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R E P O R T & A C C O U N T S2 0 0 6 / 2 0 0 7
ContentsMANAGEMENT STRUCTURE 2
CHAIR’S INTRODUCTION 3
MANAGEMENT REPORT 5
INVESTMENT REPORT 7
FINANCIAL STATEMENTS 10
STATEMENT OF RESPONSIBILITIES 15
AUDITORS’ REPORT 16
SCHEME ADMINISTRATION 17
CONSULTING ACTUARY’S STATEMENT 21
APPENDIX A EMPLOYER MEMBERSHIP 24
APPENDIX B PENSIONS COMMITTEE ITEMS 25
APPENDIX C INFORMATION CONTACTS 26
1
2
1 PENSION FUND MANAGEMENT COMMITTEEVoting MembersChair: Cllr T Harney WirralVice Chair:Cllr S A Brown Wirral
Cllr G Davies Wirral Cllr Anne Ibbs SeftonCllr F M Doyle Wirral Cllr B O’Hare KnowsleyCllr W A Duffey Wirral Cllr K Turner LiverpoolCllr I J Mackenzie Wirral Cllr J Fletcher St HelensCllr A McLachlan Wirral Jayne Brown (LJMU)Cllr R K Moon Wirral Non-district Employer Representative
Cllr H Smith WirralCllr G C J Watt Wirral
Employee RepresentativesMr P Goodwin UnisonMr P Wiggins Unison
Officers of the FundIan Coleman Director of FinanceDavid Smith Deputy Director of FinanceJohn Parry Head of Pension FundPeter Mawdsley Principal Pensions OfficerMark Reaney Head of Legal and Member ServicesColin Hughes Assistant Borough Solicitor
2 ADVISERS TO INVESTMENT MONITORING WORKING PARTYDirector of FinanceHead of Pension FundMercer Investment ConsultingSarah BatesNoel Mills
3 OTHERSAuditor Audit CommissionBankers The Royal Bank of Scotland plcConsultant Actuary Mercer HR ConsultingCustodian of Assets State StreetEthical Advisers Pensions and Investment Research Consultants LtdProperty Advisers Cordea Savills Fund ManagementPerformance Measurement The WM CompanySolicitor Wirral MBCAVC Providers Equitable Life Assurance Society
Standard LifePrudential
ManagementStructureAt 31 March 2007
The Overall Aim of the FundThe principal aim of the Fund is to
provide secure pensions, effectively and
efficiently administered at the lowest
cost to the contributing employers. This
requires the Fund to strike a balance
between achieving the most from its
investments and the need to exercise
prudence and caution in considering its
future liability profile. The Pensions
Committee reviews the Fund's
investments, at regular intervals, with
the help of its various professional
advisers, to ensure that they remain
appropriate.
Investment Performance of the FundDuring the year under review, the Fund
has advanced in value by around £250m
to £4.3bn, a positive overall investment
return of 6.2%, compared to its bespoke
benchmark return of 7.3%. With
financial markets having risen
significantly since 2003, the twelve
month period to March 2007 has seen
moderate returns. The Fund compared
marginally unfavourably with the
average Local Authority Fund, which was
more heavily weighted in favour of
equities.
Many equity markets produced double
digit returns although in the US and
Japan these were offset by currency
weakness. In sterling terms, the major
markets performance was; the
UK(+11.1%), Continental Europe(+12.4%),
North America(-0.9%), Japan(-9.9%),
Pacific (+12.3%), Property (+15.6%)
and there were solid contributions from
cash and alternative investments. Bonds
were little changed. The management of
the Fund, distribution of assets and
performance are dealt with in more
detail later in this report.
The ten-year return of the Fund at
8.0% per annum compound remains
well ahead of both average earnings
and inflation.
3
“
Chair’s Introduction
Councillor Ann McLachlan, Chair of Pensions Committee
“As the new Chair of the Pensions Committee, I am pleased to presentMerseyside Pension Fund’s Annual Report for the year ended 31 March 2007.The aim of the report is to highlight the important issues affecting the Fundover the last twelve months as well as providing more general informationregarding the pension scheme.”
“
Actuarial ValuationAt the last triennial actuarial valuation at
31 March 2004, against a background of
three consecutive years of negative
equity growth, the funding level had
fallen from 94% to 76% of projected
actuarial liabilities.
At the time of writing, the triennial
valuation as at 31 March 2007, has not
been finalised. Initial indications are that
the strong investment performance over
the past three years has contributed to a
material improvement in the funding
level but, to a very great extent, this has
been offset by anticipated increases in
longevity. Where known, the financial
implications of the changes to the Local
Government Pension Scheme have been
taken into account in the actuarial
valuation as at 31 March 2007.
Communication with FundEmployers and MembersThe current active membership of the
Fund stands at approximately 51,000
with around 38,000 in receipt of
pensions and 23,000 members with
deferred benefits.
Effective communication remains a
crucial issue for the Fund, which has
continued to offer a variety of
presentations and training courses to
members and employers during the year.
The redesigned Fund website, launched
last year, has been well received with
Actuarial Valuationmore than 800,000 hits in its first year.
There is an increasing take-up of the
email alert service.
The annual Employers’ Conference held
at the Maritime Museum in November
2006 was again well attended and
featured speakers from the Department
for Communities and Local Government,
the Fund’s Actuary, Mercer Human
Resource Consulting and members and
officers from the Fund.
Past Changes and the FutureDuring the past year, the staff of the
Administration and Investment teams
have been involved with the
implementation of a number of new sets
of regulations as part of the ongoing
modernisation of the Scheme.
Changes to regulations were made,
linked to the introduction of the new
simplified tax regime including
increasing the maximum tax free lump
sum available by commutation and
introducing ”flexible retirement”
arrangements. Regulations dealing with
removal of the “85 Year” rule were
implemented from 1 October 2006 with
transitional protections, in full or in part,
extended to relevant members retiring
before 1 April 2020.
