Report & Accounts 2002/2003
Contents
Page No.
CHAIR’S INTRODUCTION
2
MANAGEMENT STRUCTURE
4
INVESTMENT REPORT
5
FINANCIAL STATEMENTS
9
STATEMENT OF RESPONSIBILITIES
14
AUDIT REPORT
15
SCHEME ADMINISTRATION
16
CONSULTING ACTUARY’S STATEMENT
20
APPENDIX A
EMPLOYER MEMBERSHIP
21
APPENDIX B
FUND BACKGROUND
22
APPENDIX C
PENSIONS COMMITTEE ITEMS
23
APPENDIX D
INFORMATION CONTACTS
24
Chair’s Introduction
As the new Chair of the Pensions Committee, it is my pleasure to introduce the Merseyside Pension Fund Annual Report for the year ended 31 March 2003. The aim of the report is to highlight the important issues affecting the Fund over the last twelve months as well as providing more general information regarding the Pension Scheme.
Councillor Sue Brown
The Overall Aim of the Fund The principal aim of the Fund remains to provide secure pensions, effectively and efficiently administered at the lowest cost to 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 with the help of its various professional advisers, reviews the Fund's investments, at regular intervals, to ensure that they remain appropriate.
Investment Performance of the Fund
The outperformance for the year was significantly attributable to asset allocation aided by overweight positions in property and cash. Major stock markets fell sharply during the year, generating negative investment returns for the third year in succession, and were extremely volatile. This has again adversely affected the Fund's performance in the UK (-30.6%), North America (-32.0%), Europe (-33.4%),and Japan (-30.4%). Markets were depressed by a number of factors including weakening economic fundamentals, concerns about accounting irregularities and fraud (particularly in US), disappointing corporate earnings growth and geopolitical risks. However, property performed well and contributed positively to our total return for the year, as did the fixed interest portfolio. Despite the three successive years of negative returns, the ten year return of the Fund at 7.1%, remains well ahead of both average earnings and inflation.
2
“
The Fund has
been ranked amongst the top 10% of Local Authority Funds
“
Another disappointing year in financial markets has had less impact on the assets of the Fund than might have been expected. The Fund's total return of -14.3% for the year, although negative, compares favourably with both our Benchmark return (-18.3%) and the WM Local Authority Pension Fund Universe (-19.5%). The Fund has been ranked amongst the top 10% of Local Authority Funds over 1, 3, 5 and 10 year periods respectively based on its investment returns.
over 1,3,5 and 10 year periods.
Chair’s Introduction
Actuarial Valuation At the last triennial actuarial valuation, based on data as at 31 March 2001, the overall funding level at 94% was unchanged from the previous full valuation. The improvement in mortality statistics and consequent increased life expectancy of members of the Fund was one of the reasons for the lack of improvement in the overall funding position. An interim review as at 31 March 2002, was completed, which confirmed that the funding level of the Fund, as a whole, had fallen to 88%. A further interim review took place as at 31 March 2003, which indicated that the overall funding level had further fallen to 70%. This coincided with world stockmarkets being close to their lowest levels in recent times, from which a strong recovery is reasonably anticipated. Recent legislative proposals are further expected to contain the Fund’s potential liabilities.
Communication with Fund Members The current active membership of the Fund stands at approximately 48,000 with just over 36,000 in receipt of pensions. The annual employers’ conference was again well attended in November 2002 and featured speakers from the Office of the Deputy Prime Minister, the Fund’s Actuary - Mercer Human Resource Consultants and officers from the Fund. Topics covered included updates on the Stocktake Exercise of the Scheme.
Past Changes and the Future The past year has again been a challenging one for the pension administration team. It has continued to deal with the admission of private contractors following the contracting out of services as a result of Best Value and other initiatives. It has also continued to provide information and support to members affected by the continuing problems with the Equitable Life Assurance Society With Profits Fund. The Fund also has carried out a review of its AVC provision and after the year-end appointed Prudential Assurance as an additional AVC provider to work alongside Standard Life. During the past year the Government has been undertaking a Stocktake into the operation of the LGPS and this has involved a major consultation exercise with the various stakeholder groups. To date two discussion papers have been issued dealing with – Simplification of the Regulations and the suitability of the Retirement Benefit Package. Two further papers are still awaited on Costs and Sustainability and Ensuring Efficient Administration and Standards of Service to members. A Pensions Green Paper and Inland Revenue discussion paper have also been issued with proposals intended to improve the protection available to members of pension schemes, simplify the provision of pensions for employers and to encourage people to work longer in response to the increasing costs of pension provision. Specifically the Green Paper proposes the abolition of the existing “85 year rule” for public sector schemes, which allows members to receive unreduced benefits if they retire between 60 and 65 but with protection for past service of existing members. The Inland Revenue also proposes increasing the minimum age for early retirement (other than on ill health grounds) from the present 50 to 55. This change is expected to be introduced by 2010. As ever, the continued success of Merseyside Pension Fund (MPF) depends on the combined efforts of all concerned with the Fund. In conclusion, I should like to thank the Committee, the financial advisers, and all of MPF’s Investment and Administrative staff for their considerable work. Particular thanks are due to Legal and General Investment Management Ltd for acting as managers to the Fund during transition.
