Jersey Teachers’ Superannuation Fund (JTSF) Actuarial Valuation 2021.

Jersey Teachers' Superannuation Fund

Actuarial valuation at 31 December 2021

R.64/2023

Prepared for:  JTSF Management Board Prepared by:  Jonathan Teasdale

Date:  28 February 2023

Jersey Teachers' Superannuation Fund | Executive Summary

Executive Summary

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

There was a surplus of £50.3M based on the assumptions adopted for the valuation

We have carried out a valuation of the Jersey Teachers' Superannuation Fund (the Fund') as at 31 December 2021. 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.

Following advice from ourselves, the Management Board has confirmed that the assumptions adopted to determine the funding target for the Fund 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.

The main conclusions from the valuation are that:

There is a past service surplus of £128.5M as at 31 December 2021.

The value of anticipated future contributions is less than the value of future service benefits in respect of active members as at 31 December 2021, giving rise to a future service deficiency of £78.2M.

Putting these two elements together, the Fund's overall surplus as at 31 December 2021 is £50.3M, equivalent to a funding ratio of 106.8%.

The pension increase debt was repaid in full through two lump sum payments of £134,500,000 on 31 May 2022 and £706,819 on

29 July 2022. With effect from 1 June 2022, the rate of employer contributions payable under the Fund's Orders was reduced from 16.4% of salary to 10.8% of salary.

The surplus may be retained as a buffer against future adverse experience

Article 18(4) of the Teachers' Superannuation (Administration) (Jersey) Order 2007 requires the Chief Minister, within 3 months of this report being laid before the States of Jersey, to consult with the Management Board and to submit to the States proposals for disposing of the surplus.

The proposals may consist of (but are not limited to) the following:

If the surplus appears to be of a temporary nature, a recommendation that no action should be taken;

The retention of a surplus no larger than the Actuary advises is a prudent reserve; or

An increase in the benefits under the Fund.

Jersey Teachers' Superannuation Fund  |  Executive Summary

Our advice to the Management Board is that the surplus of £50.3M is no larger than we would advise is a prudent reserve against future adverse experience. In particular, this takes account of the following:

The funding strain expected when new members join the Fund, due to contributions being lower than the cost of accrual. If experience were in line with the assumptions then we estimate that the strain in relation to new entrants would remove the surplus at the valuation date in around 10 years; and

The volatility inherent in the value of the Fund's assets relative to liabilities.

We therefore recommend the surplus is retained as a buffer against future adverse experience.

28 February 2023 Signature  Date

Jersey Teachers' Superannuation Fund  |  Contents

Contents

Executive Summary  2 Introduction  5 Valuation approach  10 Asset data  14 Valuation results  15 Reasons for change in funding position  16 New entrant cost  17 Risks and sensitivity analysis  18 Summary and conclusions  20 Further information  21

Appendix 1: Scope of advice  22

Appendix 2: Provisions of Fund  23

Appendix 3: Membership data  27

Appendix 4: Rationale for best-estimate assumptions  29

Appendix 5: Valuation method  31

Appendix 6: Financial assumptions  32

Appendix 7: Demographic assumptions  36

Appendix 8: Summary of assumptions  42

Appendix 9: Discontinuance test  44

Glossary  47

Introduction

This report has been prepared for the Management Board. It considers the financial position of the Fund as at

31 December 2021.

Legislation

In accordance with Article 3(13) of the Teachers' Superannuation (Jersey) Law 1979, we have carried out a valuation of the Jersey Teachers' Superannuation Fund (the Fund') as at 31 December 2021.

Under the legislation, valuations of the Fund are required at least once every five years. However, it is the policy of the Management Board to require valuations at least every three years so as to keep the finances of the Fund under more frequent scrutiny.

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

Purpose

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 pensions and other benefits of the Fund.

Previous valuation

Our valuation report dated 17 December 2019 considered the financial position of the Fund as at 31 December 2018.

Contributions since the previous valuation

Since the previous valuation, contributions have been paid at the rates specified in the Fund's Orders. The pension increase debt referred to in the "Information used" section of this report was repaid in full through lump sum payments of £134,500,000 on 31 May 2022 and £706,819 on 29 July 2022. With effect from 1 June 2022, the rate of employer contributions payable under the Fund's Orders was reduced from 16.4% of salary to 10.8% of salary.

Next valuation

In accordance with the policy of the Management Board, the next valuation is due to be carried out no later than 31 December 2024.

Scope of advice

The report is prepared for the Management Board. 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

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.

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 surplus

The valuation as at 31 December 2018 revealed a surplus of £45.8M based on future increases in pensions and deferred pensions in line with the annual increase in the Jersey RPI.

Where a surplus is disclosed at a valuation, the Orders governing the Fund require proposals to be submitted to the States to dispose of any surplus. It was agreed that the surplus in the Fund would be retained as a buffer against future adverse experience.

