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The City of Liverpool

slL Metrooolitan ?6T eorougtr of wirral

FEn*rfiffiIrfiifit ii


CHAIRMAN'SINTRODUCTION

2

MANAGEMENT STRUCTURE

4

INVESTMENTREPORT

5

FINANCIALSTATEMENTS

9

BILITIES OF RESPONSI STATEMENT

14

AUDITREPORT

15

S C H E MEA D MINISTRATION

16

NG ACTUARY'SSTATEMENT CONSULTI

20

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...

B FUNDBACKGROUND APPENDIX

22

ITEMS COMMITTEE APPENDIX C PENSIONS

23

D INFORMATION CONTACTS APPENDIX

24


As fhenewChairman of thePensions I am Committee, pleased to present theMerseyside Pension Fund's Annual Report fortheyearended31March2002.Theaimof the reportis to highlight theimportanf issuesaffecting theFund overthelasttwelvemonthsas wellasproviding more general information regarding thepension scheme.

CouncillorGeoffreyWatt

,{.tl'W dl

The OverallAim of the Fund The principalaim of the Fund is to providesecurepensions,effectively and efficientlyadministered at the lowestcost tc the contributing employers.This requiresthe Fundto strikea balancebetweenachievingthe most from its investments and the needto exerciseprudenceand cautionin considering its futureliabilityprofile.The PensionsCommitteereviews the Fund'sinvestments, at regularintervals,with the helpof its variousprofessional advisers,to ensurethat they remair: appropriate.

Investment Per,rormance of the Fund The period under review overshadowedby the events of 'l 1 September,has been a difficultone for overallinvestmentreturns.The averagereturnof all LocalAuthority pensionfunds for the year ended 31 March2002 was -0.5%.This poor returnis an i m p r o v e m e not n t h e f i g u r e f o r t h e p r e v i o u sy e a r , ( - 6 . 3 % ) ,b u t t a k e s t h e t a l l y o f negativereturnsto 6 over the last 30 years.Againstthis background,Merseyside P e n s i o nF u n d g e n e r a t e da r e t u r no I - 1 1 % , m a r g i n a l l yu n d e r p e r f o r m i nigt s p e e r group. In fact the Fund ranked53rd percentileout of the 93 Local Authorityfunds comprisingthe WM Local Authoritypensionfund universe.Despiteits performance overthe past year,the Fund is ranked8th and 25th percentilein the aforementioned peer group over 3 and 5 years respectively. The Fundalso marginallyunderperformed its bespokestrategicbenchmarkindexlast year,which produceda returnof -0.7%.

, . . t hFeu n di s ranked 8thand 25thpercentile., over3andSyear: respectively.

Againstthis backgroundof deteriorating economicconditionsand increasedtensions in the MiddleEast, the world'smajor stock marketsgeneratednegativeinvestment returnsfor the secondyear in succession.This adverselyaffectedthe Fund'sperformancein the UK (-2.2%),North America(-6.6%),Europe(-6.2Vo), and Japan(-22.1%).The Fund'sprivateequityportfolioalso experienceda negative (-8.9%) return as a resultof the unfavourable macroeconomic climate.However, the benefitsof a well diversified mix of assetswas clearlydemonstratedwith investmentsin Far Easternand EmergingMarkets,Property,Bonds and Cash generatingpositiveinvestmentreturnsand therebymitigating,to some extent,the losses experiencedin the major markets. Notwithstanding two yearsof successivenegativereturns,it is pleasingto reportthat the ten-yearreturnof the Fund at per annumcompoundremainssignificantly 11.2o/o aheadof bothaverageearningsand inflation.


ActuarialValuation The Fund'striennialactuarialreview,basedon the figuresas at 31 March2001, has been completedand employershave been notifiedof the results.Although was goodwhen comparedwith otherpensionfunds,the investmentperformance returnswere lower than in previousyears but the Fund has still been able to Rate maintainits fundinglevelat 94%.An increasein the CommonContribution f r o m ' 10 . 6 % t o 1 1 . 5 %w a s r e o u i r e dw h i c h i n c l u d e ss o m e a l l o w a n c et o t a k e account of improvedmortalitystatistics.The Fund continuesto benefitfrom in ill heathretirementlevelswhich had a much reducedimpacton improvements ratesat this valuation. employercontribution

with FundMembers Communication

'

Fund ...the

to benefit continues fromimorovements retirement inillhealth levels...

46,000with The currentactivemembershipof the Fund standsat approximately just over36,000in receiptof pensions. The fifth annual employers'conferencewas again well attendedin November 2001 and featuredspeakersfrom the Departmentfor Transport,LocalGovernmentand the Regions,the Fund'sActuary Mercer Human ResourceConsultantsand officers from the Fund. Topicscovered includedupdates on the latest Exerciseof the Scheme. lll HealthRetirementReviewand the Stocktaking

PastChangesand the Future Againstthe The Statementof InvestmentPrincipleshas been modifiedto reflectthe Myner'sReportrecommendations. given arrangements, fund management to has been Value much consideration exercise, backgroundof the Best i n c l u d i n ge x t e r n a l i s a t i oonf a m a t e r i a lp r o p o r t i o no f t h e F u n d .T h e o p p o r t u n i t yh a s a l s o b e e n t a k e n t o l a u n c ha securitieslendingprogrammewhichis generatingadditionalrevenuefor the Fund. team. lt has continuedto deal with the The past year has also been a challengingone for the pensionadministration admissionof privatecontractorsfollowingthe contractingout of servicesas a resultof Best Valueand other initiatives.lt has also providedinformationand supportto membersaffectedby the continuingproblemswith the EquitableLife AssuranceSocietyWith ProfitsFund.Duringthe yeartwo seminarswere heldto assistmembersin decidingwhetheror not to participatein a bulk surrenderexercisewhich enabled some 350 members to transferout on terms more The Fund will keep membersinformedof any further oreferentialthan the normal conditionsin force for individuals. problems at EquitableLife. in connectionwith the nationalinquiriesintothe developments The continuedsuccessof MPF dependson the combinedeffortsof all concernedwith the Fund.I would liketo thank staff for their considerable the Committee,financialadvisors,and all MPF's investmentand pensionsadministration and Alan Borrows,(Senior work. Particularthanksare due to Simon Edwards,(Head of Pensionsand Investments), fnvestmentManager)who left the Fund at the end of March 2002to form a separateasset managementcompany.