3
Management Structure (at 31 March 2003)
1 PENSION FUND MANAGEMENT COMMITTEE Voting Members Chairman: Cllr G C J Watt
Wirral
Cllr S A Brown
Wirral
Cllr I O Coates
Wirral
Cllr C O’Hare
Cllr G Davies
Wirral
Cllr C Curry
Liverpool
Cllr T Harney
Wirral
Cllr P Parry
Sefton
Cllr A E R Jones
Wirral
Cllr A Smith
St Helens
Cllr R K Moon
Wirral
Mr T Jones (LJMU)
Non district employer representative
Peter Mawdsley
Principal Pensions Officer
Cllr W D Nock
Wirral
Cllr A C Robinson
Wirral
Cllr L F Spencer
Wirral
Knowsley
Employee Representatives Mr D Jenkins (Unison) Mr A Cusack (TGWU)
Officers of the Fund Ian Coleman
Director of Finance
David Smith
Deputy Director of Finance
Johanna Miller
Borough Solicitor & Secretary
John Parry
Assistant Director of Finance
Colin Hughes
Assistant Borough Solicitor
2 ADVISERS TO INVESTMENT ADVISORY PANEL Director of Finance
J P Morgan Fleming Asset Management
Assistant Director of Finance
Mercer Investment Consulting
3 OTHERS Auditor
Audit Commission
Bankers
The Royal Bank of Scotland plc
Consulting Actuary
Mercer HR Consulting
Custodian of Assets
The Bank of New York
Ethical Advisers
Pensions and Investment Research Consultants Ltd
Property Advisers
Edmund Kirby Savills Fund Management
Performance Measurement
The WM Company
Solicitor
Wirral MBC
Additional Voluntary Contributions Providers
Equitable Life Assurance Society Standard Life
4
Investment Report for the year ended 31 March 2003
Management of the Fund The overall responsibility for the management of the Fund rests with the Pensions Committee, now chaired by Councillor Brown (who replaced Geoffrey Watt in May 2003). In 2002/03 the Committee comprised of Councillors from the Wirral Labour group (6), Conservatives (2), Liberal Democrats (2), representatives of the four other District Authorities (Liverpool, St.Helens, Knowsley and Sefton), an independent representative from the other employers, employee representatives (2), the Director of Finance and other officers of the Fund. The Committee meets at least three 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.
John Parry Assistant Director of Finance
The more detailed responsibility for investment strategy and asset allocation of the Fund’s portfolios is delegated to the Investment Advisory Panel. This Panel meets quarterly to review investment strategy and to receive reports on investment activity undertaken in the previous period. The Panel comprises representatives from the Pensions Committee, an independent tactical asset allocation advisor - J.P.Morgan Fleming Asset Management - and members of the in-house investment team. During the financial year ended 31 March 2003, assets other than those relating to property, venture funds and cash had been placed with transitional managers (Legal and General Investment Management Ltd.) on a care and maintenance basis. Following transition, part of the UK and European portfolios continue to be managed internally with global equities and bonds managed externally. Internal fund managers report to the Director of Finance through regular Fund Operating Group meetings and follow laid down compliance procedures. Since the year end external fund managers have been given specific benchmarks against which performance will be measured and monitored quarterly at meetings of the Investment Advisory Panel. The Fund’s property portfolio is managed by Savills Fund Management and Edmund Kirby, who both reported to the Assistant Director of Finance - Pension Fund. The day-to-day management of the properties is handled by CB Richard Ellis, with an independent annual valuation of the portfolio being carried out by Colliers Erdman Lewis.
Portfolio Distribution (Market Value at 31 March)
● 2003 ● 2002
l pita
y
Ca re
Pro p
ert
Ven tu
ked
the r h/O Cas
Gilt s
Lin ex Ind
Em erg ing
Eas
tE
qui ties Ma rke t Eq uiti es
itie s Equ se
Equ
Jap ane
Far
ies uit
an
Eq
ope Eur
uit
ies
US
Eq UK
itie s
% of total asset
Figure 1.
