added years of pensionable service isnot included in the salaries shown in this table.
3. The average salaries shown in the summary above are mean salaries. The median salary for active members at 31 December 2021 is £44,218 p.a. (£51,245 p.a. for males and £38,155 p.a. for females).
4. Average service includes service credits from transfers-in (but excludes added years arising from additional voluntary contributions).
5. Active members' includes those transitional members who moved from the Final Salary Scheme to the Career Average Scheme on

1 January 2019 but retained a salary link to their Final Salary Scheme benefits. It is worth noting that some Final Salary Scheme members within 7 years of their normal retirement age (and some other members on historic benefit structures) were given the option to remain in the Final Salary Scheme and some chose to do so.

Deferred pensioners at 31 December 2021 (31 December 2018)

Deferred  Number  Average  Total  Average pensioners age pensions pension

(£000 p.a.) (£ p.a.)

Men  2021 1,173  49.8 7,679 6,546

2018 1,100  48.1 6,829  6,208 Women  2021 2,332  49.8 9,636 4,132

2018 2,231  48.4 8,705  3,902 Total  2021 3,505  49.8 17,314 4,940

2018 3,331  48.3 15,535  4,664 Notes:  

1. The average ages shown are unweighted.
2. The pension amounts quoted include pension increases up to and including the following 1 January (i.e. 1 January 2022 for the 2021 valuation).

Pensioners at 31 December 2021 (31 December 2018)

Pensioners Number Average  Total  Average age  pensions pension

(£000 p.a.) (£ p.a.)

Men  2021 2,338 71.4  51,027 21,825

2018  2,190  70.8  46,286  21,135 Women  2021 2,552 70.9  22,663 8,881

2018  2,234  70.0  18,828  8,428 Dependants 2021 733 74.7  8,324 11,356

2018  720  73.2  7,606  10,564 Total  2021 5,623 71.6  82,014 14,586

2018  5,144  70.8  72,720  14,137 Notes:  

1. The average ages shown are unweighted.
2. The pension amounts quoted include pension increases up to and including the following 1 January (i.e. 1 January 2022 for the 2021 valuation).
3. "Dependants" consists of spouses, civil partners, children and adult dependants in receipt of a pension.

Breakdown of active members at 31 December 2021 (31 December 2018)

1967 and  Number Average  Total  Average  Average FHS  age salaries  salaries  service Regulations  (£000 p.a.) (£ p.a.)  (years)

Total  2021 28 58.9 1,288 45,992 33.9

2018 41 57.5 1,665 40,610 33.7 Notes:  

1. The 1967 Regulations do not have provisions for pensionable allowances giving rise to added years.
2. Additional data relating to the pensionable allowances for FHS Regulations members which give rise to added years of pensionable service is not included inthe salaries shown in this table.
3. The above 1967 Regulations figures include 23 male members and 1 female members. All the active members under the 1967 Regulations are non-uniformed, except for 1 male member who is entitled to Category A benefits.
4. The above FHS Regulations include 4 non-uniformed female members.
5. Average service includes service credits from transfers-in.

Breakdown of active members at 31 December 2021 (31 December 2018) (continued)

Existing  Number Average  Total  Average  Average Members  age salaries  salaries  service Regulations  (£000 p.a.)  (£ p.a.)  (years)

(see note  (see note

1) 1)

- Men  2021 104 58.3 5,862 56,369 29.7 2018 213  57.2 11,335  53,218  30.2

- Women  2021 73 58.3 3,384 46,359 25.8 2018 111 56.1 4,500  40,541  26.0

- Total  2021 177 58.3 9,247 52,241 28.1 2018 324  56.8 15,835  48,875  28.8

Notes:

1. Additional data relating to the pensionable allowances which give rise to added years of pensionable service is not included in the salaries shownin this table.
2. Average service includes service credits from transfers-in.
3. The above figures include 4 Category A and 2 Category B members, all other members are non-uniformed.
4. See Appendix 2 for definition of Category A and Category B members.