Actuarial ValuationRegulations have been published in
respect of Benefits, Membership and
Contributions for the new look Scheme
due to replace the current Scheme from
April 2008. Separate regulations dealing
with Administration and Transitional
Provisions are still awaited.
John Parry, the Head of Pension Fund,
retired at the end of March and we wish
him a happy and healthy retirement.
John joined the Fund in 1997 as
Accountant before taking over as Head of
Pension Fund in 2002. He is succeeded
by Peter Wallach who has been with the
Fund since 2004.
As ever, the continued success of the
Fund depends on the combined efforts of
all those concerned with the operation of
the Fund. In conclusion, I should like to
thank the Committee, the Scheme
employers and their staff, the financial
advisors, the external investment
managers and all of the Fund’s
Investment and Administration staff for
all their considerable work in delivering
the service to Scheme members.
4
5
ManagementReportYear ending 31 March 2007
Management of the FundThe overall responsibility for the
management of the Fund rests with the
Pensions Committee, now chaired by
Councillor Ann McLachlan (who replaced
Councillor Tom Harney in May 2007).
In 2006/07 the Committee, as set out on
page 2, comprised of Councillors from
the Wirral Labour group (4),
Conservatives (3), Liberal Democrats (3),
representatives of the four other
District Authorities (Liverpool,
St. Helens, Knowsley and Sefton) and
an independent representative from the
other employers. Also in attendance are
employee representatives (2), the
Director of Finance and other officers of
the Fund. The Committee meets around
five times a year to review the
administrative and investment issues
affecting the Fund.
The Committee also ensures that the
management of the Fund’s assets falls
within the requirements of the Local
Government Pension Scheme
(Management and Investment of Funds)
Regulations 1998. These regulations
require the Fund to have regard to both
diversification and suitability of
investments and stipulate the
requirement to take proper advice when
making investment decisions.
The more detailed consideration of
investment strategy and asset
allocation of the Fund’s portfolios is
considered by an Investment
Monitoring Working Party. This Working
Party meets quarterly to review
investment strategy and to receive
reports on investment activity
undertaken in the previous period. One
of its important tasks is to monitor the
performance of the Fund’s external
managers in conjunction with
professional advisers and the Fund’s
officers. The Working Party comprises
representatives from the Pensions
Committee, two independent advisers
as well as Mercers Investment
Consulting and members of the in-
house investment team.
6
With regard to its investment
management activities, the Fund uses a
combination of internal and external
managers, and active and passive
strategies. Active UK and European
equity portfolios are managed internally
with parallel portfolios managed by
external managers. Barclays Global
Investors currently manage the
comparative UK portfolio and JP
Morgan, appointed in August 2006, the
comparative European portfolio.
Nomura are responsible for equities in
Emerging Markets, Japan and the Far
East. During the year, a strategic
decision was taken to change the
management of North American
equities to a wholly passive basis. At
the time of writing, the process for
appointing a new passive manager is
well advanced. Active Bonds are
managed by Schroders and Legal &
General Investment Management. Legal
& General also manage the passive
investments in a pooled fund. Internal
fund managers report to the Director of
Finance through regular Fund Operating
Group meetings and follow laid down
compliance procedures. External and
internal fund managers have been given
specific benchmarks against which
performance is measured and
monitored quarterly at meetings of the
Investment Monitoring Working Party.
Cordea Savills Investment Management
Ltd, who report to the Head of Pension
Fund, act as strategic property advisers.
The day-to-day management of the
properties is handled by CB Richard
Ellis, with an independent half yearly
valuation of the portfolio being carried
out by Colliers Erdman Lewis.
Peter Wallach,Head of Pension Fund
7
Investment StrategyThe Fund is managed within the rules and
guidelines set out in the 1998
Regulations, which consolidated and
simplified previous regulations. These
regulations set parameters for the types
and limits that the Fund can invest in
certain asset classes.
The investment strategy of the Fund has
been to maximise returns over the
medium to long term whilst having regard
to its liability commitments. This has led
to a more bespoke structure, better suited
to matching the Fund's maturity and
liability profile. The requirement to
maintain a balanced portfolio of assets
across a diversified portfolio invested in a
range of stocks and sectors, remains of
paramount importance. At the beginning
of the year the asset/liability relationship
was reviewed by Mercer HR Consulting
and the recommendations have been
implemented.
Corporate GovernanceMerseyside Pension Fund recognises its
responsibility as an investor to promote
and encourage corporate governance
within the companies in which it
invests. The Fund believes that good
corporate governance is an important
element in reducing the risk of
corporate failure and enhancing returns
over the long term. The principles of
corporate governance outlined in the
'revised combined code' established by
the Cadbury, Greenbury, Hampel and
Higgs Committees are supported by the
Fund which has an active policy of
engagement with companies, including
using its proxy votes at all major UK &
European company AGMs and EGMs to
promote best practice. The Fund receives
detailed advice and recommendations
from Pensions and Investment Research
Consultants Ltd. (PIRC) to inform its
voting decisions and is an active
InvestmentReportYear ending 31 March 2007
Figure 1. Portfolio Distribution (Market Value at 31 March 2007)
Portfolio Distribution (Market Value at 31 March 2007)
% o
f tot
al a
sset
s
Leyland Otter, Investments
member of the Local Authority Pension
Fund Forum. Councillor Sue Brown is on
the Local Authority Pension Fund Forum
(LAPFF) executive board.
The Fund is also an active member of the
Institutional Investors Group on Climate
Change (IIGCC). Through its PIRC, LAPFF
and IIGCC affiliations, the Fund seeks to
support the development of consistent,
informed and fair corporate governance
policies that promote good practice
across the market as well as for
individual companies.
The Fund is substantially compliant with
the Myner's principles on institutional
investment. Further information is
contained in the revised Statement of
Investment Principles which is reviewed
annually by the Pensions Committee.