5
Investment Report for the year ended 31 March 2003
Investment Strategy The 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, developed by the Investment Advisory Panel, has been to maximise returns over the medium to long term whilst having regard to its liability commitments. Early in 1999 an asset / liability study was carried out by the Fund’s consulting actuary. This study resulted in some changes to the asset benchmark for the Fund, moving away from the typical local authority asset structure previously adopted, 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. The asset / liability relationship was reviewed by Mercer HR Consulting in 2002 and the Leyland Otter recommendations have subsequently been implemented. Senior Investment Manager
Corporate Governance
Merseyside Pension Fund supports the principles of corporate governance outlined in the ‘combined code’ established by the Cadbury, Greenbury and Hampel Committees. In order to promote best practice, the Fund votes at all AGMs and EGMs of U.K. companies in which it has holdings. The Fund receives detailed advice and recommendations from Pensions and Investment Research Consultants Ltd. to support managers in making voting decisions and is an active member of the Local Authority Pension Fund Forum. This policy meets the principle outlined in the Myner's report on institutional investment on shareholder activism and is subject to periodic review to ensure that the Fund responds to developments in best practice. The Fund is substantially compliant with the Myner’s principles on institutional investment. Where not fully compliant procedures are under review. Further information is contained in the Statement of Investment Principles which is reviewed by the Pensions Committee in September each year. The current statement is available from the Fund office at PO Box 120, Castle Chambers, 43 Castle Street, Liverpool L69 2NW and covers: Effective Decision Making Activism Appropriate Benchmarks Expert Advice
Explicit Mandates Clear Objectives Focus on Asset Allocation
The policy is reviewed each year to ensure that the Fund remains in line with best practice. The Fund’s composition is largely dictated by its bespoke strategic benchmark, which is determined by 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 tactical asset allocator is permitted to adjust the Fund’s exposure to individual asset classes within predetermined tolerances. Such adjustments are executed quarterly, when required. The Fund’s actual composition at the beginning and end of the reporting period is depicted in Figure 1.
Performance Measurement Transparency Regular Reporting
Strategic Asset Structure Asset Class
% UK Equities
36
Overseas Equities
22
US European Japan Pacific Emerging Markets Fixed Interest
TOTAL
Detail %
7 9 3 2 1 26
UK Gilts Overseas Bonds UK Index Linked Corporate Bonds Property Venture Capital/Other Investments Cash
6
Strategic Benchmark
5 2 14 5 8 5 3 100
Investment Report for the year ended 31 March 2003
The Fund’s net investment in individual asset classes over the period is depicted in Figure 2. Net Investment by Asset Class in year ended 31 March 2003
Figure 2.
UK Equities US Equities European Equities Japanese Equities Far East Equities Emerging Market Equities Gilts Overseas Bonds Index Linked Cash Other Investments Property
-60
-40
-20
0
20
40
60
80
100
£ million
Largest Equity Holdings as at 31 March 2003 Company
Market Value
Equity
£’000 1 2 3 4 5 6 7 8 9 10
BP Vodafone Glaxo Smithkline HSBC RB Scotland Shell Transport Astra Zeneca HBOS Barclays Diageo
%
59,184 50,398 45,188 39,686 27,968 25,436 23,727 16,887 16,425 14,440 319,339
8.2 7.0 6.3 5.5 3.9 3.5 3.3 2.3 2.3 2.0 44.4
The top ten holdings represent 44.4% of the total Equity Portfolio Largest Property Holdings as at 31 March 2003 Property
Market Value £’000
1 2 3 4 5 6
Tunsgate Square, Guildford Cunard Building, Liverpool Middlemarch, Coventry Horns Road, Ilford Farnham Retail Park The Quadrant, Windsor
21,150 19,500 15,500 13,150 12,800 12,750
7
Investment Report for the year ended 31 March 2003
Review of Investment Performance During the year to 31 March 2003 the Fund’s return was –14.3% compared to its bespoke benchmark of –18.3%. The outperformance of investment returns against benchmark for the fiscal year 2003 (albeit in negative terms) was largely due to the Fund’s asset allocation over the period with overweight positions in property and cash. Over the same period, the average return of all Local Authority Pension Funds based on the WM Local Authority Universe of 87 funds posted a return of –19.5% and Merseyside Pension Fund was ranked in third place in terms of its return on assets.
Comparative Returns for the Fund
Merseyside Pension Fund
1 Year
5 Years
5 Years
10 Years
%
%
%
%
-14.3
-6.6
0.6
7.1
-18.3 3.1 3.5 3
-9.1 2.2 3.6 9
-1.6 2.3 4.1 2
6.2 2.6 4.1 5
Benchmark* RPI Average Earnings Ranking Against Peer Group
*The 1 Year and 3 Year benchmarks = Merseyside Pension Fund bespoke All other periods = UK Local Authority Peer Group
The background for investment markets over the year continued to be unfavourable with all the major global equity markets posting significant declines largely attributed to rising risks and uncertainties with respect to both the geopolitical situation and the sluggish pace of the recovery. However, the first quarter ending March 2003 appears to have marked a nadir for global financial markets and at the time of writing, all major world stock markets are currently in positive territory on a calendar year-to-date basis. The Fund subscribes to the WM Company performance measurement service which enables comparison of the Fund’s investment return with that of other Local Authority pension funds. In addition, the Fund’s performance within individual asset classes is measured against relevant index benchmarks as depicted in Figure 3.