Changes to Fund Orders

There have been two key changes made to the Fund Orders since the previous valuation:

Following repayment of the pension increase debt, with effect from 1 June 2022, the rate of employer contributions payable under the Fund's Orders was reduced from 16.4% of salary to 10.8% of salary.

The maximum lump sum payable where trivial benefits are exchanged for a lump sum was increased to the maximum allowed under the Jersey Income Tax Law.

Information used

The information used for the valuation is summarised below.

To carry out the valuation, we have obtained information 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 Scheme's assets (excluding AVCs) had an audited market value of £651.9M at the valuation date.

For further details, please see the Asset Data section.

Benefits valued

Members are entitled to benefits defined in the Orders. 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.

Pension increase debt

The Fund provides pensions and other benefits which are subject to increases based on the rate of inflation. Prior to 2007, the cost of these pension increases was met on a "pay-as-you-go" basis by the employer as opposed to being funded in advance within the Fund.

As a result of a decision by the Government of Jersey effective in 2007 to pay pension increases (both those already awarded, and those due in future) from the Fund, a shortfall arose in respect of the indexation of benefits accrued before 2007. The total deficit in the Fund was assessed as £91.6M as at 31 December 2010. This deficit became known as the 'pension increase debt' and it was recognised (via a provision in the Government balance sheet) that this debt should be paid into the Fund over a period of time.

The pension increase debt was calculated to be £133.3M as at

31 December 2021 based on the approach proposed for regular recalculation of the debt by the Management Board to the Government of Jersey in 2012. Using the same approach, the pension increase debt was recalculated and repaid in full through two lump sum payments of £134,500,000 on 31 May 2022 and £706,819 on 29 July 2022.

For the purpose of this valuation, we have taken account of the pension increase debt as an asset of the Fund in line with its calculated value at 31 December 2021 of £133.3M.

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.

The following chart illustrates how the membership profile is evolving. Please see Appendix 3 for a more comprehensive summary of the data.

The illustration shows that there has been an increase in the number of members in each of the membership categories since the last valuation.

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 Orders 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.

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 chart below shows the cashflow pattern for the Fund at this valuation, covering benefits accrued up to the valuation date.

 50 40 30 20 10 -

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

Pensioner Deferred Actives

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 terms "surplus" and "deficiency" are referred to in the Fund's Orders but are not explicitly defined. In practice, we say there is a surplus if the funding target is more than fully met and we say there is a deficiency if the funding target is less than fully met.

The Management Board has determined the following funding target and funding objective:

The funding target is that, based on best estimate assumptions, the assets and future contributions in relation to the current members of the Fund should be sufficient over the long term to support the benefits payable from the Fund in respect of the current members of the Fund.

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 Orders, by adjustments to contributions and/or benefits or by carrying forward surpluses and deficiencies where appropriate.

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.

For the purposes of assessing suitable assumptions at this valuation, the Management Board agreed that the Actuary should make allowance for continued future investment in growth assets, such as equities, by assuming that liabilities will be backed by assets in line with the Fund's strategic benchmark at the valuation date (as summarised within Appendix 6) adjusted to reflect the changes made to the strategic benchmark since the valuation date together with a broad allowance for future anticipated de-risking of the investment strategy over the longer term.

Changes from previous valuation

The funding objective is unchanged from the previous valuation although there have been changes to the assumptions used, as discussed below.

Valuation method

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

For previous valuations, the Management Board specified that contributions equal to 5.6% of salaries should be allocated to meet the pension increase debt, leaving employer contributions of 10.8% of salaries to cover the cost of future benefit accrual and administration expenses.

The above approach has been retained for this valuation. The contributions to meet the pension increase debt are included in the value of assets at the valuation date and are used in calculating the past service surplus / deficiency, and employer contributions equal to 10.8% of salaries are allowed for in calculating the future service surplus / deficiency. Following

repayment of the pension increase debt, with effect from 1 June 2022, the rate of employer contributions payable under the Fund's Orders was reduced from 16.4% of salary to 10.8% of salary.

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

We have adopted a market led approach, which involves:

market-led financial assumptions for valuing the liabilities and future contributions; and

valuing the assets at market value.

Key financial assumptions

The following table shows the key financial assumptions used for this valuation, with the assumptions used for the previous valuation shown alongside 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.

2021  2018

Comparison of financial assumptions with 2018 valuation

Overall (ignoring any changes to the demographic assumptions), the financial assumptions we have used result in a lower surplus than if the assumptions used for the 2018 valuation had been retained. The main reason for this is the decrease in the discount rate (relative to Jersey RPI) used to value the liabilities (including the change in the discount rate structure to reflect anticipated long-term investment de-risking in the Fund).

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 salaries due to promotion, service or seniority; and

the allowance made for the age 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 the experience of the Fund 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 effect of these changes is to slightly decrease the surplus.