The current statement is available from
the Fund office at PO Box 120,
Castle Chambers, 43 Castle Street,
Liverpool L69 2NW. It covers:
● Effective Decision Making
● Clear Objectives
● Focus on Asset Allocation
● Expert Advice
● Explicit Mandates
● Activism
● Appropriate Benchmarks
● Performance Measurement
● Transparency
● Regular Reporting
Fund CompositionThe Fund's composition is largely dictated
by its bespoke strategic benchmark,
which is determined in consultation with
the Fund's actuary. This strategic
benchmark is the main gauge against
which investment performance is
measured and is reviewed periodically to
ensure it continues to meet the liability
profile of the Fund.
The Fund's actual composition at the
beginning and end of the reporting period
is depicted in Figure 1.
Strategic Asset StructureAsset Strategic Class Benchmark
% %UK Equities 31Overseas Equities 25US 8.0European (Ex UK) 9.0Japan 3.0Asia Pacific 2.5Emerging Markets 2.5Fixed Interest 26UK Gilts 7.0Overseas Bonds 0.0UK Index Linked 13.0Corporate Bonds 6.0Property 10Venture Capital/Other Investments 6Cash 2Total 100
MPF Total Return by Asset Class in year ended 31 March 2007
Largest UK Equity Holdings as at 31 March 2007Company Market Value Equity
£'000 %
BP PLC 37,260 7.4HSBC 27,575 5.5GlaxoSmithKline 24,098 4.8Vodafone 23,120 4.6Royal Bank of Scotland 18,720 3.8
Royal Dutch Shell 18,601 3.7Astrazeneca 14,080 2.8Barclays 13,339 2.7Tesco 13,328 2.7Lion Trust 11,495 2.3
201,616 40.3 The top 10 holdings represent 40.3 % of thetotal in house UK Equity Portfolio and 14.4%of total UK equities (4.7% of total fund).
Figure 2. Total Return by Asset Class in year ended 31 March 2007
Largest Property Holdings as at 31 March 2007Property Market Value
£'000
Tunsgate Square 33,575GuildfordCunard Building 32,475LiverpoolWillowbrook 30,250 Retail ParkLoughboroughFarnham Retail Park 24,100Middlemarch Business Park 22,300Coventry37/38 Curzon Street 22,000LondonHorns Road 19,000Retail Park IlfordHigh Street 15,900Windsor
8
Tesco
9
Actively managed UK and overseas
equity mandates were the largest
contributor to the Fund underperforming
its bespoke benchmark by 1.1%.
In the UK, the Fund returned 9.2%
against a target benchmark of 11.1%.
European equities (excluding UK)
returned 11.5% against a benchmark
return of 12.4%.
In North America, the Fund returned a
negative 3.2% against a benchmark
return of minus 0.9%. This marked a
reversal of last year’s outperformance.
Performance in Japan was also
disappointing with the Fund
returning a negative 13.6% against a
benchmark return of minus 9.9%.
In both markets, returns would have
been positive but for the strength of
Sterling against the Dollar and the Yen.
Elsewhere, the Fund’s stock market
returns from the Pacific Basin (excluding
Japan) were 18.6% against a benchmark
return of 20.3%, and performance came
in ahead of benchmark in the Emerging
markets with an outturn of 9% against
a targeted 7%.
The Fund’s fixed income investments
(bonds) performed broadly in line with
their benchmarks and property enjoyed
another solid period of growth returning
12.4% against benchmark return of
15.6%.
Cash and other alternative investments
(including hedge funds) continued to
perform strongly returning 7.5% against
a benchmark return of 4.9%.
Over the longer term, the Fund’s returns
have consistently outperformed retail
price and average earnings indices as
illustrated in the table below.
InvestmentReportYear ended 31 March 2007
Comparative Returns for the Fund1 Year 3 Years 5 Years 10 Years
% % % % Merseyside Pension Fund 6.2 13.6 8.4 8.0 Benchmark 7.3 13.3 7.7 7.2 Inflation 4.8 3.5 3.2 2.8 Average Earnings 4.1 4.2 4.0 4.3
Review of InvestmentPerformanceInvestment returns over the last year were
characterised by the continued strong
performance of equity markets driven by
robust economic growth, solid company
earnings and increased activity on the
mergers and acquisitions front.
The Fund returned 6.2% in the financial year
to the end of March 2007 compared to its
bespoke benchmark return of 7.3%, marking
an increase in value of around £250m to over
£4,301m. Over the comparable period, the
average return of all Local Authority Pension
Funds based on the WM Local Authority
universe of 90 funds was 7%.
10
FinancialStatementsFUND ACCOUNT for the year ended 31 March 2007
Note 2007 2006£’000 £’000
Contributions and BenefitsContributions receivable 3 200,837 184,304
Transfers in 16,353 20,131
217,190 204,435
Benefits payable 4 185,051 174,933
Leavers 5 11,754 17,682
Administration Expenses 3,740 3,253
200,545 195,868
Net additions from dealings with members 16,645 8,567
Return on InvestmentsInvestment income 6 61,718 70,181
Change in market value of investments 7 187,559 679,507
Exchange -1,874 330
Investment Management Expenses 8 -4,604 -4,058
Net return on Investments 00242,799 745,960
Net increase in the Fund during the year 259,444 754,527
Net Assets of the Fund at start of year 4,041,533 3,287,006
Net Assets of the Fund at end of year 4,300,977 4,041,533
NET ASSETS STATEMENT AS AT 31 MARCH 2007Note 2007 2006
£’000 £’000
InvestmentsFixed Interest Securities 7 0 0
Index-linked Securities 0 0
Other Investments 137,150 120,743
Equities 1,077,743 1,065,982
Managed or Unitised Funds 2,589,491 2,409,519
Properties 355,475 307,225
Short Term Deposits 116,573 103,974
4,276,432 4,007,443
Other Assets and Liabilities 9 24,545 34,090
Net Assets of the Fund as at 31 March 2007 4,300,977 4,041,533
11
FinancialStatementsNotes to the Accounts
1 GENERALAlthough the Scheme is exempt from the
requirements of the Occupational
Pension Schemes (Requirement to obtain
Audited Accounts and a Statement from
the Auditor) Regulations 1996, the
financial statements have been prepared
in accordance with these regulations and
with the guidelines set out in the
Statement of Recommended Practice,
Financial Reports of Pension Schemes
(the SORP).