1 P E N S I O NF U N DM A N A G E M E NC TO M M I T T E E VotingMembers Chairman: CllrWDNock*

Wirral * denotesMembersof the Investment AdvisorvPanel

Vice Chairman: CllrlOCoates* CllrG Davies C l l rJ H a l l C l l rJ H a l e CllrT Harney CllrA Jones Cllr D T Knowles CIlrR K Moon* CllrGCJWatt*

Wirral

Wirral Wirral Wirral Wirral . Wirral Wirral Wirral Wirral

Cllr L T Byrom*

Sefton

CllrJ KeightOBE

Knowsley

Cllr F L Ruse

Liverpool

CllrA SmithMr T Jones*(LJMU)

St Helens Nondistrictemployer representative

EmployeeRepresentatives Mr A Cusack(TGWU) Mr D Jenkins(Unison)

Officersof the Fund lan Coleman

Directorof Finance

PeterMawdsley

PrincipalPensionsOfficer

Simon Edwards

Headof Pensions & lnvestments

J o h a n n aM i l l e r

BoroughSolicitor& Secretary

2 ADVISERSTO INVESTMENTADVISORYPANEL Directorof Finance

J P MorganFlemingAssetManagement

Head of Pensions& Investments

MercerHR Consulting

3 OTHERS Auditor

DistrictAudit

Bankers

The RoyalBank of Scotlandplc

ConsultingActuary

MercerHR Consulting

Custodianof Assets

The Bank of New York

EthicalAdvisers

Pensionsand InvestmentResearchConsultantsLtd

PropertyAdvisers

EdmundKirby SavillsFund Management

PerfomanceMeasurement

The WM Company

Solicitor

WirralMBC

AdditionalVoluntaryContributions Providers

EquitableLife AssuranceSociety StandardLife


Management of the Fund The overallresponsibilityfor the managementof the Fund restswith the PensionsCommittee,now chairedby Councillor GeoffreyWatt, (who replacedCouncillorBill Nock in May 2002). ln 2001102the Committeecomprisedof Councillors (2), LiberalDemocrats(2), representatives from the Wirral Labourgroup (6), Conservatives of the four other District Authorities(Liverpool,St. Helens,Knowsleyand Sefton),an independentrepresentative from the other employers, (2), the Directorof Financeand other officersof the Fund. The Committeemeets at least employeerepresentatives threetimes a year to reviewthe administrative and investmentissuesaffectingthe Fund.The Committeealso ensures that the managementof the Fund'sassetsfalls within the requirementsof the Local GovernmentPensionScheme (Managementand Investmentof Funds)Regulations1998.These regulationsrequirethe Fund to have regardto both diversificationand suitabilityof investmentsand stipulatethe requirementto take properadvicewhen makinginvestment decisions. The more detailedresponsibility for investmentstrategyand assetallocationof the Fund'sportfoliosis delegatedto the InvestmentAdvisory Panel. This Panel meets quarterly to review investmentstrategy and to receive reports on investmentactivity dndertakenin the previous period. The Panel comprises representativesfrom the Pensions Committee,an independent tacticalassetallocationadvisor- J.P MorganFlemingAsset Management- and membersof the in-houseinvestment team. Followingthe departurefrom the Fund of Simon Edwards(Head of Pensionsand Investments)and Alan Borrows (SeniorInvestmentManager)to set up a new asset managementcompany,assetsotherthan thoserelatingto property, venturefunds and cash,havebeen placedwith transitional managers(Legaland GenerallnvestmentManagementLtd.) on a care and maintenancebasis. Beyondtransition,it is anticipatedthat part of the UK and Europeanportfolios continueto be managed internallywith global equitiesand bonds managedexternally.Internalfund managerswill continueto reportto the Directorof FinancethroughregularInvestmentOperatingCommitteemeetingsand followlaid Externalfund managerswill be givenspecificbenchmarksagainstwhich performance will down complianceprocedures. quarterly be measuredand monitored at meetingsof the InvestmentAdvisoryPanel. The Fund'spropertyportfoliois managedby SavillsFund Managementand EdmundKirby,who both reportedto the Head of Pensionsand Investments. The dayto-daymanagementof the propertiesis handledby lnsigniaRichardEllis, with an independent annualvaluationof the portfoliobeingcarriedout by ColliersErdmanLewis.

(MarketValueat 31 March) PortfolioDistribution

F i g u r e1 . -50 aau

2002 2001


Investment Strategy The Fund is managedwithinthe rulesand guidelinesset out in the'1998Regulations (whichconsolidated and simplified previousregulations). Theseregulations set parametersfor the typesand limitsthat the Fundcan investin certainasset ctasses. The investmentstrategyof the Fund,developedby the Investment AdvisoryPanel,has been to maximisereturnsover the mediumto long term whilst havingregardto its liabilitycommitments.Early in 1999 an asset i liabilitystudy was carriedout by the Fund'sconsultingactuary.This studyresultedin some changesto the assetbenchmarkfor the Fund, movingaway from the typicallocal authorityasset structurepreviouslyadopted,to a more bespokestructurebetter suitedto matchingthe Fund'smaturityand liabilityprofile. The requirement to maintaina balancedportfolioof assets remains of paramountimportance.At the year end the asset / liabilityrelationshipwas reviewedby Mercer HR Consultingand the recommendations implemented afterthe yearend.