Total Return by Asset Class in year ended 31 March 2003 20
● Fund ● Benchmark
Figure 3. 10
Total Return (%)
0
-10
-20
itie s Equ UK
Equ
itie s
itie s US
ties
Equ
ope an
Eur
itie s
eE qui
Equ
ast
ane s Jap
Far E
t Eq
Gilt rke Ma ing erg Em
8
uiti es
s
ink Ove ed rse as Bon ds
r the
ex L Ind
h/O Cas
-40
Pro per
ty
-30
Financial Statements
FUND ACCOUNT For the year ended 31 March 2003
Note
2003
2002
£’000
£’000
142,241
131,204
18,998
18,517
161,239
149,721
Contributions and Benefits Contributions receivable
3
Transfers in
Benefits payable
4
150,313
149,027
Leavers
5
17,848
16,449
3,409
3,324
171,570
168,800
-10,331
-19,079
Administration Expenses
Net withdrawals from dealings with members Return on Investments Investment income
6
61,914
82,979
Change in market value of investments
7
-542,534
-120,066
39
-81
-566
-375
Net return on Investments
-481,147
-37,543
Net decrease in the Fund during the year
-491,478
-56,622
Exchange Investment Management Expenses
Net Assets of Fund at start of year
2,965,684
3,022,306
Net Assets of Fund at end of year
2,474,206
2,965,684
NET ASSETS STATEMENT AS AT 31 MARCH 2003 Note
2003
2002
£’000
£’000
203,588
164,854
360,768
334,917
56,363
66,574
Equities
718,950
1,602,897
Managed or Unitised Funds
669,190
359,209
Properties
261,475
268,200
Short Term Deposits
151,250
138,800
8,088
9,029
2,429,672
2,944,480
44,534
21,204
2,474,206
2,965,684
Investments Fixed Interest Securities
7
Index Linked Securities Other Investments
AVC’s
Other Assets and Liabilities Net Assets of the Fund as at 31 March 2003
8
9
Financial Statements
NOTES TO THE ACCOUNTS 1 GENERAL Although 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 financial statements record the transactions of the Fund 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 the Fund year. The actuarial position of the Fund, which does take account of such obligations, is dealt with in the statement by the Actuary on page 20 and these financial statements should be read in conjunction with it. Gerard Moore Financial Controller
2 ACCOUNTING POLICIES ● Basis of preparation The 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 investments Investments 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 2003.
● Translation of foreign currencies Assets 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 income Interest 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".
● Rental income Rental income from properties is taken into account by reference to the periods to which the rents relate and is shown net of related expenses.
● Contributions and benefits Contributions, excluding additional voluntary contributions, are accounted for on an accruals basis. Benefits payable represent the benefits paid during the financial year.
● Transfers to other schemes Transfer payments relate to those early leavers whose transfers have been paid during the year.
10
Financial Statements
2003
2002
£’000
£’000
92,167
83,033
8,960
9,584
40,007
37,000
1,107
1,587
142,241
131,204
3 CONTRIBUTIONS RECEIVABLE Employers Normal Early retirement funding
Employees Normal Additional Voluntary Contributions
relating to:
23,344
22,000
Scheduled Bodies
Administering Authority
106,013
100,376
Admission Bodies
12,884
8,828
142,241
131,204
133,895
130,663
13,443
15,164
2,507
2,299
468
901
150,313
149,027
20,686
18,696
Scheduled Bodies
118,470
114,302
Admission Bodies
11,157
16,029
150,313
149,027
Refunds to members leaving service
375
382
Payment for members joining state scheme
-99
230
16,953
15,651
4 BENEFITS PAYABLE Pensions Lump sum retiring allowances Lump sum death benefits Relating to AVCs
relating to:
Administering Authority
5 PAYMENTS TO AND ON ACCOUNT OF LEAVERS
Individual transfers to other schemes Relating to AVCs
619
186
17,848
16,449
8,827
11,157
6 INVESTMENT INCOME Fixed interest securities
7,696
5,322
Dividends from equities, managed and unitised funds
Index Linked securities
21,894
42,720
Net rents from properties
17,457
17,868
5,947
5,865
Interest on deposits Other
93
47
61,914
82,979
As at 31 March 2003, £90 million of stock was on loan to market makers, and this was covered by collateral (including an appropriate margin) comprising cash and non cash totalling £91 million.
11
Financial Statements
7 INVESTMENTS Market Value 31.3.02 £’000
Purchases at cost £’000
Sale Proceeds £’000
Change in Market value £’000
Market Value 31.3.03 £’000
164,854 334,917 66,574 1,602 897 359,209 268,200 138,800 9,029 2,944,480
78,770 29,413 7,958 171,888 496,087 1,026 12,450 1,379 798,971
16,080 29,441 16,944 643,420 50,457 13,811 0 1,092 771,245
-23,956 25,879 -1,225 -412,415 -135,649 6,060 0 -1,228 -542,534
203,588 360,768 56,363 718,950 669,190 261,475 151,250 8,088 2,429,672
Fixed Interest Securities Index Linked Securities Other Equities Managed & Unitised Funds Properties Short Term Deposits AVC Investments
*Note: The change in market value of investments during the year comprises all realised and unrealised appreciation and depreciation.