General comments on the assumptions

In our opinion, the financial and demographic assumptions, taken as a whole, are an entirely reasonable best-estimate basis for assessing the funding position of the Fund.

Jersey Teachers' Superannuation Fund  |  Asset data

Asset data

The audited accounts for the Fund for the year ended 31 December 2021 show the assets were £652.8M of which £0.9M related to AVC assets

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 £652.8M, of which £0.9M related to AVC assets.

The balance of the assets of £651.9M can be categorised as follows:

Alternative risk premia: £29.6M

Absolute return bonds: £44.3M

Property: £100.7M

Cash and net current assets: £4M Opportunities: £68.5M

Hedge funds: £99.7M

Equities: £305.1M

Jersey Teachers' Superannuation Fund  |  Valuation results

Valuation results

Based on the assumptions set out in the "Valuation approach" section, the Fund surplus at 31 December 2021 is £50.3M, equivalent to a funding ratio of 106.8%.

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

£M

The above table shows there is a past service surplus of £128.5M at 31 December 2021.

There is also a future service deficiency of £78.2M, i.e. the value of future contributions anticipated from employers and current active members is £78.2M less than the value of future benefit accrual in respect of current active members.

Putting this together, the overall Fund surplus at 31 December 2021 is £50.3M, equivalent to a funding ratio of 106.8%.

1 This figure reflects the pension increase debt at 31 December 2021. In practice, the pension increase debt was repaid in full through lump sum payments made of £134,500,000 on 31 May 2022 and £706,819 on 29 July 2022.

Jersey Teachers' Superannuation Fund  |  Reasons for change in funding position

Reasons for change in funding position

The funding position has improved from a surplus of £45.8M at 31 December 2018 to a surplus of £50.3M at

31 December 2021.

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

£M

Surplus / (Deficit) brought forward 45.8

Interest on surplus 8.3

Investment returns 76.6 Salary increase experience 3.5

Deferred revaluation experience 1.0

Pension increase experience 5.7

New entrants -4.9

Changes to financial assumptions -75.3

Changes to demographic assumptions -8.0

Demographic and other experience -2.4

Surplus / (Deficit) carried forward 50.3

The analysis shows that the main factor which has contributed to the improvement in the funding position since the previous valuation has been greater than expected investment returns.

This factor has been almost entirely offset by a reduction in assumed future investment returns relative to inflation and the allowance in the discount rate assumption for anticipated long-term de-risking in the investment strategy.

Jersey Teachers' Superannuation Fund  |  New entrant cost

New entrant cost

The current contribution rate is insufficient to meet the cost of future benefits for new joiners to the Fund.

The table below shows the contribution rate required to meet the cost of future benefits for new joiners to the Fund at the valuation date, compared to the contributions expected to be received (which are fixed in the Orders).

For joiners in future years, the rate required is expected to gradually increase due to the allowance for investment de-risking in the discount rate and to continued improvements in life expectancy.

% of salaries

Based on recent levels of new joiners, the emerging strain on the Fund generated in relation to new entrants over the next 10 years may be of the order of £48M (we have assumed total salary in respect of new joiners each year is £3.5M based on the level of new joiners since the 2018 valuation).

Assumptions

The assumptions used to calculate the cost of future benefits above are consistent with those used to calculate the main valuation results. In addition, we have assumed the following:

New entrants are aged 32 on joining the Fund (this is an expected average age); and

Two-thirds of the new entrants are females and one-third are males.

Jersey Teachers' Superannuation Fund | Risks and sensitivity analysis

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).

However, 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 just as likely.

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.

Membership changes – the risk that changes in recruitment or admission policies, or other changes, increase the average cost of benefits. For

Jersey Teachers' Superannuation Fund | Risks and sensitivity analysis

example, an increase in the average age of the membership 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 Management Board understand the susceptibility of the funding position on the valuation assumptions, we have considered the hypothetical impact on the liabilities of a reduction in future investment returns relative to inflation.

A 0.25% p.a. decrease in the assumed rate of future investment returns at all durations (or a 0.25% p.a. increase in the inflation assumption) reduces the funding ratio by approximately 6% (to 101%).

Opposite step changes, such as what happens if the inflation assumption reduces by 0.25% p.a. for example, would improve the funding position by a broadly similar amount to the reduction 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 Management Board 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 Management Board 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.

Jersey Teachers' Superannuation Fund | Summary and conclusions

Summary and conclusions

The surplus in the Fund at 31 December 2021 is £50.3M, equivalent to a funding ratio of 106.8%. We recommend that this surplus is retained as a buffer against future adverse experience.

The headlines at the valuation date are:

There is a past service surplus of £128.5M.

The overall surplus, after allowing for the anticipated shortfall in future contributions, is £50.3M. This corresponds to a funding ratio of 106.8%.