CorporateGovernance MerseysidePension'Fund supportsthe principlesof corporategovernanceoutlinedin the 'combinedcode' established by the Cadbury,Greenburyand HampelCommittees.In orderto promotebest practice,the Fundvotesat all AGMs and EGMs of U.K. companiesin which it has holdings.The Fund receivesdetailedadvice and recommendations from Pensionsand InvestmentResearchConsultantsLtd. to supportmanagersin makingvotingdecisionsand is an active memberof the LocalAuthorityPensionFund Forum.This policymeetsthe principleoutlinedin the Myner'sreporton institutional investmenton shareholderactivismand is subjectto periodicreviewto ensurethat the Fund respondsto developments in best practice. The Fund is substantially compliantwith the Myner'sprincipleson institutional investment.Where not fully compliant proceduresare underreview.Furtherinformationis containedin the revisedStatementof InvestmentPrincioleswhich was approvedby the PensionsCommitteeon 17 Septemberfollowingconsultation with the Fund'sadvisers.The current statementis availablefrom the Fund officeat PO Box'120,CastleChambers,43CastleStreet,LiverpoolL69 2NW and covers: Eifectir",e Deiision [,'lakiirg Ciear Oi:j*ctii.,es Fc'cr-is ln .A.ssetA.iiacation Ixpe ri Acjvice

lxplicit i\4andaies Aciivism Ai:proni'iats Benchrnarks

Performa nce l\leasurement Transparency Reguiar" Reportrng

The policy will be reviewedeach year to ensure that the Fund remainsin linewith best practice.The Fund continuesto investin an ethicallymanagedfund, as well as in localcompaniesand businessinitiatives.

$trategic,Asset Structure, Strategic Senchmark Benchmark Toleranees

F u n dC * m p * s i t ; * i r

UKfquiiies

T h e F u n d ' s c o m p o s i t i o ni s l a r g e l yd i c t a t e db y i t s bespokestrategicbenchmarkwhich is determinedby the Fund's actuary.This strategicbenchmarkis the main gaugeagainstwhich investmentperformanceis measuredand is reviewedperiodicallyto ensure it continuesto meetthe liabilityprofileof the Fund. The Fund's tactical asset allocator is permittedto adjustihe Fund'sexposureto individualassetclasses within predeterminedtolerances.Such adjustments are executedquarterly, when required. The Fund'sactual compositionat the beginningand end of the reportingperiodis depictedin Figure1.

,/o

Tr% 44

Equiiies Svereeas North America Japan Europe Pacific Other Fixedintere*! UKGilts Overseas Bonds UKlndexLinked Cash Other Frop*rty Ventu:'e eapit*l TOTAL

39.4-{' 17-25 4-8

^

l-o

6-1 0 0-4

8 2 I Aq

?*"2* 0-4 10-18

z

14 5 0

J-/

I

0-2 $-1 *

3

4-4

1**


The Fund'snet investment in individual assetclassesoverthe periodis depictedin Figure2.

Net Investment by AssetClassin yearended31 March2002

F i g u r e2 .

UKEquities USEquities European Equities Equities Japanese FarEastEquities Emerging MarketEquities

\ Gilts overseas.Bonds lndexLinked Cash Venture Capital Property

LargestUK EquityHoldings as at 31 March2002 Company

MarketValue '000 f

LargestOverseas EquityHoldings as at 31 March2002 UKEquity

Company

Country

MarketValue

t'c 00

% 1 TotalFinaElf

France

9,508

2 Novartis

Switzerland

6,629

Germany France France

6,541

'100,000

7.7

2 GlaxoSmithkline

93,451

7.2

3 Vodafone

59,036

4.6

4 SocieteGenerale

4 ShellTransport

52,300

4.0

5 Aventis

5 HSBC

49j26

3.8

6 RB Scotland

48,140

3.7

LargestPropertyHoldings as at 31 March2002

7 Barclays

35,805

2.8

Proilert'l

8 Astra Zeneca

34,870

2.7

9 LloydsTSB

33,526

2.6

26,391

2.0

532.645

41.1

1 BP Amoco

10 Diageo

T l - r et o p t e n h o l d i n g sr e p r e s e n4t4t - 1t 0/ /o of the totaiUK EquiiyPorifolic

BMW

6,416 6,308

lrlarketValue T'CilO

z CunardBuilding,Liverpool

20,000 18,400

3 Middlemarch,Coventry

15,000

4 Horns Road, llford

12,900

1 TunsgateSquare,Guildford

55/57 High Street,Windsor

12,500


Reviewof InvestmentPerformance Duringthe yearto 31 March2002the Fund'sreturnwas -1 .1%.This is marginallybelowthat of the Fund'sbespoke strategicbenchmarkreturnof -0.7%. Tacticalassetallocationwas responsible for the smallshortfallin the Fund'sreturn relativeto its benchmark.Thougha returnof -1 .1% is disappointing in absoluteterms,the Fundcontinuesto rankin the too25% of LocalAuthoritvreturnsoverboth3 and 5 vears.

ComparativeReturnsfor the Fund 1 Year

5 Years 10 Years

%

Merseyside PensionFund LocalAuthorityUniverse \ lnflation AverageEarnings

To%

- 4t4. I

-0.5 1.3 3.5

7.6 7.1 z.J

4.5

11.2 '10.9 2.5 4.1

Despifetherecentpoorinvestment enviranment returnwell theFundhasachieved an investment in excessofthe rateof bothinflationand growthoverboth5 and 10years. earnings

The backgroundfor investmentmarketsoverthe yearwas unfavourable, with equitymarketsbeinghinderedby concerns overthe weakeningworldeconomicoutlook,reducedprospectsfor corporateprofits,accountingscandalsand terrorism. Returnsin all majorequitymarketswere negative, with severefallsoccurringin the Technology and Insurancesectors. The Fundsubscribesto the WM Companyperformance measurement service,whichenablescomparisonof the Fund's investmentreturnwiththat of otherLocalAuthorltypensionfunds.In addition,the Fund'sperformance withinindividual assetclassesis measuredagainstrelevantindexbenchmarksas depictedin Figure3. TotalReturnby AssetClassin yearended31 March2002

F i g u r e3 .