Breakdown of active members at 31 December 2021 (31 December 2018) (continued)

New  Number Average  Total  Average  Average Members  age salaries  salaries  service Regulations  (£000 p.a.)  (£ p.a.)  (years) (Pre-2006  (see note  (see note

joiners)  1) 1)

- Men  2021 850 52.7 47,554 55,946 19.6 2018 1,080  50.8 54,958  50,887  19.3

- Women  2021 1,142 53.4 48,670 42,618 15.0 2018 1,524  51.7 55,719  36,561  14.7

- Total  2021 1,992 53.1 96,224 48,305 17.0 2018 2,604  51.3 110,677  42,503  16.6

Notes:

1. Additional data relating to the pensionable allowances which give rise to added years of pensionable service is not included in the salaries shownin this table.
2. Average service includes service credits from transfers-in.
3. See Appendix 2 for definition of Category A and Category B members.

Breakdown of active members at 31 December 2021 (31 December 2018) (continued)

New  Number Average  Total  Average  Average Members  age salaries  salaries  service Regulations  (£000 p.a.)  (£ p.a.)  (years) (Post-2006  (see note  (see note

joiners)  1) 1)

- Men  2021 795 46.3 44,841 56,404 8.7 2018 927  43.7 45,882  49,495  8.6

- Women  2021 1,047 46.8 45,071 43,047 7.6 2018 1,314  44.0 48,305  36,762  7.3

- Total  2021 1,842 46.6 89,912 48,812 8.1 2018 2,241  43.9 94,187  42,029  7.8

Notes:

1. Additional data relating to the pensionable allowances which give rise to added years of pensionable service in not included in the salaries shown in this table.
2. Average service includes service credits from transfers-in.
3. See Appendix 2 for definition of Category A, Category B and Category C members.

Membership data: Career Average Scheme Active members at 31 December 2021

Active  Number Average  Total  Average  Average members  age salaries  salaries  service

(£000 p.a.)  (£ p.a.)  (years) (see note (see note 2

1) for

median)

Men  2021 2,839 46.0 146,514 51,608 2.8

2018 2,531  44.9 119,989  47,408  0.3 Women  2021 4,127 45.0 170,015 35,501 2.7

2018 3,596  44.5 127,736  35,522  0.4 Total  2021 6,966 45.4 316,529 45,439 2.8

2018 6,127  44.6 247,725  40,432  0.4 Notes:

1. The average ages shown are unweighted.
2. Total salaries shown are actual salaries, i.e. not full-time equivalent salaries for part-timers. 2021 figures are pensionable earnings in the year to 31 December 2021 and 2018 figures and pensionable earnings as at 1 January 2019.
3. The average salaries shown in the summary above are mean salaries. The median salary for actives at 1 January 2022 is £40,090 p.a. (£45,139 p.a. for males and £37,202 p.a. for females).
4. Average service includes service credits from transfers-in (but excludes added years arising from additional voluntary contributions).
5. The "2018" figures in the above table include those active members who moved from the Final Salary Scheme tothe Career Average Scheme with effect from 1 January 2019.

Deferred pensioners at 31 December 2021

Deferred  Number Average  Total pensions Average pensioners age (£ p.a.) pension

(£ p.a.)

Notes:

1. The average ages shown are unweighted.
2. The pension amounts shown above include pension increases up to and including the following 1 January (i.e. 1 January 2022 for the 2021 valuation).

Pensioners at 31 December 2021

Pensioners Number Average  Total  Average age  pensions pension

(£ p.a.) (£ p.a.)

Men  2021 31 59.3  68,798 2,219

2018  0 N/A  N/A N/A Women  2021 26 61.5  42,620 1,639

2018  0 N/A  N/A N/A

Public Employees Pension Fund | Appendix 4 – Rationale for best-estimate assumptions for Final Salary Scheme

Appendix 4 – Rationale for best-estimate assumptions for Final Salary Scheme

Best-estimate assumptions for the Final Salary Scheme

Following advice from ourselves, the Committee of Management has confirmed that the assumptions adopted to determine the funding target for the Final Salary Scheme should be best-estimate assumptions. The rationale for using best-estimate assumptions for the Final Salary Scheme is discussed below.