Fixed Interest Securities* UK Fixed Interest UK Corporate Bonds Overseas Fixed Interest
2003
2002
£’000
£’000
133,524 0 70,064 203,588
75,675 7,248 81,931 164,854
360,768
334,917
678,769 40,181 718,950
1,123,697 479,200 1,602,897
150,238 35,917 463,517 19,518 669,190
251,251 93,556 0 14,402 359,209
56,363
66,574
223,405 38,070 261,475
217,410 50,790 268,200
151,250
138,800
*Other than Corporate Bonds, all are public sector securities Index Linked Securities Equities UK Quoted Overseas Quoted Managed* and Unitised Funds UK managed funds Overseas managed funds Legal & General Property Unit trusts
Other Investments *Unlisted Securities are included in Managed Funds at a market value of £84,246,000 (2002 - £93,148,000). UK properties Freehold Leasehold Short term Deposits Additional Voluntary Contributions Investments
The Committee holds assets invested separately from the main Fund. The Scheme providers as at 31 March 2003 are Equitable Life and Standard Life. Members participating in this arrangement each receive an annual statement confirming the amounts held on their account and the movements in the year. The aggregate amount of AVC investments is as follows:
Equitable Life Standard Life
12
2003
2002
£’000
£’000
5,074 3,014 8,088
7,204 1,825 9,029
Financial Statements
8
CURRENT ASSETS AND LIABILITIES 2003
2002
£’000
£’000
Assets Contributions due
13,019
11,861
Accrued and outstanding investment income
8,866
11,757
Due from stockbrokers
5,282
0
17,099
1,647
Cash at Bank Sundries
5,567
3,710
49,833
28,975
0
1,920
1,395
1,232
Liabilities Due to stockbrokers Transfer values payable Provisions Miscellaneous
Total Other Assets and Liabilities
9
559
400
3,345
4,219
5,299
7,771
44,534
21,204
COMMITMENTS Commitments for investments amounted to £68,390,000 at 31 March 2003.
10
RELATED PARTY TRANSACTIONS Administration costs include charges by Wirral MBC in providing services in its role as administering authority to the Fund, which amount to £2,751,000 (2002 £2,322,000). Such charges principally relate to staffing required to maintain the pension service. A specific declaration has been obtained from principal officers and Pension Committee members regarding transactions with such persons or their related parties. No declarable related party transactions have been reported under this procedure.
11
SUMMARY OF MANAGERS’ PORTFOLIO VALUES VALUES AT 31 MARCH 2003 (excluding AVC Assets) £m
%
UBS
18
0.7
Lombard Odier
13
0.5
1,755
72.5
1,786
73.7
636
26.3
2,422
100.0
Externally Managed
Legal & General
Internally Managed
13
Statement of Responsibilities
The Authority’s Responsibilities The Council as Administering Authority of the Merseyside Pension Fund is required:
● To make arrangements for the proper administration of the financial affairs of the Fund and to secure that one of its officers has the responsibility for the administration of those affairs. In this authority, that officer is the Director of Finance.
● To manage the affairs of the Fund to secure economic, efficient use of resources and safeguard its assets.
The Director of Finance's Responsibilities The Director of Finance is responsible for the preparation of the Fund's Statement of Accounts which, in terms of the Chartered Institute of Public Finance and Accountancy Code of Practice on Local Authority Accounting in Great Britain (the Code), is required to present fairly the financial position of the Fund at the accounting date and its income and expenditure for the year ended 31 March 2003. In preparing this statement of accounts, the Director of Finance has:
● Selected suitable accounting policies and then applied them consistently Ian Coleman Director of Finance
● Made judgements and estimates that were reasonable and prudent ● Complied with the Code The Director of Finance has also:
● Kept proper accounting records which were up to date ● Taken reasonable steps for the prevention and detection of fraud and other irregularities
The Director of Finance's Certificate I certify that the Statement of Accounts presents fairly the financial position of the Fund at 31 March 2003 and its income and expenditure for the year then ended.
Director of Finance 17 September 2003
14
Audit Report to Merseyside Pension Fund
I have audited the Pension Fund accounts, on pages 9 to 13, which have been prepared in accordance with the accounting policies applicable to pension funds set out on page 10. This report is made solely to Merseyside Pension Fund in accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph 54 of the Statement of Responsibilities of Auditors and of Audited Bodies, prepared by the Audit Commission.
Respective Responsibilities of the Chief Financial Officer and Auditor As described on page 14, the Chief Financial Officer is responsible for the preparation of the financial statements in accordance with the Statement of Recommended Practice “Financial Reports of Pensions Schemes 1996”. My responsibilities, as independent auditor, are established by statute, the Code of Audit Practice issued by the Audit Commission and my profession’s ethical guidance. I report to you my opinion as to whether the financial statements present fairly the financial transactions of the Pension Fund during the year, and the amount and disposition of the Fund’s assets and liabilities, other than liabilities to pay pensions and benefits after the end of the scheme year. I read the other information published with the statements of accounts and consider the implications for my report if I become aware of any apparent misstatements or material inconsistencies with the statement of accounts.