* Benchmark C Fund

C *^-S """"$ "" -""t ^eo* .s-

-4

s

t^t .ss' \ "s-"s-"-ss"s-sso -"S"-".$

^.-& as'

The Japaneseequitymarketperformedvery poorlyoverthe yearfalling20.8%.The averageLocalAuthorityVenture Capitalreturnwas also negative,finishingthe year 14.7o/o down.Conversely the Far Easternequitymarketperformed well returning12.8%.Propertyis also distinguished, deliveringa benchmarkreturnof 7.3% Since31 March2002therehavebeensignificant fallsin equitymarketsthat haveinevitablyreducedthe valueof the Fund.However, the Fund investsfor the long{ermhavingregardfor its liabilityprofile,in the knowledgethat equity marketsexhibit volatility.

B


FUNDACCOUNT For the year ended 31 March 2002

Note

2002

2041

â‚Ź'000

e'000

Contributionsand Benefits

131,204

Contributionsreceivable Transfersin

Benefitspayable Leavers AdministrationExpenses

117,641

18,517

18,249

149,721

135,890

149,027 16,449

151,632

3,324

11,369 3,343

168.800

166,344

-19,079

-30.454

82,979 -120,066

85,835 -207,591

Net returnon Investments

-81 -375 -37,543

867 -360 -121,249

Net changein the Fundduringthe year

-56,622

-151,703

Net Assets of Fund at start of year

3,022,306

3,174,009

Net Assets of Fund at end of year

2,965,684

3,022,306

Net withdrawals from dealingswith members Return on lnvestments Investmentincome Changein marketvalue of investments Exchange lnvestmentManagementExpenses

NET ASSETSSTATEMENT AS AT 31 MARCH2AO2 2002

2001

f'000

t'000

Fixed InterestSecurities

164,854

157,986

Index LinkedSecurities

334,917

325,702 37,434 1,778,978

Note Investments

Other lnvestments Equities Managedor UnitisedFunds Properties Short Term Deposits AVC Investments

OtherAssetsand Liabilities Net Assets of the Fund as at 31 March 2002

66,574 1,602,897 359,209 268,2O0 138,800

317,116 242,850 '126,800

9,029 2,9M,490

2,995,820

21,204

26,486

2,965,684

8,954

3,022,306

g


NOTESTO THE ACCOUNTS 1 GENERAL Althoughthe Scheme is exempt from the requirementsof the OccupationalPension Schemes(Requirementto obtainAuditedAccountsand a Statementfrom the Auditor) Regulations1996, the financialstatementshave been preparedin accordancewith these regulationsand with the guidelinesset out in the Statementof RecommendedPractice, FinancialReportsof PensionSchemes. The financial statements record the transactionsof the Fund during the year and summarisethe net assets at the disposalof the managersat the end of the financialyear. They do not take accountof obligationsto pay pensionsand benefitswhich fall due after the end of the Fund year.The actuarialpositionof the Fund, which does take accountof such obligations,is dealt with in the statementby the Actuary on page 20 and these financialstatementsshouldbe readin coniunction with it. JohnParry FinancialController

2 A C C O U T { T I NPGO L I C I E S Basisof preparation The financialstatementsare preparedin accordancewith applicableUK accountingstandardsand with the guidelinesset out in the Statementof Recommended Practice,FinancialReportsof PensionSchemes. V a l u a t i o no f i n v e s t m e n t s Investmentsare stated at market value. For this purpose unlisted investmentsare included at manager's valuationand propertiesat professionalvaluation.For listed securitiesthe stock exchangevalues are used. Propertieshavebeen valuedindependentlyby ColliersErdmanLewis,CharteredSurveyorsas at 31 March2002. T r a n s l a t i o no f f o r e i g nc u r r e n c i e s Assets and liabilitiesin foreign currenciesare translated into sterling at rates ruling at the year end. Foreign income receivedduring the year is translatedat the rate ruling at the date of receipt.All resultingexchange adjustmentsare includedin the revenueaccount. l n v e s t m e n ti n c o m e Intereston flxed intereststocksand on short term deoositshas been accountedfor on an accrualsbasis.lncome from equitiesis accountedfor when the relatedinvestmentis quoted"ex-dividend". R e n t a li n c o m e Rental income from propertiesis taken into account by referenceto the periodsto which the rents relate and is shown net of relatedexoenses. C o n t r i b u t i o n sa n d b e n e f i t s Contributions, excludingadditionalvoluntarycontributions,are accountedfor on an accrualsbasis. Benefits payablerepresentthe benefitspaid duringthe financialyear. Transfersto other schemes Transferpaymentsrelateto those early leaverswhose transfershave been paid duringthe year.

10


2002 â‚Ź'000

2001 t'000

CONTRIBUTIONSRECEIVABLE Employers Normal

83,033

72,748

Earlyretirement funding

9,584

8,065

37,000 1,597

35,298

131,204

117,641

22,000 100,376

19,662 90,537

8,828 131,204

7,442 11?,641

130,663

123,866

15,164 2,299 901

24,794

Employees Normal AdditionalVoluntaryContributions

relatingto:

{dministeringAuthority ScheduledBodies AdmissionBodies

1,530

BENEFITSPAYABLE Pensions Lumpsum retiringallowances Lumpsum deathbenefits Relatingto AVCs

149,027 relatingto:

AdministeringAuthority ScheduledBodies AdmissionBodies

19,696 114,302 16,029 149.027

2,593 379

-rsr,azz

17,276 119,065 15,291 151,632

TO AND ON ACCOUNTOF LEAVERS PAYMENTS Refundsto membersleavingservice Paymentfor membersjoiningstate scheme lndividualtransfersto other schemes Relatingto AVCs

6

I N V E S T M E NITN C O M E Fixedinterest securities lndexLinkedsecurities Dividendsfrom equities,managedand unitisedfunds Net rentsfrom properties Intereston deposits Other

382 230 15,651 186

317 241 '10,384 427

16,449

11369

11,157 5,322

12,144

42,720 17,868

43,515

5,865 47

7,979

82,979

6,821 15,376 0

85,835

As at 31 March 2002, â‚Ź57 millionof stock was on loan to marketmakers,and this was coveredby collateral(including an appropriatemargin)comprisingcashand non cashtotallingf58 million.