(Note: Best-estimate assumptions cannot be used to determine the funding target for the Career Average Scheme as the Fund Regulations provide that the assumptions used for the Career Average Scheme must be prudent, i.e. cautious.)

Range of assumptions

The results of a valuation are sensitive to the assumptions made and therefore the choice of appropriate assumptions is important.

There is a wide range of assumptions that could be used ranging from optimistic, through best-estimate to cautious:

Under optimistic assumptions the future outcome is more likely to be worse than assumed;

Under cautious assumptions the future outcome is more likely to be better than assumed;

Under best-estimate assumptions the future outcome is just as likely to be better or worse than assumed.

The Committee of Management has a duty to protect members' benefits. Therefore it would not be appropriate to use optimistic assumptions when determining the adequacy or otherwise of the contributions to support the benefits payable under the Scheme.

This leaves a choice of assumptions in the range from best-estimate to cautious. The more cautious the valuation assumptions, the greater the valuation liabilities will be and consequently the greater the possibility of members' benefits or future pension increases having to be cut back (or members' or employers' contributions having to be increased within the contribution cap) if there is a deficiency.

Public Employees Pension Fund | Appendix 4 – Rationale for best-estimate assumptions for Final Salary Scheme

Advantages of using best-estimate assumptions (and disadvantages of using more cautious assumptions)

The advantage of using best-estimate assumptions is that it complies with the principle of only cutting back on the members' pensions where this appears genuinely necessary.

Using more cautious assumptions would lead to a larger deficiency (or to a deficiency which would otherwise not exist), which may potentially trigger reductions to benefits or future pension increases (or increases to members' or employers' contributions within the contribution cap). In the long term, given the extra returns targeted under the Scheme's investment strategy, there would be quite a high probability that experience would prove more favourable than assumed, leading to surpluses at later valuations. Therefore, using more cautious assumptions may result in cutting back benefits (or increasing contributions) in a way that with hindsight was unnecessary, which may impact unfairly on certain generations of member.

Disadvantages of using best-estimate assumptions (and advantages of using more cautious assumptions)

The disadvantage of using best-estimate assumptions is that it leads to a larger chance of actual scheme experience being worse than assumed than if more cautious assumptions are used. This increases the likelihood of deficiencies arising at later valuations which have to be dealt with through future reductions in benefits, or by increasing members' or employers' contributions. If experience is adverse, the reductions in benefits (or increases in contribution) eventually required may need to be bigger at that time than if they had been made earlier (and therefore impacting disproportionately on a later "generation" of members). Although there is no provision in the Regulations for the Fund to be discontinued, this could be particularly problematic if the Fund were discontinued. It could be equally problematic if the financial strength of the Government of Jersey were to become poor. Significant benefit reductions may be required in such situations.

A further potential disadvantage of using best-estimate assumptions is that it involves anticipating a degree of outperformance from growth assets, which may limit the Committee of Management's scope to reduce the Fund's investment allocation to growth assets in future.

Recommendation

Following advice from ourselves, the Committee of Management has confirmed that the assumptions used to determine the funding target for the Final Salary Scheme should be best-estimate because:

It complies with the principle of only cutting back on members' pensions where this appears genuinely necessary, and

The Committee of Management does not currently consider the financial strength of the Government of Jersey to be poor.

Public Employees Pension Fund | Appendix 5 – Valuation method

Appendix 5 – Valuation method

Valuation method

The valuation method for the valuation calculations is known as the "projected unit" method.

Under the projected unit method, the funding position in relation to service up to the valuation date is considered separately from the position relating to service after the valuation date. For both past and future service, allowance is made for projected future increases to pay through to retirement or date of leaving service. If there are no new members, the average age of the membership is expected to increase over time and the future service contribution rate under the projected unit method can be expected to rise.

For the Final Salary Scheme, the cost of future service benefits is assessed over a three year control period to take broad account of the expected ageing of the membership over the period to the next valuation. A one year control period is appropriate for the Career Average Scheme as it is not closed to new entrants. This approach is set out in the Funding Strategy Statement.