The financial statements record the
transactions of the Scheme during the
year and summarise the net assets at the
disposal of the Managers at the end of
the financial year. They do not take
account of obligations to pay pensions
and benefits which fall due after the end
of Scheme year. The actuarial position of
the Scheme, which does take account of
such obligations, is dealt with in the
statement by the Actuary on pages 21 to
23 and these financial statements should
be read in conjunction with it.
2 ACCOUNTING POLICIESBasis of preparationThe financial statements are prepared in
accordance with applicable UK
accounting standards and with the
guidelines set out in the Statement of
Recommended Practice, Financial
Reports of Pension Schemes.
Valuation of investmentsInvestments are stated at market value.
For this purpose unlisted investments are
included at manager's valuation and
properties at professional valuation. For
listed securities the stock exchange
values are used. Properties have been
valued independently by Colliers Erdman
Lewis, Chartered Surveyors, as at
31 March 2007.
Translation of foreign currenciesAssets and liabilities in foreign currencies
are translated into sterling at rates ruling
at the year end. Foreign income received
during the year is translated at the rate
ruling at the date of receipt. All resulting
exchange adjustments are included in the
revenue account.
Investment incomeInterest on fixed interest stocks and on
short term deposits has been accounted
for on an accruals basis. Income from
equities is accounted for when the
related investment is quoted
"ex-dividend".
2 ACCOUNTING POLICIESRental incomeRental income from properties is taken
into account by reference to the periods
to which the rents relate and is shown
net of related expenses. The Fund accrues
rent up to 24 March each year. Rent
received on the Quarter Day, 25 March,
is accounted for in full in the following
year.
Contributions and benefitsContributions are accounted for on an
accruals basis. Benefits payable represent
the benefits paid during the financial
year and include an estimated accrual for
lump-sum benefits outstanding as at the
year end.
Transfers to other schemesTransfer payments relate to those early
leavers whose transfers have been paid
during the year plus an accrual for future
payments in respect of members moving
their service to other schemes under bulk
transfer arrangements.
Investment management expensesIn accordance with the SORP, costs in
respect of the internal investment team are
classified as investment management
expenses rather than as administrative
expenses.
Gerard Moore, Financial Controller
12
2007 2006£’000 £’000
3 CONTRIBUTIONS RECEIVABLEEmployersNormal 137,630 125,920
Early retirement funding 12,745 11,523
EmployeesNormal 50,462 46,861
200,837 184,304
relating to: Administering Authority 28,664 27,394
relating to: Statutory Bodies 149,223 135,755
relating to: Admission Bodies 22,950 21,155
200,837 184,304
4 BENEFITS PAYABLE Pensions 157,286 150,533
Lump sum retiring allowances 25,388 21,810
Lump sum death benefits 2,377 2,590
185,051 174,933
relating to: Administering Authority 26,715 26,394
relating to: Statutory Bodies 140,205 132,401
relating to: Admission Bodies 18,131 16,138
185,051 174,933
5 PAYMENTS TO AND ON ACCOUNT OF LEAVERSRefunds to members leaving service 62 255
Payment for members joining state scheme -23 111
Individual transfers to other schemes 11,715 17,316
11,754 17,682
The figure of individual transfers to other schemes includes £95,000 in respect of
one bulk transfer.
6 INVESTMENT INCOMEFixed interest securities 23 11,555
Index-linked securities 0 1,194
Dividends from equities, managed and unitised funds 38,453 35,298
Net rents from properties 17,261 16,242
Interest on deposits 5,799 5,814
Other 182 78
61,718 70,181
After 1 June 2006 all the Fund's holdings of bonds were in unitised vehicles. Theinvestment income shown in 2005/2006 in respect of fixed interest and indexlinked securities covers interest on the previous segregated (directly held) holdings.
As at 31 March 2007, £78.9 million of stock was on loan to market makers, whichwas covered by non-cash collateral totalling £83.2 million. Income from stocklending is included within "Other".
The figure of "Dividends from Equities, managed and unitised funds" includesrecoverable taxation of £0.179m, plus income from profits from associate andjoint ventures of £6.114m.
13
7 INVESTMENTSMarket Purchases Sale Change in Market
Value @ at cost Proceeds Market* Value @31.3.06 value 31.3.07
£'000 £'000 £'000 £'000 £'000Fixed Interest Securities 0 0 0 0 0Index-Linked Securities 0 0 0 0 0Equities 1,065,982 464,884 521,732 68,609 1,077,743Managed & Unitised Funds 2,409,519 451,940 367,950 95,982 2,589,491Other 120,743 28,780 15,651 3,278 137,150Properties 307,225 53,119 24,559 19,690 355,475Short term deposits 103,974 12,599 0 0 116,573
4,007,443 1,011,322 929,892 187,559 4,276,432
*Note: The change in market value of investments during the year comprises all realised and unrealised appreciation and depreciation.The high volume ofsales and purchases reflects changes of external managers during the year, covering portfolios valued at £267m.
2007 2006£’000 £’000
Fixed Interest Securities (segregated holdings)*UK Fixed Interest 0 0UK Corporate Bonds 0 0Overseas Fixed Interest 0 0
0 0
*Other than Corporate Bonds, all are public sector securities.
Index-Linked Securities (segregated holdings) 0 0
Equities (segregated holdings)UK Quoted 461,412 438,542Overseas Quoted 616,331 627,440
1,077,743 1,065,982
Managed* and Unitised FundsUK Fixed Interest 188,228 241,444UK Corporate Bonds 296,927 192,970Overseas Fixed Interest 27,043 26,181Index-Linked Securities 450,516 425,995UK Equities 938,721 883,391Overseas Equities 533,038 517,035Unlisted Securities (Private Equity) 100,153 83,003Property Unit trusts 54,865 39,500
2,589,491 2,409,519
Other Investments 137,150 120,743
UK PropertiesFreehold 299,225 245,700Leasehold 56,250 61,525
355,475 307,225
Short Term Deposits 116,573 103,974
8 INVESTMENT MANAGEMENT EXPENSESFees paid to the 6 major investmentmanagers amount to £3.914m andconstitute the bulk of the figure of£4.604m investment management fees.Charges vary between fund managers
and between markets and types ofsecurity. Charges are calculated as apercentage of the value of theinvestments.