14 It


7 INVESTMENTS MarketValue 31.3.01 f '000 Fixed lnterestSecurities lndexLinkedSecurities Other Equities Managed& UnitisedFunds Properties Short Term Deposits AVC Investments

157,986 325,702 37,434 1,778978 317,116 242,850 126,800 8,954 2.995.820

Purchases at cost '000 f

Sale Proceeds t'000

16,354 15,138 32,833 115,572 19,217 43,939 12,000 1,633 256.686

6,844 10,251 0 11 6 , 0 6 3 29,918 23,793 0 1,091 187,960

Changein Marketvalue t'000

-2,642 4,328 -3,693 -175,590 52,794 5,204 0 -467 -120,066

MarketValue 31.3.02 f'000 164,854 334,917 66,574 1,602,897 359,209 268,200 138,800 9,029 2,944,480

*Note:The changein marketvalueof investments duringthe year comprisesall realisedand unrealisedappreciationand depreciation.

2092 f'000 FixedInterestSecuritiesUK FixedInterest UK CorporateBonds OverseasFixed Interest

2a t'00c 80,56-1

75,675 7,248 81,931 164,854

I q7 oAa

334,9't7

325,702

1,123,697 479,200 1,602,897

1,159,152 6't9,82â‚Ź

n 6aF

68,826

*Otherthan CorporateBonds,all are publicsectorsecurities IndexLinked$ecuriiies Equities UK Quoted OverseasQuoted M a n a g e da* n d U n i t i s e dF u n d s UK managedfunds Overseasmanagedfunds PropertyUnit trusts

Ather lnvestments .UnlistedSecurities(mainlyventurecapitalinvestments) are includedin ManagedFundsat a marketvalueof t93,148,382(2001- t1 10,805,000). UK properties Freehold Leasehold

Qhnri

lorm

l.'}onnqitq

4 77AA7F

4o.1 7A-

251,251 93,556 14,402

106,79-

359,209

31:,11e

66,574

37,43!

217,410 50,790 268,200

208,30:

138.800

126,8C:

. 1C q ? F

'24

Eq.'

242,854

AdditicnalVolun{ar_v ConiribuiicnsInvestments The Committeeholdassetsinvestedseparatelyfrom the main Fund.The Schemeprovidersare EquitableLifeand Standa': Life. Membersparticipatingin this arrangementeach receivean annual statementconfirmingthe amounts held on the' are as follows: accountand the movementsin the year.The aggregateamountsof AVC investments

EquitableLife StandardLife 1a I L

2GS2 f'000

t'0c:

7,204 1,825 9,029

8,9v a,gs.


CURRENTASSETSAND LIABILITIES 2002

2001

â‚Ź'000

f'000

Contributions due

11,861

10,048

Accruedand outstandinginvestmentincome

11,757

12,857

Assets

0

Due from stockbrokers

2,894

Cash at Bank

1,647

3,386

Sundries

3,710

2,874

28,975

32,059

Liabilities Due to stockbrokers Transfervalues payable Provisions Miscellaneous

TotalOtherAssetsand Liabilities

I

1,92O 1,232

444

400

398

4,219

4,731

7,771

5,573

21,204

26,486

0

COMMITMENTS Commitmentsfor investmentsamountedto t51,520,000at 3'1March 2002.

10

RELATEDPARTYTRANSACTIONS Administrationcosts includechargesby Wirral MBC in providingservicesin its role as administering authorityto the Fund, which amountto t2,322,000 (2001 t2,243,000).Such charges principallyrelate to staffingrequiredto maintainthe pensionservice.A specificdeclarationhas been obtainedfrom principal officersand PensionsCommitteemembersregardingtransactionswith such personsor their related parties,No declarablerelatedparty transactionshave been reportedunderthis procedure.

11

VALUES SUMMARYOF MANAGER'SPORTFOLIO VALUESAT 31 MARCH2002 (excludingAVC Assets) fm

%

ExternallyManaged Phillips& Drew

21

0.8

LombardOdier

20

0.7 1.5

41 InternallyManaged

2,894

2,935

98.5 100.0

13


The Authority's Responsibilities The Councilas Administering Authorityof the MerseysidePensionFundis required: '=

To make arrangementsfor the properadministrationof the financialaffairsof the Fund and to secure that ore :' its officershas the responsibilityfor the administrationof those affairs.In this authority,that officer is the Dire::,' of Finance.

:.., To managethe affairsof the Fund to secureeconomic,efficientuse of resourcesand safeguardits assets.

The Directorof Finance'sResDonsibilities The Directorof Financeis responsiblefor the preparationof the Fund's Stateme-: , Accountswhich, in terms of the Charteredlnstituteof PublicFinanceand Accoun=-'.. Code of Practiceon Local AuthorityAccountingin Great Britain(the Code), is requre: ' presentfairlythefinancial positionof the Fund atthe accountingdate and its incomea-,: expenditurefor the year ended 31 March2002. In preparingthis statementof accounts,the Directorof Financehas: ,:' Selectedsuitableaccountingpoliciesand then appliedthem consistently lanColeman Directorof Finance

:'.

Madejudgementsand estimatesthat were reasonableand prudent

,, Compliedwith the Code The Directorof Financehas also: ,,': Kept properaccountingrecordswhich were up to date :'. Takenreasonablesteps for the preventionand detectionof fraud and other irregularities

The Directorof Finance'sCertificate I certify that the Statement of Accounts presents fairly the financial position of the Fund at 31 March 2002 a'': incomeand expenditure for the yearthenended.

Directorof Finance 8 October2002

t4

,


I have completedthe audit of the Statementof Accountsof the MerseysidePensionFund on pages 9 to 13 which have been preparedin accordancewith the accountingpoliciesapplicableto local authoritiesas set out on page 10.

RespectiveResponsibilities of the Directorof Financeand Auditors As describedon page 14, the Directorof Financeis responsiblefor the preparationof the Statementof Accounts.lt is my responsibilityto form an independentopinion,based on my audit, on that Statementand to report my opinion thereon.