Basis of Audit Opinion I conducted my audit in accordance with the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission, which requires compliance with relevant Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Council in the preparation of the financial statements, and of whether the accounting policies are appropriate to the pension fund's circumstances, consistently applied and adequately disclosed. I planned and performed my audit so as to obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming my opinion I evaluated the overall adequacy of the presentation of the information in the financial statements.
Opinion In my opinion the financial statements present fairly the financial transactions of Merseyside Pension Fund during the year ended 31 March 2003, and the amount and disposition at that date of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the scheme year.
Julian Farmer District Auditor
Address: Audit Commission The Heath Business and Technical Park Runcorn
18 September 2003
Cheshire WA7 4QF
15
Scheme Administration
The Merseyside Pension Fund operates the Local Government Pension Scheme, which provides for the occupational pensions of employees, other than teachers, police officers and fire fighters, of the local authorities within the Merseyside area. It also operates the Scheme for members of other organisations which have made admission agreements with the Fund. A list of participating employers is shown at Appendix A. The Scheme is a public service pension scheme regulated by statute through the Office of the Deputy Prime Minister (ODPM). It is a contributory final salary scheme, which is contracted out of the Second State Pension and is exempt approved for tax purposes. Peter Mawdsley Principal Pensions Officer
Development of the Scheme Since 1922 the Local Government Pension Scheme has developed from a scheme which just provided pensions for officers only, to today’s Scheme which provides pensions and lump sums for all members, spouses and children’s pensions, ill health, redundancy and death cover. Quite clearly it is a comprehensive scheme and yet, through the cooperation of the Government, employer and employee representatives, the Scheme is constantly changing and adapting to modern day needs and demands. The current regulations introduced from 1 April 1998 are currently the subject of a stocktaking exercise by the responsible Government department, the ODPM.
16
Membership
31 March 2003
31 March 2002
Contributors
48,392
46,674
Pensioners
36,572
36,287
Deferred beneficiaries
15,772
14,709
Scheme Administration
Legislation The principal regulations were amended during the year by the following statutory instruments:The Local Government Pension Scheme (Early Termination of Employment) (Discretionary Compensation) (England and Wales) (Miscellaneous) Regulations 2002 (Into force 17 April 2002) The Local Government Pension Scheme (Miscellaneous) Regulations 2002 (Into force 16 April 2002) The Local Government Pension Scheme (Management and Investment of Funds) (Amendment) Regulations 2002 (Into force 9 August 2002) Further information on the content and effects of these changes is available on request from the Fund and copies can be accessed via the Fund website.
The Quadrant, Windsor
17
Scheme Administration
Control of Early Retirement Costs The Fund is continuing to monitor the costs of non-ill health early retirements and to require additional contributions from those employers who exceed their agreed capital allowance.
Service Standards Charter Results of performance in respect of the 12 month period to 31 March 2003 against target are shown below:-
Performance Targets
Target
Within Target Performance %
1
Payment of retirement benefits
7 days
74
2
Payment of monthly pensions
100%
100
3
Payment of transfer values
7 days
97
4
Provision of inward-transfer quotes
10 days
90
5
Payment of refunds
7 days
94
6
Provide mis-selling costs
10 days
93
7
Provide valuation in divorce cases
10 days
98
8
Respond to members’ enquiries
10 days
94
Key Improvement Areas The key improvement areas identified for the pension administration unit for the coming year are as follows: 1
Improved efficiency through development of information technology capability and application.
2
Enhanced communications, consultation and marketing of the benefits of the Scheme to employers, employees and beneficiaries.
3
Development of training policies and procedures to ensure the quality of service provision to Scheme members.
Consultation Consultation will continue to be carried out with all groups of stakeholders, including active members, pensioners, deferred beneficiaries and employers. The Service Standards Charter between the Fund and employers has been updated and incorporated in the Employers’ Guide.
Comparisons/Benchmarking The Fund participated in the Chartered Institute of Public Finance and Accountancy (CIPFA) benchmarking survey in 2001/2002. The results of unit cost comparison were as follows: Merseyside Pension Fund
£21.20
CIPFA Average
£20.60
Private Sector in–House
£36.07
Private Sector Outsourced
£28.01
18
Scheme Administration
Although slightly higher than the CIPFA average the Fund’s unit cost was substantially lower than both in-house provision in the Private Sector and third party providers. Within the overall total the survey confirmed that the Fund had a lower staffing cost than the CIPFA average but had a higher expenditure on Communications and Information Technology (IT). This reflects the Fund’s commitment to improving communications with members and the extra costs of dealing with the problems of Equitable Life. The high IT cost reflects historic charges in respect of a mainframe computer which, has now been phased out and cost savings will appear in future years. The Fund is also continuing to participate in a benchmarking forum consisting of representatives of five leading Metropolitan Administering Authorities in an effort to seek out best practice.