14
9 CURRENT ASSETS AND LIABILITIES2007 2006
Assets £’000 £’000 Contributions due 14,889 16,840Accrued and outstanding investment income 7,290 7,067Due from stockbrokers 3,768 12,274Cash at Bank 4,670 8,179Sundries 5,792 4,457
36,409 48,817
LiabilitiesDue to stockbrokers 3,917 1,305Transfer values payable 95 5,000Provisions 304 935Miscellaneous 7,548 7,487
11,864 14,727
Total Other Assets and Liabilities 24,545 34,090
13 ADDITIONAL VOLUNTARY CONTRIBUTIONS
2007 2006£’000 £’000
Equitable Life 3,633 3,893Standard Life 6,859 6,316Prudential 3,089 2,264
13,581 12,473
Externally Managed £m %Barclays Global Investors 549 12.8J P Morgan 122 2.9Nomura 364 8.5Schroders 304 7.1Legal & General (Pooled Assets) 1,212 28.3Legal & General (Bonds) 303 7.1
2,854 66.7
Internally Managed 1,422 33.34,276 100.0
12 SUMMARY OF MANAGERS' PORTFOLIO VALUES12 AS AT 31 MARCH 2007
11 RELATED PARTY TRANSACTIONS
The figure of debtors does not includefuture payments from employers who aremaking special additional payments inrespect of early retirement costs over anagreed number of years. The reduction in"transfer values payable" figure reflects arecent decision that the Fund retains
responsibility for a group of pensionersand deferred members whose formeremployer, having left the Fund, will nowconsequently pay the Fund in respect of such liabilities. Included in the "Miscellaneous Liabilities"figure is £1.838m of unpaid benefits.
Administration and investmentmanagement costs include charges byWirral Council in providing services in itsrole as administering authority to theFund, which amount to £3.291m (2006£3.087m). Such charges principally relateto staffing required to maintain thepension service. A specific declaration has
been obtained from principal officers andPensions Committee members regardingmembership of and transactions withsuch persons or their related parties. OneDirectorship of an admitted body has beendisclosed under this procedure. Nodeclarable related party transactions havebeen reported.
The Committee holds assets investedseparately from the main fund. Inaccordance with Regulation 5 (2) (c) of thePensions Schemes (Management andInvestment of Funds) Regulations 1998,these assets are excluded from the PensionFund accounts.The Scheme providers are Equitable Life,Standard Life and Prudential. Individualmembers participating in this arrangement
each receive an annual statementconfirming the amounts held on theiraccount and the movements in the year. As requested in the Local AuthorityStatement of Recommended Practice (2006-2007) an aggregate breakdown betweencontributions, repayments and change inmarket value is not readily available.The aggregate amount of AVC investmentsis as follows:
10 COMMITMENTSCommitments for investments amounted to £100.388m as at 31 March 2007.
15
The Authority's ResponsibilitiesThe Council as Administering Authorityof Merseyside Pension Fund is required:
To make arrangements for the properadministration of the financial affairsof the Fund and to secure that one ofits officers has the responsibility forthe administration of those affairs. Inthis authority, that officer is theDirector of Finance.
To manage the affairs of the Fund tosecure economic, efficient use ofresources and safeguard its assets.
The Director of Finance'sResponsibilitiesThe Director of Finance is responsible forthe preparation of the Fund's Statementof Accounts which, in terms of theChartered Institute of Public Finance
and Accountancy Code of Practice onLocal Authority Accounting in GreatBritain (the Code), is required to presentfairly the financial position of the Fundat the accounting date and its incomeand expenditure for the year ended 31 March 2007.
In preparing this statement of accounts,the Director of Finance has:
Selected suitable accounting policiesand then applied them consistently
Made judgements and estimates thatwere reasonable and prudent
Complied with the Code
The Director of Finance has also:Kept proper accounting records whichwere up to date
Taken reasonable steps for theprevention and detection of fraud andother irregularities
The Director of Finance'sCertificateI certify that the Statement of Accountspresents fairly the financial position ofthe Fund at 31 March 2007, and itsincome and expenditure for the yearthen ended.
Director of Finance
Date: 25 September 2007 25 September2006
Statement ofResponsibilites
Ian Coleman, Director of Finance
16
Independent auditors' reportto the Members of MerseysidePension Fund on the PensionFund Annual Report I have examined the financialstatements included in the PensionFund Annual Report which comprise theFund Account, the Net AssetsStatement and the related notes.
This report is made solely to MerseysidePension Fund in accordance with Part IIof the Audit Commission Act 1998 andfor no other purpose, as set out inparagraph 36 of the Statement ofResponsibilities of Auditors and ofAudited Bodies prepared by the AuditCommission .
Respective responsibilities ofChief Finance Officer andauditorsThe Director of Finance is responsiblefor preparing the Annual Report inaccordance with the Statement ofRecommended Practice 'FinancialReports of Pension Schemes 2002'. Myresponsibility is to report to you myopinion on the consistency of thefinancial statements within the AnnualReport with the statutory financialstatements. I also read the otherinformation contained in the Annual
Report and consider the implications formy report if I become aware of anymisstatements or materialinconsistencies with the statutoryfinancial statements.
Basis of opinionI conducted my work in accordancewith paragraphs 15-18 of Bulletin1999/6 'The auditors' statement on thesummary financial statement' issued bythe Auditing Practices Board. OpinionIn my opinion the financial statementsincluded in the Annual Report areconsistent with the statutory financialstatements of Wirral Council for theyear ended 31 March 2007.