Basisof Opinion I carried out my audit in accordancewith the Audit CommissionAct 1998 and the Code of Audit Practiceissued by the AuditCommission, whichrequirescompliancewith relevantauditingstandards. My audit includedex)mination,on a test basis,of evidencerelevantto the amountsand disclosurein the Statementof Accounts.lt also includedan assessmentof the significantestimatesand judgementsmade by the Fund in the preparationof the Statementof Accounts and of whether the accountingpoliciesare appropriateto the Fund's circumstances,consistentlyappliedand adequatelydisclosed. I plannedand performedthe audit so as to obtain all the informationand explanationswhich I considerednecessaryin order to provideme with sufficientevidenceto give reasonableassurancethat the Statementof Accounts is free from materialmisstatement, whethercausedby fraudor other irregularity or error.In formingmy opinionI also evaluatedthe overalladequacyof the presentationof informationin the Statementof Accounts.

Opinion In my opinion the Statementof Accounts presentsfairly the financialtransactionsof the Fund for the year ended 31 March 2002, and of the amount and dispositionat that date of its assets and liabilities.other than liabilitiesto oav pensionsand benefitsafter the end of the schemeyear:

uL* @ //

ClivePortman DistrictAuditor

/

8 October2002

15


The MerseysidePensionFund operatesthe Local GovernmentPensionSchemewhicprovidesfor the occupationalpensionsof employees,other than teachers,policeofficers and fire fighters,of the localauthoritieswithinthe Merseysidearea. lt also operatesthe Schemefor membersof other organisationswhich have made admissionagreements with the Fund. employersis shownat AppendixA. The Schemeis a publicservice A list of participating pensionscheme regulatedby statutethroughthe Office of the Deputy Prime Ministe' (ODPM).lt is a contributoryfinal salary schemewhich is contractedout of the Seconc State Pensionand is exemptapprovedfor tax purposes. PeterMawdsley PrincipalPensions0fflcer

of the Scheme Development Since 1922 the Local GovernmentPensionScheme has developedfrom a schemewhich just providedpensionsfc' officersonly,to today's Scheme which providespensionsand lump sums for all members,spouses and childrens schemeand yet, throughthe ccpensions,ill health,redundancyand death cover.Quite clearlyit is a comprehensive the Schemeis constantlychangingand adaptin; employerand employeerepresentatives, operationof the Government, to modernday needsand demands. The current regulationsintroducedfrom 1 April 1998 are presentlythe subject of a stocktakingexercise by tl'e Governmentdepartment,the ODPM. responsible

to

Membership

3'1March2002

Contributors

46,674

45,240

Pensioners

36,287

35,844

Deferredbeneficiaries

14,709

13,101

I


Legislation were amendedduringthe year by the followingstatutoryinstruments:The principalregulations 200'1 The LocalGovernmentPensionScheme(Amendment)Regulations ' 1 ( l n t of o r c e1 M a y 2 0 0 1e x c e p tR e g u l a t i o1n7 ( f ) S e p t e m b e2r 0 0 1 ) 2001 Regulations The LocalGovernmentPensionScheme(HM Chief Inspectorof Schoolsin England)(Transfers) ( l n t of o r c e3 1 A u g u s t2 0 0 1 ) T h e L o c a lG o v e r n m e nPt e n s i o ns c h e m e( A m e n d m e nNt o 2 ) R e g u l a t i o n2s0 0 1 ( l n t of o r c e1 3 N o v e m b e2r 0 0 1e x c e p tR e g u l a t i o6n( b )1 A p r i l2 0 0 2 ) t ) e g u l a t i o n2s0 0 2 T h e L o c a lG o v e r n m e nPt e n s i o nS c h e m e( A m e n d m e n R (lntoforce6 March2002) t ) e g u l a t i o n2s0 0 2 T h e L o c a lG o v e r n m e npte n s i o nS c h e m e( M a n a g e m e natn d I n v e s t m e notf F u n c l s()A m e n d m e n R ( l n t of o r c e9 A u g u s t2 0 0 2 ) Furtherinformationon the contentand effectsof these changesis availableon requestfrom the Fund and copiescan be accessedvia the Fundwebsite.

'=:jiffil,'i,1, ,,.11.

CunardBuilding,Liverpool

ta

it


Controlof EarlyRetirement Costs The Fund is continuingto monitorthe costs of non-illhealthearly retirementsand to requireadditionalcontributionsfrom those employerswho exceedtheir agreed capitalallowance.

ServiceStandardsCharter Resultsof performancein respectof the 12 month periodto 31 March2002 againsttargetare shown below:Performance Targets

Target

WithinTargetPerformance%

1

Paymentof retirementbenefits

7 days

93

2

Paymentof monthlypensions

100Yo

100

3

Paymentof trans%rvalues

7 days

97

4

quotes Provisionof inward-transfer

10 days

on

5

Paymentof refunds

7 days

95

6

Providemis-sellingcosts

10 days

90

7

Providevaluationin divorcecases

'10days

96

8

Respondto members'enquiries

10days

89

Key lmprovement Areas The key improvement areasidentifiedfor the pensionadministration unitfor the comingyearare as follows:1 lmprovedefficiencythroughdevelopmentof informationtechnologycapabilityand application. 2

Enhancedcommunications, consultation and marketingof the benefitsof the Schemeto employers,employeesand beneficiaries.

3

Developmentof trainingpoliciesand proceduresto ensurethe qualityof service provisionto Schememembers.

Consultation It is intendedto extendthe existingconsultation with all stakeholders, includingpensionersand deferredbeneficiaries in additionto the surveyspreviouslyundertakenin the Fund Newsletter. Discussions are continuingwith employersto reviewthe operationof the ServiceStandardsCharterbetweenthe Fund and employers.

