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Contents

1

MANAGEMENT STRUCTURE

2

CHAIR’S INTRODUCTION

3

INVESTMENT REPORT

5

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


Management Structure At 31 March 2006 1 PENSION FUND MANAGEMENT COMMITTEE Voting Members Chair: Cllr S A Brown

Wirral

Cllr G Davies Cllr F M Doyle Cllr W A Duffey Cllr A McLachlan Cllr T Harney Cllr S R Mountney Cllr H Smith

Wirral Wirral Wirral Wirral Wirral Wirral Wirral

Cllr G C J Watt

Wirral

Cllr P Parry Cllr B O’Hare Cllr K Turner

Sefton Knowsley Liverpool

Employee Representatives Mr P Goodwin Mr P Wiggins

Unison Unison

Officers of the Fund Ian Coleman David Smith John Parry Peter Mawdsley Mark Reaney Colin Hughes

Director of Finance Deputy Director of Finance Head of Pension Fund Principal Pensions Officer Head of Legal and Member Services Assistant Borough Solicitor

2 ADVISERS TO INVESTMENT MONITORING WORKING PARTY Director of Finance Head of Pension Fund Mercer Investment Consulting Sarah Bates Noel Mills

3 OTHERS Auditor Bankers Consultant Actuary Custodian of Assets Ethical Advisers Property Advisers Performance Measurement Solicitor AVC Providers

Audit Commission The Royal Bank of Scotland plc Mercer HR Consulting State Street Pensions and Investment Research Consultants Ltd Savills Fund Management The WM Company Wirral MBC Equitable Life Assurance Society Standard Life Prudential 2


Chair’s Introduction

As the new Chair of the Pensions Committee, I am pleased to present Merseyside Pension Fund's Annual Report for the year ended 31 March 2006. 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

The Overall Aim of the Fund The 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 Fund During the year under review, the Fund has advanced in value by around £700m to over £4.0bn, a positive overall investment return of 22.9%, compared to its bespoke benchmark return of 21.9%. In a year of significant absolute returns, the Fund compared marginally unfavourably with the average Local Authority Fund which was more heavily weighted in favour of equities. This pattern of strong equity performance was evident across the globe, benefiting the Fund's performance in the UK (+26.8%), Continental Europe (+35.7%), North America (+26.3%) and Japan (+51.7%). A particular highlight was emerging markets which returned 64.5%. Property contributed 21.9% and there were solid contributions from bonds, cash and alternative investments. 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 8.5% per annum compound remains well ahead of both average earnings and inflation.

Councillor Tom Harney, Chair of Pensions Committee

3


Actuarial Valuation

Actuarial Valuation

Actuarial Valuation

At 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.

signed up for online access to their pension records on the web. New style improved annual benefit statements combined with State pension details were issued to active members and for the first time, statements were issued to deferred members. The annual employers' conference held at the Maritime Museum in November 2005 was again well attended and featured speakers from the Office of the Deputy Prime Minister, the Fund's Actuary Mercer Human Resource Consulting and members and officers from the Fund.

Legislation has been introduced which required the Fund to publish a policy statement setting out how the Fund deals with Governance matters, how stakeholders are represented on the Pensions Committee and how the Fund communicates with Scheme members and employers. The Fund has also been busy informing members about the impact of the taxation changes on pensions and the increased flexibility introduced, from 6 April 2006, by new HM Revenue & Customs rules.

According to the latest actuarial information, the strong investment performance over the last two years has contributed to the funding level at 31 March 2006 being estimated at 85% which equates to a deficit of around ÂŁ700m. Major changes to the Local Government Pension Scheme are under consideration and the financial implications of these changes will be taken into account at the next full actuarial valuation as at 31 March 2007.

Communication with Fund Employers and Members The current active membership of the Fund stands at approximately 49,300 with some 37,000 in receipt of pensions and a further 20,600 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 Fund website was redesigned and relaunched during the year and increasing numbers of members have

Past Changes and the Future During 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. Regulations such as the removal of the “85 Year� rule dealing with voluntary early retirement before age 65 were made, revoked following industrial action and subsequently replaced with new provisions currently due to be implemented from 1 October 2006. New investment regulations were introduced and provisions to provide survivor pensions for same sex partners as required by the Civil Partnership Act 2004.