District Auditor.Name Judith TenchSignature:
Address:Audit CommissionThe HeathRuncornCheshire WA7 4QX
Date:228 September 20079 September2006
Audit Report toMerseysidePension FundIndependent Auditors’ Report to theMembers of the Merseyside Pension Fundon the Pension Fund Annual Report
17
Development of the SchemeSince 1922 the Local Government PensionScheme has developed from a schemewhich just provided pensions for officersonly, to today’s Scheme which providespensions and lump sums for all members;spouses, civil partners and children’spensions, ill health, redundancy and deathcover. Quite clearly it is a comprehensivescheme and yet, through the co-operation of the Government, employerand employee representatives, theScheme is constantly changing andadapting to modern day needs anddemands.
Amendments were made to the LGPSregulations from 6 April 2006 to reflectchanges made by HM Revenue &
Customs to the tax treatment of pensionsand to remove the “85 year” rule onretirement before the normal retirementage of 65 with effect from 1 October2006 in order to ensure the long termsustainability of the Scheme.
Discussions are also still continuing onthe extent of transitional protection to begiven to members affected by the removalof the 85 year rule.
During the course of 2006 a majorconsultation exercise was undertakenboth nationally and locally to agree thebasis for a new Scheme to be introducedfrom 1 April 2008. The new LGPS(Benefits, Membership and Contributions)Regulations 2007 were issued in April2007 and further regulations andguidance is currently still awaited fromthe DCLG.
The Fund will be carrying out a furthermajor communication project to publicise the provisions of the newScheme in the run up to itsimplementation on 1 April 2008.
LegislationThe principal regulations were amendedduring the year by the followingstatutory instruments: -
The Local Government Pension Scheme(Amendment) Regulations 2006(Into force from 1 and 6 April and 1 October 2006) The regulations made changes linked tothe introduction of the new simplified taxregime including increasing themaximum tax free lump sum available bycommutation and introducing “flexible
SchemeAdministration
Merseyside Pension Fund operates theLocal Government Pension Scheme(LGPS), which provides for theoccupational pensions of employees,other than teachers, police officers andfire fighters, of the local authoritieswithin the Merseyside area. It alsooperates the Scheme for members ofother organisations, which have madeadmission agreements with the Fund.
A list of the participating employers isshown at Appendix A. The Scheme is apublic service pension scheme regulatedby statute through the Department forCommunities and Local Government(DCLG). It is a contributory final salaryscheme, which is contracted out of theSecond State Pension and is exemptapproved for tax purposes.
Membership 31 March 2007 31 March 2006Contributors 51,163 49,307
Pensioners 38,149 37,535
Deferred beneficiaries 22,810 20,572
Peter Mawdsley, Principal Pensions Officer
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retirement” arrangements to the Scheme.They also make provision for the abolitionof the 85 year rule from 1 October 2006,subject to further discussions ontransitional protection.
The Local Government Pension Scheme(Amendment) (No 2) Regulations 2006(Into force from 1 October 2006)The regulations extended the transitionalprotection in respect of the changes tothe 85 year rule to:
Permit all those who were activemembers before 1 October 2006 tocontinue to count membership up to 31 March 2008.
Extend full protection for post 1 April2008 membership for those whoattained age 60 and satisfied the 85year rule before 1 April 2016, ratherthan 2013.
Introduce tapered protection for thosewho retire having attained age 60 on orafter 1 April 2016 and before 1 April2020, who would have satisfied the 85year rule before the latter date.
The Local Government (Early Terminationof Employment) (DiscretionaryCompensation) Regulations 2006(Into force 29 November 2006retrospective to 1 October 2006)
The regulations revised the compensationarrangements available to localauthorities to comply with new agediscrimination legislation and introducednew lump sum compensationarrangements to replace compensatoryadded years.
The Local Government Pension Scheme(Benefits, Membership andContributions) Regulations 2007(Into force 1 April 2008)
The regulations introduce the NEW LOOKScheme from 1 April 2008 based on ahigher 1/60th accrual rate for futuremembership and introduce tieredemployee contributions and a range ofbenefit changes and improvementsincluding partners pensions.
Membership earned prior to 1 April 2008will continue to be calculated based onthe old 1/80th pension and 3/80ths lumpsum basis.
Separate regulations dealing withAdministration and TransitionalProvisions are still awaited.
Performance Targets Target Within Target %Payment of retirement benefits 7 days 94
Payment of monthly pensions 100% 100
Payment of Transfer Values 7 days 99
Provision of inward transfer quotes 10 days 97
Payment of refunds 7 days 99
Provide mis-selling costs 10 days 99
Provide valuation in divorce cases 10 days 99
Respond to members enquiries 10 days 93
(Details given in respect of 12 month period to 31 March 2007)
Service Standards CharterResults of performance against target are shown below: -
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Key Improvement AreasThe key improvement areas identifiedfor the pension administration unit areas follows: -
1. Improved efficiency throughdevelopment of informationtechnology capability and application.Scheme members are now able togain online access to their ownpension details and to perform benefitprojections, to enable them to see thevalue of their benefits through theinternet. Further development andenhancement of these facilities is totake place.
2. Enhanced communications, consultationand marketing of the benefits of theScheme to employers, employees andbeneficiaries. Further improvements tothe range of scheme literature and theFund website are planned as part of thecommunication required of the futurescheme changes as modernisationcontinues in the run up to April 2008.
3. Development of training policies andprocedures to ensure the quality of
service provision to Scheme members.Further work is underway both withinthe Fund and with partners to extendthe training opportunities availablefor scheme members, employers andelected members.
4. Efforts to increase take up of Schememembership.A major review of the currentarrangements for promotion of theScheme is underway in conjunctionwith employers, in an effort toidentify any improvements required toensure Scheme members maximisetheir pension opportunities.
Comparisons/BenchmarkingThe Fund continues to participate in theChartered Institute of Public Financeand Accountancy (CIPFA) annualbenchmarking survey.