The surplus of £50.3M will need to be dealt with in accordance with the terms of the Fund's Orders.

Developments since the valuation date

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

Dealing with the surplus

Article 18(4) of the Teachers' Superannuation (Administration) (Jersey) Order 2007 requires the Chief Minister, within 3 months of this report being laid before the States of Jersey, to consult with the Management Board and to submit to the States proposals for disposing of the surplus. The

proposals may consist of (but are not limited to) the following:

If the surplus appears to be of a temporary nature, a recommendation that no action should be taken;

The retention of a surplus no larger than the Actuary advises is a prudent reserve; or

An increase in the benefits under the Fund.

Our advice to the Management Board is that the surplus of £50.3M is no larger than we would advise is a prudent reserve against future adverse experience. In particular, this takes account of the following:

The funding strain expected when new members join the Fund, due to contributions being lower than the cost of accrual. If experience were in line with the assumptions then we estimate that the strain in relation to new entrants would remove the surplus at the valuation date in around 10 years; and

The volatility inherent in the value of the Fund's assets relative to liabilities.

We therefore recommend the surplus is retained as a buffer against future adverse experience.

Jersey Teachers' Superannuation Fund  |  Further information

Further information

Jersey Teachers' Superannuation Fund | Appendix 1: Scope of advice

Appendix 1: Scope of advice

This report has been requested by the Management Board. It has been prepared under the terms of the Agreement between Aon Solutions UK Limited (formerly Aon Hewitt Limited) and the Management Board, 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 compliant

This report, 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 Management Board is the addressee and the only user and that the report is only to be used as a summary of the outcome of the valuation. If you intend to make any other decisions after reviewing this report, please let us know and we will consider what further information we need to provide to help you make those decisions.

Appendix 2: Provisions of Fund

Orders

The Fund is governed by Orders made under the Teachers' Superannuation (Jersey) Law 1979 (as amended). At the valuation date, the provisions of the Fund were specified in the following Orders, namely:

The Teachers' Superannuation (Existing Members) (Jersey) Order 1986

– known as the Existing Members Order

The Teachers' Superannuation (New Members) (Jersey) Order 2007

– known as the New Members Order

The Teachers' Superannuation (Administration) (Jersey) Order 2007

– known as the Administration Order

Main features

The main features of the Fund in force at the valuation date are summarised on the following pages.

Existing Members Order  New Members Order

Normal Retiring Age  60  65

Average Salary  Salary received during the best  Salary received during the best successive

successive 365 days in the 3 years prior  365 days in the 3 years prior to leaving service to leaving service or retirement  or retirement

Normal Retirement Pension  1/80th of average salary for each year of  1/80th of average salary for each year of

service  service

Cash at retirement  A tax-free cash sum of 3/80ths of  Option to exchange up to 30% of commencing average salary for each year of service  pension for a tax-free cash sum of £13.50 for

each £1 of pension given up.

Optional Retirement  No provision for early retirement in  Generally any time up to 5 years before normal health  normal retiring age subject to 2 years'

pensionable service.

Members' pensions are reduced by 2.4% for each year the pension is being taken early.

Ill-Health Retirement  Subject to 2 years' service, immediate  Subject to 2 years' qualifying service,

benefits on grounds of serious ill health  immediate benefits on grounds of serious ill or incapacity. Benefits based on  health or incapacity. Benefits based on enhanced pensionable service as set out  enhanced pensionable service as set out in in Article 52(3) of the Existing Members  Article 18 of the New Members Order. Order.

Existing Members Order  New Members Order Death in service  1.  Cash sum:  1.  Cash sum:

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

b)  At least 5 years' reckonable service:  cash sum of twice current salary

a cash sum of twice current salary

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

50% of member's pension based on

the pension which the member would have received on immediate ill-health retirement. Pensions are only payable to widowers in respect of service after 6 April 1988. An increased pension is payable for the first 3 months after the date of death (in most cases).

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:

An amount equal to a spouse's pension may be paid to an adult dependant – except that no dependant's pension can be awarded where a spouse's or child's pension is payable.

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

4. 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 increased if a spouse's pension is not 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.

Existing Members Order  New Members Order

Death after Retirement  1.  Spouse's Pension (widow /  1.  Spouse's Pension (widow / widower / civil partner):  widower / civil partner):

50% of member's pension in respect of service for which a spouse's pension is payable according to Article 64. An increased pension is payable for the first 3 months after the date of death (in most cases).

From date of death, 50% of member's 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  An amount equal to a spouse's pension may be paid to an adult  pension may be paid to an adult dependant – except that no  dependant – except that no dependant's pension can be  dependant's pension can be awarded where a spouse's or  awarded where a spouse's pension child's pension is payable.  is payable.

3. Children's Pension:  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 increased if a spouse's pension is not payable.