Comparisons/Benchmarkinq The Fund participated in two majorbenchmarking surveysin 200012001, whoseresultswere publishedin 2002. These were the PensionsAdministrationLargeSchemes(PALS)survey,and the CIPFAPensionAdministrationBenchmarking Club. Both surveysshowedthe Fund'sunit costs to be belowthe average. The overallposition(basedon costs and qualityof servlcesprovided)in the PALSsurveywas Sth out of the 25 participants.The CIPFAsurveyalso showedthat the Fund'sunit costs were 40o/olowerthan the averagefor third party providersof pensionsadministration,and more than 50% lowerthan in-housecostsin the privatesector.In orderto reducethe administrative burdenand duplication, from 2002the Fundwill only be participating in the CIPFAsurvey,which has a much largernumberof participants. The Fund is also continuingto participatein a benchmarkingforum consistingof representatives of five leading MetropolitanAdministeringAuthoritiesin an effort to seek out best practice.

18


PersonalPensionsMis-sellingReview Duringthe year a further 160 memberswere reinstatedin the Scheme and paymentswere receivedin respectof these casesfrom insurancecompaniesof t2,326,052.

InternalDisputeResolution Cases Duringthe year to 31 March 2002, a total of 4 new cases were dealt with by the panel of AppointedPersonsresponsible for complaintsagainstdecisionsmadeby the Fund. A total of 15 new cases were dealt with by the AppointedPersonresponsiblefor complaintsagainstdecisionsmade by employers.As in previousyears the majorityof cases have concernedeither refusalto grant ill health retirementor to bring preservedbenefitsinto paymentearly on ill healthgrounds.

Complaints to the PensionsOmbudsman The PensionsOmbuismandeterminedtwo complaintsagainstthe Fund duringthe year.One case was determinedin favourof the Fund and in the othera findingof maladministration was made againstthe Fundwhich had occurredas a resultof an errorby the Councilin its capacityas an employingauthority.

AnnualEmployers' Conference The sixth Annual Conferenceis to be held on Tuesday12 November2OO2,at the LectureTheatreat the Maritime Museumat AlbertDock,Liverpool.(Picturedbelow)

,-.ru..


Merseyside PensionFund AccountsForTheYearEnded31 March2002

Statement Actuary by the Consulting

The levelsof contributionpaid into the Fund in 2001102were governedby the 'lgg8 actuarialvaluationof the Fur: Each employerpaid the contributionrate certified in our contributioncertificatedated 24February 1999 - these rates were determinedhavingregardto the individualcircumstancesof that employer. The principalfinancialassumptionsusedfor the 1998actuarialvaluationwere as follows:

For past serviceliabilities

Forfutureserviceliabilrt;e:

lnvestment return

6.3percentperannum

7.0percentperannum

growth* Earnings

3.7percentperannum

4.0percentperannum

Priceinflation

2.7 percentperannum

3.0percentperannum

The valuationmethodusedwas the ProiectedUnit Method. The resultsof the 1998valuationshowedthat,at the valuationdate of 31 March1998,the Fund'sassetswere suffic,e-' to cover94 per cent of its liabilities. A furtheractuarialvaluationwas completedas at 31 March2001 and a fundinglevelof 94 per centwas againdeclare: A new rates and adjustmentscertificatehas been issued confirmingthe revisedemployercontributionrates which *' be effectivefrom 1 April 2002.

A/)n

ill

t/

Lr\t t<, Carol Pearl Fellowof the Instituteof Actuaries August2002

2A


BirkenheadSixthFormCollege B u r t o nM a n o rR e s i d e n t i a Clo l l e g e CarmeC l ollege Dingle,Granby,ToxtethEducationActionZone HalewoodParishCouncil H u g hB a i r dC o l l e g e KingGeorgeV College KnowsleyCommunityCollege K n o w s l e yM B C KnowsleyParishCouncil LiverpoolCity Council LiverpoolCommunityCollege

Live rPoor' ilI; il"":["1", ffi":

MerseysideFire& CivilDefenceAuthority MerseysideMagistrates Committee MerseysidePassengerTransportAuthority

Age Concern- Liverpool AnfieldCitizensAdviceBureau Arriva(Merseyside) BelleriveConvent BirkenheadCitizensAdviceBureau BirkenheadCouncilfor VoluntaryService BirkenheadSchoolLtd C D SH o u s i n g CentralYouthClub Ltd CommunityTechnicalServices C o m p a s sG r o u pP l c CornerstoneCare Ltd DavidLewisHoteland ClubAssociation Dioceseof Liverpool Drug Free Enterprise(Liverpool) Ltd Enterprise(St. Helens)Ltd EtonLodgeTrainingHome FalknerHouseAssociation GarstonCitizensAdviceBureau GlenvaleTransportLtd GreaterMerseysideConnexions GroundworkTrustLtd H e l e n aH o u s i n g InterserveLtd JarvisWorkspaceFM KensingtonCitizensAdviceBureau KnowsleyHousingTrust LACOTS LairdsideCommunityTrust Liverpool8 Law Centre _iverpoolAirportPlc Liverpooland KnowsleyFamilyServiceUnit LiverpoolAssociationfor the Disabled LiverpoolCitizensAdviceBureau LiverpoolCommunityRights

MerseysidePassengerTransportExecutive MerseysidePoliceAuthority NationalProbationService(Merseyside) PrescotTownCouncil RainfordParishCouncil R a i n h i lPl a r i s hC o u n c i l SeftonMBC SouthportCollege S t . H e l e n sC o m m u n i tC y ollege S t . H e l e n sM B C SpekeGarstonEducationActionZone V a l u a t i oa n n d C o m m u n i tC y h a r g eT r i b u n a l WasteDisposalAuthority WhistonParishCouncil WirralMetropolitan College WirralMBC

LiverpoolCouncilfor SocialAid LiverpoolHope University College LiverpoolHousingTrust LocalGovernment Association LocalGovernmentInternational Bureau MerseysideEqualOpportunities Project MerseysideDevelopment Corporation MerseysideLieutenancy MerseysideSocietyfor the Deaf MerseysideWelfareRights MerseysideYouthAssociation MottMacdonald MTUCUResourceCentre NationalCare StandardsCommission NetherleyCitizensAdviceBureau NorthWestTouristBoard NugentCare Society Old SwanCitizensAdviceBureau ParkhavenTrust PartnersCreditUnion RelianceTaskManagementLtd S h e i l aK a y F u n d S o u t h e r nN e i g h b o u r h o oCdo u n c i l SpekeCitizensAdviceBureau SpekeGarstonDevelopment Company St. Gabriel'sCommunityHome St. Helensand DistrictSocietyfor the Deaf The CatholicChildren'sSociety(ShrewsburyDiocese)Inc ToxtethCitizensAdviceBureau University of Liverpool V a u x h a lNl e i g h b o u r h o oCdo u n c i l VillageHousingAssociationLtd VinciServices WaltonCitizensAdviceBureau WirralAutisticSociety WirralCouncilfor VoluntarV Service ,4 4i