The results of unit cost comparison forthe most recent report published(2005/2006) were as follows:
SchemeAdministration
Membership 2005/06 2004/05Merseyside Pension Fund £19.06 £19.61
CIPFA Average £22.80 £22.23Private Sector in–House £42.55 £37.81Private Sector Outsourced £32.61 £29.05
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The individual totals within the surveyshowed that the Fund had a lower costfor staff and pensions payroll than theCIPFA average, but had a higherexpenditure on Communications, whichincludes postage of relevantinformation to members’ homeaddresses.
The Fund is also continuing toparticipate in a benchmarking forumconsisting of representatives of five ofthe largest Metropolitan AdministeringAuthorities in an effort to seek out best practice.
Internal Dispute Resolution CasesSince 1 June 2004, individual employersare responsible for considering stage 1appeals against decisions made by them,with the Fund responsible forconsidering stage 1 appeals against itsown decisions and all stage 2 appeals,instead of the Department for
Communities and Local Government.During the year to 31 March 2007, therewere two new cases dealt with by thepanel of Appointed Persons responsiblefor complaints against decisions madeby the Fund which upheld the decisionsmade by the Fund.A total of 8 new cases were dealt withby the panel of Appointed Personsresponsible for considering Stage 2appeals against employer decisions.As in previous years the majority ofcases have concerned either refusal togrant ill health retirement (4) or to bringpreserved benefits into payment early onill health grounds (3). Of these appealsagainst employer decisions two ill healthretirement appeals were successful, oneappeal was withdrawn, one was stillongoing and in the remaining four casesthe employer decision was upheld.
0
1
2
3
Breakdown of Appeals against Employer Decisions4
Refused early retirementRefused deferred benefit on ill health grounds
Refused ill health retirement
21
Consulting Actuary’sStatement
22
23
SupplementaryNote
24
Appendix AEmployer MembershipCURRENT SCHEDULED BODIESAcademy of St Francis Merseyside Passenger Transport ExecutiveBirkenhead School (2002) Merseyside Police AuthorityBirkenhead Sixth Form College Merseyside Valuation and Community Charge TribunalBurton Manor Residential Home Merseyside Waste Disposal AuthorityCarmel College National Probation Service (Merseyside)Halewood Parish Council North Liverpool AcademyHugh Baird College Prescot Town CouncilKing George V College Rainford Parish CouncilKnowsley Community College Rainhill Parish CouncilKnowsley MBC Sefton MBCKnowsley Parish Council Southport CollegeLiverpool City Council St. Helens Community CollegeLiverpool Community College St. Helens MBCLiverpool John Moores University Whiston Parish CouncilMersey Waste Holdings Limited Wirral Metropolitan CollegeMerseyside Fire & Rescue Authority Wirral MBCMerseyside Passenger Transport Authority Woodchurch High School
CURRENT ADMISSION BODIES2020 Knowsley Parkman Liverpool Council for Social Aid2020 Liverpool Parkman Liverpool Hope University CollegeAge Concern - Liverpool Liverpool Housing TrustArriva North West Liverpool John Lennon Airport PLCAssociation of Police Authorities Liverpool VisionBeechwood & Ballantyne Housing Association Local Government AssociationBeechwood Educare Centre Local Government International BureauBerrybridge Housing Ltd. Mellors Catering Services LtdBirkenhead Citizens Advice Bureau Merseyside LieutenancyBirkenhead Market Services Merseyside Society for the DeafC.I.C. Drug Services Merseyside Welfare RightsCatholic Childrens’ Society Merseyside Youth AssociationCDS Housing Mott McDonald (M.I.S.)Cobalt Housing Ltd. Netherley Citizens Advice BureauCommission for Social Care Inspection North Huyton New Deal New FutureCommunity Technical Services Agency North Liverpool Citizens Advice BureauEnterprise (Liverpool Cleansing) Novas GroupEnterprise (Liverpool Grounds) Nugent CareEnterprise (Liverpool Housing) OH SolutionsEnterprise (Liverpool Highways) Ltd One Vision HousingEnterprise (St. Helens) Partners Credit UnionGeraud Markets (Liverpool) Ltd. Sefton Education Business PartnershipGlendale Managed Services Sir Robert Jones Memorial WorkshopsGlenvale Transport Ltd. South Liverpool Housing Ltd.Greater Hornby Homes Southern Neighbourhood CouncilGreater Merseyside Connexions St. Gabriel’s Community HomeGreen Apprentices Ltd Taylor Shaw Catering Ltd. (St Wilfred’s)Groundwork Trust Ltd. Taylor Shaw (New Heys School)Helena Housing The Peoples CentreHopkinson Catering (Sacred Heart School) The Port Sunlight Village TrustJarvis Workplace FM Ltd (Liverpool Schools) University of LiverpoolJarvis Workplace FM Ltd. (Wirral Schools) Upton Hall ConventKnowsley Housing Trust Vauxhall Neighbourhood CouncilLACORS/LACOTS Village Housing Association Ltd.Lairdside Communities Trust Vinci Services Ltd. (Holst FM)Lee Valley Housing Association Ltd. Vinci Services Ltd. (Lorne Stewart)Libraries North West Wavertree Citizens Advice BureauLiverpool 8 Law Centre Wirral Autistic SocietyLiverpool Association for the Disabled Wirral Council for Voluntary ServicesLiverpool Citizens Advice Bureau Wirral Partnership Homes (Building Services) Ltd.Liverpool Community Rights Wirral Partnership Homes Ltd.
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Appendix BPensions Committee Items
WIRRAL MBC PENSIONS COMMITTEE
Audit Plan 2006/07
Merseyside Special Investment Fund
Standard Life Assurance Company ProposedDemutualisation
Private Equity Three Year AllocationProgramme
Private Equity - Investment In Blackstone V
Management of European Equities
25 September 2006 Merseyside Pension Fund: Audited Accountsfor the Year Ended 31 March 2006
Audit Commission - Audit Opinion for MerseysidePension Fund
Management Representation Letter
Abatement of Pension on Re-Employment
Local Government Pension SchemeGovernance Arrangements
The LGPS (Amendment) (No 2) Regulations 2006Changes to the 85 Year Rule Funding Strategy Statement
Review of Statement of Investment Principles (SIP) Consultation on New Look Local GovernmentPension Scheme
Member Training Programme 2007
Local Government Chronicle (LGC) Awards 2006 LGPS Trustees Conference Leeds
LGPS Trustee Training
LGC Seminar Local Government Pension Scheme Annual Employers Conference
LAPFF Conference
The IIGCC European Conference; ManagingInvestments in a Changing Climate.
