Select Committee on Members' Fund - Report by the Government Actuary on the Valuation of the Fund as at 30 September 2003 Report


  8.1  In my judgement, the assets held at 30 September 2003 were likely to be more than sufficient to meet the liabilities in respect of existing commitments, including future awards to surviving spouses of former Members receiving benefit. Unless the number of new awards, including lump sum gratuities, is likely to be very high, consideration could be given to reducing the level of the Grant in Aid.

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

C D Daykin, CB FIA

Government Actuary

29 July 2004

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Prepared 28 October 2004