Internal Dispute Resolution Cases During the year to 31 March 2003, a total of 4 new cases were dealt with by the panel of Appointed Persons responsible for complaints against decisions made by the Fund. A total of 21 new cases were dealt with by the Appointed Person responsible for complaints against decisions made by employers. As in previous years the majority of cases have concerned either refusal to grant ill health retirement or to bring preserved benefits into payment early on ill health grounds.
Complaints to the Pensions Ombudsman The Pensions Ombudsman determined one complaint against the Fund concerning maladministration as a result of an incorrect estimate of benefits issued.
Annual Employers’ Conference The seventh Annual Conference is to be held on Tuesday 18 November 2003, in the Lecture Theatre of the Maritime Museum at Albert Dock, Liverpool. (Pictured below)
19
Consulting Actuary’s Statement
Merseyside Pension Fund Accounts For The Year Ended 31 March 2003
Statement by the Consulting Actuary
The levels of contribution paid into the Fund in 2002/03 were governed by the 2001 actuarial valuation of the Fund. Each employer paid the contribution rate certified in our contribution certificate dated 27 March 2002 - these rates were determined having regard to the individual circumstances of that employer. The principal financial assumptions used for the 2001 actuarial valuation were as follows:
For past service liabilities
For future service liabilities
Investment return
5.6 per cent per annum
6.5 per cent per annum
Earnings growth*
3.3 per cent per annum
3.5 per cent per annum
Price inflation
2.3 per cent per annum
2.5 per cent per annum
* plus a salary scale for officers to allow for incremental increases. The valuation method used was the Projected Unit Method. The results of the 2001 valuation showed that, at the valuation date of 31 March 2001, the Fund’s assets were sufficient to cover 94 per cent of its liabilities.
Stephen Jacquest Fellow of the Institute of Actuaries July 2003
20
Appendix A
Employer Membership
CURRENT SCHEDULED BODIES Birkenhead Sixth Form College Burton Manor Residential Home Carmel College Dingle, Granby, Toxteth Education Action Zone Halewood Parish Council Hugh Baird College King George V College Knowsley Community College Knowsley MBC Knowsley Parish Council Liverpool City Council Liverpool Community College Liverpool John Moores University Mersey Waste Limited Merseyside Fire & Civil Defence Authority Merseyside Magistrates Committee Merseyside Passenger Transport Authority
Merseyside Passenger Transport Executive Merseyside Police Authority National Probation Service (Merseyside) Prescot Town Council Rainford Parish Council Rainhill Parish Council Sefton MBC Southport College St. Helens Community College St. Helens MBC Speke Garston Education Action Zone Valuation and Community Charge Tribunal Waste Disposal Authority Whiston Parish Council Wirral Metropolitan College Wirral MBC
CURRENT ADMISSION BODIES Age Concern – Liverpool Anfield Citizens Advice Bureau Arriva North West Beechwood Educare Centre Berrybridge Housing Ltd Birkenhead Citizens Advice Bureau C.I.C. Drug Services Castle Independent Ltd Catholic Childrens’ Society CDS Housing Central Youth Club Ltd Cobalt Housing Ltd Community Technical Services Agency Compass Group PLC (Scolarest) Cornerstone Care Ltd Diocese of Liverpool Enterprise (Liverpool Highways) Ltd Enterprise (St. Helens) Garston Citizens Advice Bureau Glenvale Transport Ltd Greater Merseyside Connexions Green Apprentices Ltd Groundwork Trust Ltd Helena Housing Interserve (Facilities Management) Ltd Jarvis Workspace (Wirral Schools) Jarvis Workspace FM Ltd (Liverpool Schools) Knowsley Housing Trust LACORS Lairdside Communities Trust Lee Valley Housing Association Ltd Libraries North West Liverpool & Knowsley Family Service Unit Liverpool 8 Law Centre Liverpool Airport PLC Liverpool Citizens Advice Bureau Liverpool Community Rights Liverpool Council for Social Aid
Liverpool Hope University Liverpool Vision Local Government Association Local Government International Bureau Merseyside Innovation Centre Merseyside Lieutenancy Merseyside Society for the Deaf Merseyside Welfare Rights Merseyside Youth Association Mott MacDonald (M.I.S.) National Care Standard Commission (NCSC) Netherley Citizens Advice Bureau North Huyton New Deal New Future North West Tourist Board Nugent Care Society Old Swan Citizens Advice Bureau Omnisure Property Management Parkhaven Trust Partners Credit Union Reliance Secure Task Management Sheila Kay Fund Sir Robert Jones Memorial Workshops South Liverpool Housing Ltd Southern Neighbourhood Council Speke Garston Development Company St. Gabriel’s Community Home St. Helens & District Society for the Deaf St. Helens Careers Service The Peoples Centre The Port Sunlight Village Trust Vauxhall Neighbourhood Council Village Housing Association Ltd Vinci Services Ltd (Holst FM) Vinci Services Ltd (Lorne Stewart) Walton Citizens Advice Bureau Wavertree Citizens Advice Bureau Wirral Autistic Society Wirral Council for Voluntary Service
21
Appendix B
Fund Background
Merseyside Pension Fund - Background Details The Merseyside Pension Fund was formed upon the reorganisation of Local Government in 1974 when the Merseyside County Council was set up to carry out selected functions for the area. Smaller funds were combined to form one large fund with an initial size of around £42 million. The Local Government re-organisation of 1986 saw the abolition of the Metropolitan County Council, and the Fund initially passed to the Merseyside Residuary Body. On 1 October 1987 the responsibility was transferred by statute to Wirral Metropolitan Borough Council, who were charged with the administration and management of the Fund. The Fund at that time had increased in value to approximately £1.1 billion. Since then growth of the Fund has been steady and at times spectacular. With assets of £2.47 billion as at 31 March 2003 the Fund ranked fifth largest Local Government fund, and amongst the top 40 largest pension funds in the United Kingdom. Wirral Council gave a commitment in 1987 to maintain a Fund presence in Liverpool to facilitate visits from the majority of its members, who live on the north side of the Mersey. The administration offices are in Castle Street in Liverpool City Centre, within Castle Chambers, an office building owned by the Fund.