For the Final Salary Scheme, the value of the Scheme's existing assets includes the value of the future pre-1987 debt repayments (assumed to be paid by the Government of Jersey over the period up to

29 September 2053 and by the applicable Admitted Body employers over the period specified in the Actuary's contribution certificate). This approach involves taking credit for the future pre-1987 debt repayments anticipated over the periods set out above.

Value of liabilities and future contributions

To calculate "the value" of the benefits payable we use our assumptions to estimate the payments which will be made from the Fund throughout the future lifetimes of current active members, pensioners, deferred pensioners and their dependants. We then calculate the amount of money which, if invested now, would be sufficient to make these payments in future, using our assumptions about investment returns. The same technique is adopted to value future contributions to the Fund.

Value of assets

We have taken the assets into account at their market value.

Appendix 6 – Financial assumptions

Introduction

In this appendix we describe the financial assumptions. The financial assumptions that have been chosen are consistent with the funding target. For the Final Salary Scheme, each assumption is intended to represent a reasonable best-estimate of the future. For the Career Average Scheme, all assumptions other than the discount rate are best-estimate assumptions.

When assessing a set of financial assumptions, greater importance should be attached to the relative differences between the assumptions, rather than to the individual assumptions in isolation. This is because the differences have a greater effect on the results of the valuation than the absolute values of each assumption.

Discount rate (investment return)

The most important individual assumption in terms of its impact on the overall valuation results is the choice of discount rate, i.e. assumed future investment returns. The discount rate is used to value payments due out of the Fund (benefit payments) and into the Fund (future contributions and pre-1987 debt repayment instalments).

For valuing the liabilities, an assumption which could be described as "low risk" would be to discount future benefit payments at the market yields available on index-linked gilts at the valuation date. This approach recognises that a broadly matching asset for the Fund's cash flows is obtained by investing in index-linked gilts of appropriate term.

It is common for UK occupational schemes to adopt a funding target which incorporates a higher discount rate than the returns available on gilts. The consequence of using a higher discount rate is that a lower funding target is adopted.

Final Salary Scheme

The funding target adopted for the Final Salary Scheme requires that the assumptions chosen should be reasonable best-estimates. In principle, we need to set the discount rate at this valuation by considering the best- estimate returns available on the Fund's strategic asset allocation, over the period starting now and ending in the long-term future. The expected returns depend critically on what asset classes are assumed to be held, both now and in the future.

The discount rate structure adopted for the Final Salary Scheme valuation is as follows:

The initial discount rate is equal to a best-estimate investment return over 10 years from the valuation date based on the strategic asset allocation (rather than the actual asset allocation) at the valuation date.

The initial discount rate applies for 10 years to 31 December 2031, at which point it reduces immediately to the long-term discount rate.

The long-term discount rate is equal to the best-estimate return over 30 years from the valuation date based on the assumed long-term investment strategy.

This reflects a change in approach compared with that adopted for the previous valuation. Based on the approach outlined above, we have assumed a discount rate equal to 4.35% p.a. for the period to

31 December 2031, then reducing immediately to 3.10% p.a. with effect from 1 January 2032.

Career Average Scheme

The Funding Strategy Statement states that the discount rate for the Career Average Scheme will be determined such that the probability of the actual investment return on the Career Average Scheme assets being higher than the discount rate over the 30-year period from the valuation date is at least 60%.

For this valuation it has been agreed that the discount rate should be set such that the probability of the actual investment return being higher than the discount rate is equal to 60%.

Based on our best-estimate (median) investment return over the 30 years from the valuation date and reflecting the Career Average Scheme strategic investment benchmark at the valuation date, we have assumed a discount rate of 4.40% p.a. for valuing the liabilities and contributions.

Increases to pensions in payment and deferred pensions

The Fund provides for annual increases to pensions in payment and deferred pensions in line with increases in the Jersey RPI.

In light of the proposed changes to the calculation methodology for UK RPI from 2030, we have determined the Jersey RPI assumption relative to our best-estimate for UK CPI.