Merseyside PensionFund- BackgroundDeta The MerseysidePensionFund was formed upon the ' o r g a n i s a t i o no f L o c a l G o v e r n m e n ti n 1 9 7 4 w h e n : M e r s e y s i d eC o u n t y C o u n c i l w a s s e t u p t o c a r r y : s e l e c t e d f u n c t i o n sf o r t h e a r e a . S m a l l e r f u n d s v , = c o m b i n e dt o f o r m o n e l a r o e f u n d w i t h a n i n i t i a ls i z e a r o u n dt 4 2 m i l l i o n . The Local Governmentre-organisation of 1986 san' :abolitionof the Metropolitan CountyCouncil,and the F-i n i t i a l l yp a s s e dt o t h e M e r s e y s i d eR e s i d u a r yB o d y I 1 O c t o b e r 1 9 8 7 t h e r e s p o n s i b i l i tw y a s t r a n s f e r r e c: statuteto WirralMetropolitanBoroughCouncil,who v,: . chargedwith the administration and managementoi :Fund. The Fund at that time had increasedin value a p p r o x i m a t e l ty1 . 1 b i l l i o n ,a l t h o u g ht h e O c t o b e r 1 3 : stock marketcrashwioedsome t300 millionoff the va .. i n t h e f i r s t m o n t h o f W i r r a l ' ss t e w a r d s h i pS. i n c e : - . ' growth of the Fund has been steady and at ti-.: s p e c t a c u l a rW . i t h a s s e t so f t 3 . 0 b i l l i o na s a t 3 1 M a ' : 2002 the Fund rankedfifth largestLocal Governmenti-- . a n d a m o n g s tt h e t o p 4 0 l a r g e s tp e n s i o nf u n d s i n ' UnitedKingdom. Wirral Councilgave a commitmentin 1987 to maintaF u n d p r e s e n c ei n L i v e r p o o tl o f a c i l i t a t ev i s i t s f r o r r : - . majorityof its members,who live on the north side o' '-. Mersey.The administration officesare in CastleStree: LiverpoolCity Centre,within Castle Chambers,an c" . buildingownedby the Fund.

22


WIRRALMBC PENSIONSCOMMITTEE Reports Considered at Pensions Committee The Committeemet on 7 occasionsduring 200112002to discussthe followingitems. Reportsfrom the Investment AdvisoryPaneland the PensionsInformationOfficeare also consideredat each CommitteeMeeting. 23 May 2001 PensionFundAuditPlan Best Value Review- Findings The Myner'sReview PensionsSharingon Divorce AdmissionApplications 12 September2001 Best Value Review- OptionsReport Securities'Lending EquitableLife AssuranceSociety AdmissionApplications PensionsOmbudsmanand OPASReoorts 14 November2001 EquitableLife AssuranceSociety Reviewof the Local GovernmentPensionScheme SecuritiesLending Pensionsof Councillors Trainingfor ElectedMembers AdmissionApplications 3 January2002 EquitableLife AssuranceSociety- CompromiseScheme SociallyResponsibleInvestmentsSeminar 30 January2002 Best Value Review- lmorovementPlan ActuarialValuationas at 31 March2001 SociallyResponsibleInvestmentResearch StandardLife AVC Arrangementsand Charges and Timescales Compliancewith StatutoryRequirements InternalDisputeResolutionProcedure Non-Recoveryof Overpayments Managementof lnvestments 13 March2002 Managementof Investments- Appointmentof TransitionManagers 21March2002 Fund Accounts- year ended 31 March2001 and Budget2002103 DraftAdministrativeBudget20021 03 Asset LiabilityStudy and StrategicAsset Allocation lll HealthRetirementProceduresand Experience Trainingfor Memberson Investment and Pensionslssues Reviewof EconostatEconomicResearchServices InternalDisputeResolutionProcedure(IDRP)- Consultation Paper on the Role of the AppointedPerson PIRC Annual CorporateGovernanceConference INVESTMENTADVISORYPANEL Medtingswere heldon:- 16 May 2001, 17 July 2001,24 October2001 and 30 January2002

23


Merseyside PensionFund InternetWebsiteAddress: http://www. mersey-pens-fu nd.demon. co.uk

AssistantDirectorof Finance

JohnParry

01512273316

1312

PensionsAdministration

PeterMawdsley

0151236 4205

1333

Transfers

MargaretRourke

0151236 4197

1369

Benefits/Payroll

KevinGreenough

0151236 4208

1354

Communication

SueDavies

0151236 4208

1361

AVC / Added Years

DavidBrown

01512364240

1380

InformationTechnology

KarlSherbrooke

0151236 4208

1342

FundDecisions

Director of Finance

01516663491

Employer Decisions

PrincipalPensions Officer 0151236 4205

Fire and CivilDefence

HelenJones

0151225 2194

KnowsleyM.B.C.

Mary McDonald

01514434177

LiverpoolC.C.

VanessaDuncan

01512333003

LiverpoolJ.M.U.

Terry Jones

0151231 3562

Arriva North West

Les Usher

01515222814

MerseyTravel

LindaGedman

0151227 5181

SeftonM.B.C.

MikeNelson

0151922 4040

St.HelensM.B.C.

Eric Astley

01744456038

PoliceAuthority

Ann Williams

0 1 5 17 0 96 0 1 0

NationalProbationService (Merseyside)

KevinStamper

0151920 9201

Waste Disposal

PeterLeyland

0 1 5 17 0 93 6 0 7

WirralM.B.C.

Brian Beecroft

01516663524

=

4126 8251

2351



2001/2002