22
Appendix C
Pensions Committee Items
WIRRAL MBC PENSIONS COMMITTEE Reports Considered at Pensions Committee The Committee met on 7 occasions during 2002/2003 to discuss the following items. Reports from the Investment Advisory Panel and the Pensions Information Office are also considered at each Committee Meeting. 5 June 2002 Equitable Life Update FRS17 Accounting for Retirement Benefits Investment in Regional Funds Investment Advisory Panel - Role and Membership Investment Management LGPS Stocktake Exercise Admission Applications 25 June 2002 Investment Management Monitoring Transaction Costs 17 September 2002 Latin America Capital Partners Review of Statement of Investment Principles Treasury Management Equitable Life Update Staffing Review - Administration and Investments Admission Applications Investment Management 19 November 2002 Bank Signatories Fund Accounts Year Ended 31 March 2002 Investment Management Beyond Transition LGPS Modernisation and Simplification Incidence of Ill Health Retirement Property Management Scheme AVC Arrangements Admission Applications 17 December 2002 Investment Management Arrangements Socially Responsible Investment Seminar 29 January 2003 Finance Department Plan 2003-2006 Pensions For Councillors Treasury Management Policy Statement Review of Scheme AVC arrangements Stocktake of the LGPS Update Securities Lending Green Paper on Pensions Reform Investment Management Arrangements Interim Actuarial Review as at 31 March 2002 District Audit Report for 2001/2002 Draft Administrative Budget 2003-2004 Admission Applications 25 March 2003 Treasury Management Plan and Strategy 2003/2004 Securities Lending Stocktake of the LGPS Update Socially Responsible Investment Policy Investment Management Arrangements Audit Plan 2002/2004 Admission Applications INVESTMENT ADVISORY PANEL Meetings were held on:- 15 May 2002, 24 July 2002, 30 October 2002 and 22 January 2003.
23
Appendix D
Information Contacts
Merseyside Pension Fund Internet Website Address: http://www.mersey-pens-fund.demon.co.uk Area
Name
Telephone number
Extension
Assistant Director of Finance
John Parry
0151 227 3316
1312
Pensions Administration
Peter Mawdsley
0151 236 4205
1333
Pensions Investment
Leyland Otter
0151 227 3316
1316
Financial Controller
Gerard Moore
0151 227 3316
1307
Transfers
Margaret Rourke
0151 236 4197
1369
Benefits/Payroll
Kevin Greenough
0151 236 4208
1354
Communication
Sue Davies
0151 236 4208
1361
AVC / Added Years
David Brown
0151 236 4240
1380
Information Technology
Karl Sherbrooke
0151 236 4208
1342
Fund Decisions
Director of Finance
0151 666 3491
Employer Decisions
Principal Pensions Officer
0151 236 4205
Fire and Civil Defence
Helen Jones
0151 225 2194
Knowsley M.B.C.
Mary McDonald
0151 443 4177
Liverpool C.C.
Vanessa Duncan
0151 233 3003
Liverpool J.M.U.
Terry Jones
0151 231 3562
Arriva North West
Les Usher
0151 522 2814
MerseyTravel
Linda Gedman
0151 227 5181
Sefton M.B.C.
Mike Nelson
0151 922 4040
St.Helens M.B.C.
Eric Astley
01744 456038
Police Authority
Ann Williams
0151 709 6010
National Probation Service (Merseyside)
Kevin Stamper
0151 920 9201
Waste Disposal
Peter Leyland
0151 709 3607
Wirral M.B.C.
Brian Beecroft
0151 666 3524
Resolution of Disputes
Scheme Employers
24
4126
8251
2351