Aon's best-estimate view of UK CPI, at the valuation date, over the long- term period consistent with the duration of the liabilities, is 2.25% p.a..

The Jersey and UK economies have a tied currency and the same interest rates and so over the medium to long term, underlying Jersey inflation can be expected to be fairly close to UK inflation. However, although the methodology used for calculating UK CPI is similar to the methodology used for calculating Jersey RPI, there are differences between the constituents used and their respective weightings. This, together with differences in supply and demand, can lead to long-term differences between UK CPI and Jersey RPI.

At the valuation date, the Jersey Fiscal Policy Panel was assuming a trend rate inflation for Jersey RPI which is 0.6% p.a. higher than UK CPI. Experience over the last 20 years shows that Jersey RPI has generally been higher than UK CPI. The average difference in recent years, and over the last 20 years, has been broadly consistent with the difference of 0.6% p.a. referenced above.

On that basis, the Jersey RPI assumption has been set equal to the UK CPI assumption plus 0.6% p.a..

The assumption for Jersey RPI is therefore 2.85% p.a..

General salary increases

In recent years, pay awards for Fund members have generally been close to or below Jersey RPI.

Given the sustained recent experience of low salary increases, we have reduced the allowance for general salary inflation to 0.5% p.a. above Jersey RPI (previously 1.0% p.a. above Jersey RPI).

Promotional salary increases

In addition to the allowance for general salary increases, an explicit age- related promotional scale was adopted at the 2018 valuation (the same scale for males as for females).

Based on our analysis of the Final Salary Scheme experience over the period 1 January 2019 to 31 December 2021 we observed that promotional increases have been slightly above those assumed. However, we understand that this has arisen due to one-off changes and so we have retained the current allowance for promotional salary increases for this valuation.

In the absence of any credible experience data for the Career Average Scheme, we have used the salary increase assumptions adopted for the Final Salary Scheme. The Career Average Scheme valuation results are not sensitive to the choice of salary increase assumptions.

The allowance included for promotional salary increases (in addition to general salary increases) at specimen ages is:

Age  Promotional salary increases

Expenses

Excluding investment-related expenses (which are taken into account in the net investment return assumption), we have analysed the expenses of administering the Fund during 1 January 2019 to 31 December 2021 and compared this with the assumption of 0.7% of salaries adopted at the 2018 valuation.

Our analysis shows that the actual expenses incurred over the analysis period have been broadly in line with those assumed. In light of this experience, we have retained the allowance for expenses at 0.7% of salaries.

Appendix 7 – Demographic assumptions

Introduction

In this appendix, the demographic assumptions are described and we comment on how they compare with actual experience. The demographic assumptions that have been chosen are consistent with the funding target set out in the "Valuation approach" section of this report and each assumption is intended to represent a reasonable best-estimate of the future.

Mortality rates before retirement

We have only considered experience over the period from 1 January 2019 to 29 February 2020, in order to avoid potential distortion in the results due to COVID-19. We have compared against expected rates of mortality based on the tables used for the 2018 valuation, which were 70% of the standard tables AMC00 for males and AFC00 for females. The experience analysis shows that the actual number of deaths over the period was lower than assumed.

Given the amount of data over the period is relatively small and the assumption has a minimal impact on the liabilities we have retained the assumption used for the 2018 valuation.

In the absence of any credible experience data for the Career Average Scheme, we have used the assumptions adopted for the Final Salary Scheme.

Mortality rates after retirement – current mortality rates

We have analysed the mortality experience of the Fund over the six-year period from 1 March 2014 to 29 February 2020 so the analysis does not allow for any impact of the COVID-19 pandemic.

We have set out below the ratio of actual deaths to expected deaths over the period (weighted by pension amount), with expected deaths based on 100% of the SAPS S3 "All lives" tables.

The 2018 valuation assumed that mortality would be in line with the S3 "All lives" tables with a scaling factor of 105% for males and females.

Mortality assumption Males  Females 100% of SAPS S3 "All  109%  106%

lives"

The experience investigation indicates that there have been slightly more male deaths (by pension amount) than suggested by the assumption adopted at the previous valuation.