Interim Actuarial Review as at 31 March 2006
Admission Body Application – One VisionHousing Limited
Closure of Admission Body – Liverpool &Knowsley Family Service Unit
Closure of Admission Body – Groundwork Trust Greater Merseyside Connexions - Request forReduction in Amount of Bond Required
Review of Potential Unfunded Liabilities forAdmission Bodies
Management of European Equities:Appointment of JP Morgan Asset Management
27 November 2006 Consultation on the Local GovernmentPension Scheme
Consultation on Changes to Trivial Pensionsand AVC Contribution Arrangements
The Local Government (Early Termination ofEmployment)- (Discretionary Compensation)Regulations 2006
Proposed National Pensions Savings Scheme
Staffing Review - Pensions Investments and Operations Climate Change
LGC Pension Fund Investment Seminar
The Committee met on 5 occasions during 2006/07to discuss the following items.Reports from the Investment Monitoring WorkingParty are also considered at Committee.
27 June 2006 Merseyside Pension Fund Accounts: Year Ended 31 March 2006 Review of Scheme AVC Investment FundsOffered Investment Performance 2005 - 2006
Pensions White Paper
Early Termination of Employment DiscretionaryCompensation Regulations 2006: Consultation Draft
The LGPS (Amendment) Regulations 2006 and theDraft LGPS (Amendment) (No 2) Regulations 2006 Pension Commission - Third and Final ReportApril 2006
Representation on Committee Admission Body Application – Taylor Shaw Catering- Outsourcing Contract with Liverpool City Council– New Heys School
Admission Body Application – OH Solutions Ltd- Outsourcing Contract with Liverpool City Council –Liverpool Occupational Health ServicesPublic Sector Pension Fund Investment Conference Merseyside Community Youth Games
Administration of the Firefighters Pension Scheme
External Investment Mandates
Keel Row Blyth, Acceptance of Tender
Alternative Investments: Work of Art
Write Off of Rental Income
Representation on Outside Bodies
Alternative Investments
Debt Write Offs
Liverpool & Knowsley Family Service Unit
Sir Robert Jones Workshops
Groundwork Trust
Admission Body Application - Glendale (Liverpool) -Liverpool City Council - Parks Grounds Contract
Admission Body Application Enterprise (Liverpool)Liverpool City Council - Neighbourhood GroundsMaintenance Contract
Minutes of the Investment Monitoring Working Party
29 January 2007 Annual Audit Letter 2005-06
Pension Fund Budget 2007-2008
Pensions White Paper
The Draft Local Government Pension Scheme -(Benefits, Membership And Contributions)Regulations 2007
Treasury Management Plan and Strategy 2007-08
Draft Local Government Pension SchemeAdministration Regulations 2007
Draft Local Government Pension Scheme(Amendment) Regulations 2007
Climate Change Conference Held October 2006 -Summary of Costs
26 March 2007 Finance Department Plan
NAPF Review of Compliance With Myners Principles
Local Government Pension Scheme Reform The Draft Local Government Pension Scheme(Amendment) (No 2) Regulations 2007
Authorised Signatories For Investments
Pension Fund Investment Accounting System
Replacement of Server For Pensions 4 - ElectronicDocument Workflow System Members Training 2007
CIPFA Annual Conference
National Association of Pension Funds Conference
United Nations Principles for ResponsibleInvestment (UNPRI)
Investment Monitoring Working Party Minutes - 28 February 2007
Management of U.S. Equities
3 Admission Body Applications - Taylor ShawCatering - Outsourcing Contracts with SeftonBorough Council
INVESTMENT MONITORINGWORKING PARTYMeetings were held on:- 31 May 2006,12 September 2006, 22 November 2006 and 28 February 2007.
Appendix CInformation ContactsMERSEYSIDE PENSION FUNDInternet Website Address: www.merseysidepensionfund.org.ukArea Name Telephone number
Head of Pension Fund Peter Wallach 0151 242 1309
Principal Pension Officer Peter Mawdsley 0151 242 1333
Accounts Gerard Moore 0151 242 1307
Investments Leyland Otter 0151 242 1316
Members Services Margaret Rourke 0151 242 1369
Benefits/Payroll Kevin Greenough 0151 242 1354
Operations (IT/Communications) Guy Hayton 0151 242 1361
RESOLUTION OF DISPUTESEmployer Decisions Principal Pensions Officer 0151 242 1333
Fund Decisions Director of Finance 0151 666 3056
SCHEME EMPLOYERS CONTACTSArriva North West Angela Irwin 0151 522 2807
Merseyside Fire & Rescue Service Helen Jones 0151 296 4219
Knowsley MBC Mary McDonald 0151 443 4177
Liverpool City Council Vanessa Duncan 0151 225 4128
Liverpool John Moores University Jayne Brown 0151 231 3401
Merseytravel Linda Gedman 0151 330 1191
National Probation Service (Merseyside) Kevin Stamper 0151 920 9201
Merseyside Police Authority Joan Dullahan 0151 777 8252
Sefton MBC Mike Nelson 0151 934 4127
St. Helens MBC Jane Wilson 01744 456038
Waste Disposal Authority Paula Pocock 0151 255 1444
Wirral BC Helen Watkins 0151 666 3524
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MPF
R&
A/60
0/09
.07
Merseyside Pension Fund
PO Box 120, Castle Chambers, 43 Castle Street, Liverpool L69 2NW.
Email: [email protected] www.merseysidepensionfund.org.uk