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.

4. Cash sum

For members with less than 10 years' reckonable service, a lump sum equal to 5 times the annual pension less the sum of the pension payments made to the member. For members with 10 or more years' reckonable service, a lump sum equal to the member's average salary less the sum of the pension and cash payments made to the member.

4.  Cash sum None

Existing Members Order  New Members Order

Jersey Teachers' Superannuation Fund  |  Appendix 3: Membership data

Appendix 3: Membership data

Active members at 31 December 2021 (31 December 2018)

Active members  Number Average  Total salaries  Average  Average age (£000 p.a.)  salaries  service

(£ p.a.) (years)

Men  2021 370 44.8 23,388 63,211 12.6 2018 382 43.6 22,011 57,620 11.5

Women  2021 878 41.8 50,646 57,683 11.0 2018 841 40.9 44,551 52,974 10.4

Total  2021 1,248 42.6 74,034 59,322 11.5 2018 1,223 41.7 66,562 54,425 10.8

Notes:

The average ages shown above are unweighted.

Figures shown are full-time equivalent salaries at 1 January 2022 (excluding allowance for general salary increases at that date) and at 1 January 2019 (for 2018 valuation). The general increase as at 1 January 2022 has been assumed to be equal to the valuation assumption.

Average service includes added years arising from additional voluntary contributions.

Deferred pensioners at 31 December 2021 (31 December 2018)

Deferred pensioners  Number Average  Total pensions Average pension age (£000 p.a.) (£ p.a.)

Men  2021  173 51.6 1,135 6,559 2018  153 50.6 998 6,520

Women  2021  397 51.4 1,886 4,751

2018  363 52.4 1,810 4,987 Total  2021  570 51.5 3,021 5,300

2018  516 51.9 2,808 5,442

Notes:

The average ages shown above are unweighted.

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).

Jersey Teachers' Superannuation Fund  |  Appendix 3: Membership data

Pensioners at 31 December 2021 (31 December 2018)

Pensioners  Number Average  Total pensions Average pension age (£000 p.a.) (£ p.a.)

Men  2021  383 73.1 9,610 25,091 2018  380 71.5 8,931 23,502

Women  2021  662 72.1 12,368 18,683

2018  608 70.7 10,873 17,884 Dependants  2021  100 77.3 952 9,523

2018  103 75.5 846 8,212 Total  2021  1,145 72.9 22,930 20,026

2018  1,091 71.4 20,650 18,928 Notes:

The average ages shown above are unweighted.

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).

"Dependants" consists of spouses, civil partners, children and adult dependants in receipt of a pension.

Jersey Teachers' Superannuation Fund | Appendix 4: Rationale for best-estimate assumptions

Appendix 4: Rationale for best-estimate assumptions

Best-estimate assumptions

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

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 Management Board 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 Fund.

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) if there is a deficiency.

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 could 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). In the long term, given the extra returns targeted under the Fund's investment strategy, there would be quite a high probability that experience would prove more favourable than

Jersey Teachers' Superannuation Fund | Appendix 4: Rationale for best-estimate assumptions

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.

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 Fund 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 Orders 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 Management Board's scope to reduce the Fund's investment allocation to growth assets in future.

Recommendation

Following advice from ourselves, the Management Board has confirmed that the assumptions used to determine the funding target should be best- estimate because:

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

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

Jersey Teachers' Superannuation Fund | Appendix 5: Valuation method

Appendix 5: Valuation method

Valuation method

The valuation method for the main valuation calculations is known as the "aggregate funding" method. To establish whether there is a surplus or deficiency under this methodology:

the value of past service benefits in respect of all current members (i.e. pensioners, deferred pensioners and current active members), plus

the value of future service benefits for current active members; is compared with

the market value of the Fund's existing assets, plus

the pension increase debt, plus

the value of future contributions due from and in respect of current active members.

In assessing whether there is a surplus or deficiency, no allowance is made for the financial impact of admitting new entrants.

This approach involves taking credit for the future pension increase debt repayments. As for previous valuations, the contributions to meet the pension increase debt are included in the value of assets used in calculating the past service surplus / deficiency, and employer contributions equal to 10.8% of salaries are allowed for in calculating the future service surplus / deficiency. Following repayment of the pension increase debt, with effect from 1 June 2022, the rate of employer contributions payable under the Fund's Orders was reduced from 16.4% of salary to 10.8% of salary.

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 and each assumption is intended to represent a reasonable best estimate of the future.

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).

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. This does not mean that the actual cost of providing the benefits is reduced, but it does result in an increase in disclosed surpluses or decrease in disclosed deficiencies.

The funding target adopted 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 invested assets, 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.