The results are broadly consistent with the experience investigation for the 2018 valuation (110% for males and 108% for females) but we now have slightly more confidence due to the larger volume of data.

To reflect a negative impact of COVID-19 on life expectancy, we have increased the scaling factors calculated from the analysis by 1.5% and this has been taken into consideration in the rounded scaling factors outlined below.

For the 2021 valuation, we have assumed current mortality rates in line with the SAPS S3 "All lives" tables (S3PXA) with a 110% and 105% scaling factor for males and females respectively.

In the absence of any experience data for the Career Average Scheme, we have used the assumptions adopted for the Final Salary Scheme.

Mortality rates after retirement – allowance for future improvements

It is not straightforward to make an assumption about future rates of mortality improvement. In forming a best-estimate assumption, we believe it is appropriate to have regard to:

Current trends;

Long-term trends;

Observed generational differences, which suggest faster improvements within certain generations of pensioner (known as the cohort effect); and

The outlook for future medical advances.

However, the allowance made must inevitably be subjective.

In determining an allowance for future improvements in life expectancy, it makes sense to consider the near future and longer term separately:

Recent improvements in life expectancy are likely to be the best guide for what will happen in the near future and so improvements in the near future are best modelled by continuing recent trends.

The forces driving longer term improvements may be very different to those behind recent improvements. This means that the assumption for long-term improvements is more subjective and should take into account analysis of historic long-term rates of improvements (and what has caused them) as well as opinions on what might happen in the future.

In November 2009, the Continuous Mortality Investigation (CMI), a group set up by the UK Actuarial Profession, published its Mortality Projections Model. The model uses complex methods for taking recent rates of mortality improvements and blending these to the long-term rate of improvements. The latest annual update to the model, the CMI_2021' model, was published in March 2022. Projections from this version of the CMI's model are known as the 'CMI_2021' projections. Apart from the long- term rate of improvements, the CMI has provided default values for the model inputs such as the smoothing parameter (S) and the initial addition to mortality (A), which are known as the Core Projections'.

The responsiveness of CMI_2021 to new data can be controlled by changing the parameter S. A higher value applies more smoothing of experience data. For CMI_2021, the CMI suggest a core assumption of S=7.0.

The A' parameter allows for additional improvements to the historic initial rates and near future. The choice of this value directly affects the rates of improvements in the near future (and past), with this addition tapering to zero over the next 10 years or so. A greater value of parameter A' results in an increase in life expectancy, and hence an increase in the actuarial value of liabilities. The core value in CMI_2021 is A=0%.

At Aon we have analysed the UK population by socio-economic group; this suggests that longevity improvements have varied across the socio- economic spectrum for some time. (Although that analysis does not cover Jersey, we have no reason to believe the trends in Jersey would be different.) In particular, we note that the averaged defined benefit pension scheme membership does not appear to have seen such a large fall in recent longevity improvements as the national population, to which the CMI model is calibrated.

Our conclusion is that there is good reason to allow for higher longevity improvements expected to be experienced by defined benefit pension scheme members by increasing the parameter A' to 0.5%, with S' set to the core parameter of 7.0. This results in higher assumed life expectancies at age 65 compared with the suggested core assumptions.

Our analysis also suggests that future long-term improvements in mortality rates of between 1.0% p.a. and 2.0% p.a. for both men and women may be considered reasonable.

We have therefore assumed future improvements in mortality rates in line with the CMI_2021 Core Projections model with S=7.0, A=0.5% and a long-term rate of improvement of 1.5% p.a.. The core parameterisation of CMI_2021 model places zero weight on recent data (i.e. w2020 and w2021 = 0) due to the distortions caused by COVID-19.

Retirement in normal health

Final Salary Scheme

We have assumed that active members will retire at the ages set out in the following table:

Membership category  Normal retiring age  Assumed age at

retirement

* Except post 1 March 2009 entrants to category A status who are assumed to retire at age 55.