The discount rate structure adopted for the Fund valuation is as follows:

The initial discount rate is equal to a best-estimate investment return based on the strategic investment benchmark (with assets held within each class consistent with those held at the valuation date). The initial discount rate has been set based on the strategic investment benchmark at the valuation date less a deduction of 0.1% p.a. to reflect changes to the strategic benchmark agreed following the valuation date.

The discount rate applies until a date when the Fund is anticipated to reduce risk in the investment strategy (a period of 15 years has been assumed for this valuation). It is assumed that the discount rate will reduce immediately at this point.

The long-term discount rate is based on a best-estimate return on the assumed long-term investment strategy. A broad allowance has been made for future de-risking of the investment strategy by assuming that the discount rate will reduce by 0.5% p.a. after 15 years.

The best-estimate returns assumed for each asset class as at the valuation date are set out in the table below.

Assets at 31 December  Strategic benchmark at  Best-estimate long-term 2021  the valuation date % return

* Weighted average of median returns on component asset classes. The median returns on those asset classes represent best-estimate returns as at the valuation date over the 30-year period from the valuation date.

Following the valuation date, it has been agreed to reduce the allocation to equities by 7.5% and increase the allocation to bonds by 7.5%. The discount rate has been reduced by 0.1% p.a. to reflect this change, resulting in an initial discount rate of 5.25% p.a..

The long-term discount rate from 1 January 2037 has been set equal to 4.75% p.a., reflecting the 0.5% p.a. allowance for future de-risking.

The same discount rate has been used for valuing future 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 ave 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 (a different scale is used for males and females).

Experience over 2018-2021 suggests that promotional increases have been broadly in line with those assumed, with the shape over the actual increases by age being similar to the expected increases by age.

Considering the experience, we have retained the allowance for promotional salary increases made at the 2018 valuation.

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

Age  Promotional salary increases

Males Females 20  4.5% p.a.  4.5% p.a. 25  3.4% p.a. 3.4% p.a. 30  2.3% p.a.  2.0% p.a. 35  1.5% p.a. 1.3% p.a. 40  1.0% p.a. 1.0% p.a. 45  0.5% p.a.  0.8% p.a. 50  0.5% p.a. 0.8% p.a. 59  0.5% p.a.  0.8% p.a. 60  0.0% p.a. 0.0% p.a.

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 1.2% of salaries adopted at the 2018 valuation. Our analysis confirmed that the 2018 valuation assumption remains appropriate.

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. The experience over the period from 1 January 2019 to

29 February 2020 shows that there were no deaths before retirement.

As there is insufficient data to carry out a credible analysis, and this assumption has little impact on the liabilities, we have retained the assumptions used for the 2018 valuation.

Specimen rates of death before retirement assumed at this valuation are set out below (per 100,000 members):

Age  Males  Females

30  20 23 35  30 34 40  48 49 45  80 68 50  138 101 55  215 173 60  323 274

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.

The 2018 valuation assumed that mortality would be in line with the S3 "All lives" tables with a scaling factor of 95% for males and females.

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.

Mortality assumption  Males Females 100% of SAPS S3 "All lives"  91% 83%

The experience investigation indicates that there have been fewer female and male deaths (by pension amount) than suggested by the assumptions adopted at the previous valuation. However, the small amount of experience data (120 deaths) over the analysis period means that the results of the analysis are not definitive.

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 90% and 85% scaling factor for males and females respectively.

For males and females, this represents slightly lighter mortality than assumed in the 2018 valuation, to partially reflect the lighter mortality experienced in the six-year period to 29 February 2020.

Taking into account the nature of the workforce, we believe that this is a reasonable best-estimate assumption.

Mortality rates after retirement – allowance for 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 average 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

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

Membership category Normal Retirement Age Assumed age at

retirement

Existing Members (actives  60  60 and deferreds)

New Members (actives)  65 63 New Members (deferreds)  65 65

The analysis of the retirement experience over the period 2018-2021 for the Existing Members shows the average retirement age to be in line with the assumption adopted for the 2018 valuation.

There is only a small amount of experience data (8 retirements in normal- health) for New Members over the period 1 January 2019 to

31 December 2021 so we have retained the assumptions used for the 2018 valuation.

Retirement in ill-health

Over the period 1 January 2019 to 31 December 2021, there have been 3 ill-health retirements. As this is insufficient data for a credible analysis, we have not carried out a detailed analysis.

We have therefore retained the assumptions used for the 2018 valuation.

Specimen rates of retirement due to ill-health assumed at this valuation are set out below (per 100,000 members):

Age  Males  Females 30  16  24 35  50  50 40  120  83 45  310  195 50  866  476 55  1,487  935

Allowance for commutation

The 2018 valuation made allowance for New Members to commute 22% of their pension on retirement (there is no provision for Existing Members to commute pension for an additional lump sum).

There have been only 9 retirements from this category during

1 January 2019 to 31 December 2021 so the amount of data is not sufficient for the analysis to be statistically credible. As there is much more experience of commutation rates in the Public Employees Pension Fund (PEPF'), we have used the experience from PEPF as a guide in the absence of sufficient specific data for JTSF.

We have therefore assumed that New Members will commute 20% of their pension on retirement.

Withdrawal rates

We have carried out an analysis comparing the actual number of withdrawals over the period from 1 January 2019 to 31 December 2021 with the expected number of withdrawals. Our analysis showed that there have been:

generally, more withdrawals than expected at younger ages for males and less than expected for females; and

more withdrawals than expected at older ages for both males and females.

Due to the relatively low number of male withdrawals, we have combined our analysis and updated the withdrawal assumption to use a single age- related table for males and females. This provides a more statistically credible analysis.

Specimen rates of withdrawal assumed at this valuation are as follows (per 1,000 members):

Age  2021 assumption  2018 assumption All members  Females / Males

Family assumptions

Family assumptions cover:

the proportions of deaths of members and pensioners which give rise to a spouse's, civil partners' or dependant's pension;

the age difference between the member and spouse/dependant at date of death;

the proportions of widows and widowers who subsequently get remarried; and

the allowance for children's pensions.

There is insufficient data to carry out a credible experience analysis for these assumptions.

We have therefore considered the current assumptions having regard to Aon's views of what could be considered a reasonable best-estimate

assumption for a typical scheme and have updated the assumptions as follows:

The proportion married assumption at normal retirement age (i.e. age 60 for Existing Members and 65 for New Members), reducing thereafter in line with spouse's mortality rates, is as follows:

Males  Females Pensioners  Non-Pensioners  Pensioners  Non-Pensioners 90%  87.5%  67.5%  75%

Male members are assumed to be 3 years older than their spouse/dependant and female members are assumed to be 1 year younger than their spouse/dependant.

No allowance is made for the remarriage of widows and widowers.

An allowance for children's pensions is made via a loading of 10% to the liability for spouses' pensions on death before retirement.

Re-entry to active service

The 2018 valuation allowed for deferred members to re-enter active service in future by applying a loading of 0.5% p.a. to the revaluation in deferment assumption. There is insufficient data to analyse the experience but this does not seem an unreasonable allowance, as our understanding is that many teachers do re-enter service and are entitled to opt for final salary linkage on their former deferred benefits (which may generate additional liabilities). We have therefore retained the assumption used for the 2021 valuation.

Jersey Teachers' Superannuation Fund  |  Appendix 8: Summary of assumptions

Appendix 8: Summary of assumptions

Financial assumptions

Assumption

Discount rate  5.25% p.a. until 31 December 2036, reducing to 4.75% p.a. from 1 January 2037

UK CPI inflation  2.25% p.a. Jersey RPI inflation  2.85% p.a.

(i.e. UK CPI inflation plus 0.6% p.a.)

Rate of salary increases  3.35% p.a. (i.e. Jersey RPI inflation plus 0.5% p.a.)

plus an allowance for promotional increases Rate of deferred pension increases  2.85% p.a.

(i.e. Jersey RPI inflation)

plus an allowance for future re-entry into active service

Rate of pension increases in payment  2.85% p.a.

(i.e. Jersey RPI inflation) Expenses (other than investment related expenses)  1.2% of members' salaries

Jersey Teachers' Superannuation Fund  |  Appendix 8: Summary of assumptions

Demographic assumptions

Assumption

Pre-retirement mortality  Allowance is made for death in service

(see sample rates in Appendix 7)

Post-retirement mortality  SAPS S3 "All lives" tables (S3PMA for males and S3PFA for females) with 90% scaling factor for males and 85% scaling factor for females

allowing for year of birth.

Improvements from 2013 in line with the CMI_2021 Projections, with S=7, A=0.5% and a long-term rate of future improvements in mortality of

1.5% p.a.

Withdrawals  Allowance is made for withdrawals from service (see sample rates in Appendix 7)

Retirement age  Allowance has been made for active members to retire before Normal

Retirement Age in normal health and in ill-health (see tables in Appendix 7).

Deferred members are assumed to retire at the earliest age at which they

can retire with unreduced benefits.

Commutation  New Members are assumed to commute 20% of their pension on retirement.

Family details  90% of pensioner males and 67.5% of pensioner females;

87.% of non-pensioner males and 75% of non-pensioner females;

 are assumed to be married, or have a dependant, at normal retirement age, i.e. age 60 for Existing Members and age 65 for New Members, (or earlier death), reducing thereafter in line with spouse's mortality rates

Male members are assumed to be 3 years older than their spouse/dependant and female members are assumed to be 1 year

younger than their spouse/dependant

No allowance made for remarriage of widows and widowers

10% loading to spouses' pensions on death before retirement to allow for

children's pensions

Appendix 9: Discontinuance test

The discontinuance funding ratio at 31 December 2021 is 101%.