The analysis of the retirement experience over the period 1 January 2019 to 31 December 2021 for the uniformed membership categories shows the average retirement ages over the period were slightly higher than expected for Category A members and slightly lower than expected for Category B members. However, since there were only a relatively small number of retirements, we have retained the current assumed average retirement ages for the 2018 valuation.

There is currently no experience data for Category C members. These members have an NRA of 60 and an early retirement of 2.4% p.a. is applied on retirement from active service before NRA. For consistency with the assumption for Category B members, we have continued the approach of assuming that Category C members retire from active service at age 58. This assumption has a minimal effect on the valuation results.

For non-uniformed members (excluding females who fall under the 1967 and Former Hospital Scheme Regulations) recent experience shows the assumed retirement age of 63 (as adopted for the 2018 valuation) remains reasonable.

There has been only 1 retirement of Non-Uniformed females who fall under the 1967 and Former Hospital Scheme Regulations; we have therefore retained the current assumed average retirement age of 59 for the current valuation..

Career Average Scheme

We have assumed that all the Career Average Scheme members retire at Normal Retirement Age.

There is not yet significant experience to be able to comment on whether this assumption is a best-estimate assumption but the extent to which the Career Average Scheme members take their pension early or late will only have a minimal impact on the valuation results due to the cost-neutral adjustment that is applied in determining their pension on early or late retirement.

Retirement in ill-health

Final Salary Scheme

An explicit allowance has been made for retirements in ill-health.

Over the period 1 January 2019 to 31 December 2021, the overall levels of ill-health retirement across the Non-Uniformed membership have been lower than those implied by the assumptions adopted for the previous valuation. We have therefore decreased the 2018 valuation assumption for Non-Uniformed members by 20% for this valuation.

The analysis for the Uniformed membership categories remains limited given the small number of ill-health retirements over the analysis period. However, when looking over a longer analysis period, this suggests that there have been fewer ill-health retirements than those expected using the assumptions adopted for the 2018 valuation. We have therefore reduced the allowance for ill-health retirement of Uniformed members by 50%.

Career Average Scheme

In the absence of any statistically credible experience for the Career Average Scheme, we have used the assumptions adopted for the Final Salary Scheme.

There have been 18 ill-health retirements from the Career Average Scheme, of which 7 received additional pension benefits due to being unable to work in any other capacity. We have therefore continued to assume that 50% of retirements will be unable to work in any other capacity (and so will receive additional Career Average pension as set out in the Regulations).

Specimen rates of retirement due to ill-health assumed at this valuation are set out below

Age  Number leaving service each year per thousand members at age last birthday as shown

Uniformed members  Non-Uniformed members

Allowance for commutation

Final Salary Scheme

The maximum proportion of pension which can be commuted was increased from 25% to 30% with effect from 1 January 2016. Allowing for this increase, the 2018 valuation assumed that members commute 22% of pension on retirement. The average proportion of pension commuted from 1 January 2019 to 31 December 2021 has been lower than expected based on the 2018 valuation assumption.

Having regard to the recent experience, we have reduced the assumption for commutation so that members under the Existing Members Regulations and the New Members Regulations are assumed to commute 20% of their pension on retirement.

Career Average Scheme

As the Career Average Scheme members may also commute up to 30% of their pension for a lump sum payment. In the absence of significant experience data for the Career Average Scheme, we have assumed that the Career Average Scheme members will commute 20% of their pension on retirement in line with the Final Salary Scheme assumption.

Withdrawal rates

In light of the reducing Final Salary Scheme membership and increasing Career Average Scheme membership, we have analysed the withdrawal experience of both the Final Salary Scheme and the Career Average Scheme members.

For non-Uniformed members, over the period from 1 January 2019 to

31 December 2021, the actual level of withdrawals at younger ages (those below age 40) was slightly higher than expected and the actual level of withdrawals at older ages (those age 40 and above) was significantly higher than expected.

We expect the higher level of withdrawals has been due to one-off exercises so we do not expect the much higher rates of withdrawals to continue in the long-term. However, the level of withdrawals for males and females at these older ages has been similar so we have increased the allowance for male Non-Uniformed withdrawals above age 45 so that the assumption for males is the same as the assumption for females at these ages.