Even though the Orders governing the Fund do not envisage the Fund's discontinuance (i.e. the future accrual of benefits and payment of contributions into the Fund being discontinued), it is our practice at valuations also to review what the financial position of the Fund would have been had discontinuance occurred on the valuation date. This is done by comparing the value of the basic accrued benefits as at 31 December 2021 with the value of the Fund's existing assets at that date.

By basic accrued benefits we mean:

benefits in respect of current pensioners and their spouses and dependants;

retirement and death benefits in respect of former employees entitled to deferred pensions;

accrued retirement and death benefits in respect of current members based on pensionable pay at 31 December 2021, no allowance being made for pay increases after that date.

We have taken the value of the basic accrued benefits on discontinuance at the valuation date as an estimate of the terms that might be offered by insurance companies for determining the cost of immediate and deferred annuities, plus a provision to cover expenses.

In practice, if the Fund were ever to be discontinued, it is possible that the Fund would continue as a closed fund.

Derivation of assumptions

In setting the assumptions for the discontinuance test we have taken into account actual buy-out terms available in the market at the valuation date. However, we have not carried out a detailed analysis of the cost of risks that might apply specifically to the Fund and so our estimate is only a guide. Market changes to both interest rates, and demand and supply for this type of business, mean that no reliable estimate can be made, and that ultimately the actual true position can only be established by completing a buy-out.

We have set the discount rate for this estimate equal to Aon's Bulk Annuity Market Monitor curves for pensioners and future pensioners.

The allowance we have made for expenses is separate.

The Orders governing the Fund provide for annual increases in line with the Jersey RPI at present, although lower increases may be paid where an

Jersey Teachers' Superannuation Fund  |  Appendix 9: Discontinuance test

actuarial review has disclosed that the financial condition of the Fund is no longer satisfactory. We have assumed that in a discontinuance situation the pension increases provided would be equal to the minimum increases specified in the Orders, i.e. nil increases.

Expenses

The reserve for expenses allows for deductions to allow for the cost of forced sales of equity, bond and property holdings, an allowance for the management expenses associated with winding up the Fund, and an estimate of the per member charges expected to be levied by an insurance company on buy-out.

For the purposes of disclosure in the valuation, assets are taken at their audited market value. The above allowances for expenses are therefore all presented as additions to the liabilities.

Discontinuance test results

We have considered the discontinuance position on the assumption that in the event of the Fund's discontinuance the capitalised value of the pension increase debt would be paid off in full by the Government of Jersey at that point.

The results of the hypothetical discontinuance valuation are as follows:

£M

Summary of assumptions

The table below shows the main assumptions underlying the discontinuance test, where these are different from those used for the main valuation basis.

Assumption

Pensioner discount rate  Aon's Bulk Annuity Market Monitor curves for pensioners

Non-pensioner discount rate (before and  Aon's Bulk Annuity Market Monitor curves after retirement)  for non-pensioners

Increase in UK RPI  Term-dependent rates derived from the

RPI swap markets

Pension increases in payment and  Nil deferred pension increases

Withdrawals  All members assumed to immediately withdraw from service with entitlement to

deferred pension

Commutation  No allowance Post-retirement mortality  As for the main valuation basis except the

long-term rate of future improvements in mortality is 1.75% p.a.

Comparison with discontinuance funding ratio at previous valuation

The discontinuance funding ratio at the 2018 valuation was 101%.

Projection of discontinuance funding ratio

We would expect the discontinuance funding ratio to gradually reduce over time if contributions are held at their current levels and new entrants continue to be admitted to the Fund.

Jersey Teachers' Superannuation Fund | Glossary

Glossary

Discount rate

This is used to place a present value on a future payment. A 'risk-free' discount rate is usually derived from the investment return achievable by investing in government gilt-edged stock. A discount rate higher than the 'risk-free' rate is often used to allow for some of the extra investment return that is expected by investing in assets other than gilts.

Funding ratio

This is the ratio of the resources of the Fund (its assets, plus the value of the future pension increase debt repayments) to the resources that would be required to meet the funding target.

Funding target

This is that, based on best estimate assumptions, the assets and future contributions should be sufficient over the long term to support the benefits payable from the Fund in respect of the current members of the Fund. The resources of the Fund required to meet the funding target are determined by assessing the present value of the benefits that will be paid from the Fund in the future, based on pensionable service prior to the valuation date, plus the extent to which the present value of future service benefits for current members exceeds the present value of anticipated future service contributions for such members.

Present value

Actuarial valuations involve projections of pay, pensions and other benefits into the future. To express the value of the projected benefits in terms of a cash amount at the valuation date, the projected amounts are discounted back to the valuation date by a discount rate. This value is known as the present value. For example, if the discount rate was 6% a year and if we had to pay a lump sum of £1,060 in one year's time the present value would be £1,000.

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