Discussion and consultation also continues on the proposals for a new look Scheme to replace the current Scheme from April 2008. It is with much sadness we learnt, in February, of the sudden passing of Councillor Albert Smith who had represented St. Helens MBC on the Pensions Committee, since 1999. 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 advisers, 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


Investment Report Year ending 31 March 2006

Management of the Fund

Management of the Fund

The overall responsibility for the management of the Fund rests with the Pensions Committee, now chaired by Councillor Tom Harney (who replaced Councillor Sue Brown in May 2006).

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.

In 2005/06 the Committee comprised of Councillors from the Wirral Labour group (4), Conservatives (3), 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 around five times a year to review the administrative and investment issues affecting the Fund.

The more detailed consideration of investment strategy and asset allocation of the Fund's portfolios is considered by the 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.

John Parry, Head of Pension Fund

5


Management of the Fund

Management of the Fund

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.

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.

With regard to its investment management activities, the Fund uses a combination of internal and external managers. 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 at the time of writing the process for appointing a new manager of the comparative European portfolio is advanced. Nomura are responsible for equities in Emerging Markets, Japan, and the Far East, with Dresdner RCM managing the North America portfolio. Active Bonds are managed by Schroders and Legal & General Investment Management. Legal & General also

Cordea Savills Investment Management Ltd who report to the Head of Pensions 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.

manage the passive investments in a pooled fund.

6


Investment Report Year ending 31 March 2006

Leyland Otter, Investments

Investment Strategy

Corporate Governance

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.

Merseyside 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 &

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. 35

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

Portfolio Distribution (Market Value at 31 March 2006)

% of total assets

30

2006 2005

25 20 15 10 5 0

UK

s s s s s s er nts ed tie tie tie tie itie itie Oth me ink qui qui qui qui Equ Equ sh/ est dL tE tE eE nE a v e s e s a C US n x a k e I e r e E an op ed Ma Ind Far Jap Eur Fix ing erg m E

Figure 1. Portfolio Distribution (Market Value at 31 March 2006) 7

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Pro

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tu Ven

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an active member of the Local Authority Pension Fund Forum. Councillor Sue Brown is on the Local Authority Pension Fund Forum (LAPFF) executive board. The board 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 Composition 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 actual composition at the beginning and end of the reporting period is depicted in Figure 1.

MPF Total Return by Asset Class in year ended 31 March 2006

70 60

Fund Benchmark

50 Total Return (%)

Strategic Asset Structure Asset Strategic Class Benchmark % % UK Equities 31.0 Overseas Equities 25.0 North America 8.0 Japan 3.0 European (excl. UK) 9.0 Asia Pacific 2.5 Emerging Markets 2.5 Bonds 26.0 UK Fixed Interest Gilts 7.0 UK Index Linked 13.0 Corporate Bonds 6.0 Overseas Bonds 0.0 Property 10.0 Venture Capital/ Other Investments 6.0 Cash 2.0 Total 100

40 30 20 10 0

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Pro

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Gil

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Equ

Far

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s s s s itie itie itie itie Equ Equ Equ Equ S n a U UK e p o Eur

Em

Largest UK Equity Holdings as at 31 March 2006 Company Market Value Equity £'000 % BP PLC HSBC GlaxoSmithKline Vodafone Royal Dutch Shell Royal Bank of Scotland Astrazeneca Barclays Brixton PLC Lion Trust

42,965 29,915 25,961 23,497 18,720

9.0 6.3 5.5 5.0 4.0

17,793 14,935 12,460 12,004 10,524 208,774

3.8 3.0 2.6 2.5 2.2 43.9

The top ten holdings represent 43.9% of the total active UK Equity Portfolio Largest Property Holdings as at 31 March 2006 Property Market Value £'000 Cunard Building Liverpool Tunsgate Square Guildford Farnham Retail Park Middlemarch Business Park Coventry Horns Road Retail Park Ilford

29,600 29,600 23,150 21,350 18,050

Figure 2. Total Return by Asset Class in year ended 31 March 2006

8


Investment Report Year ended 31 March 2006

Review of Investment Performance

Review of Performance

The Fund achieved a strong investment performance during the year to 31 March 2006 with a total return of 22.9% against a bespoke benchmark return of 21.9%. Over the same period, the average return of Local Authority Pension Funds based on the WM Universe was 24.9%.

with the Fund returning 51.7% against a benchmark return of 48.2%. Elsewhere, the Fund's stock market returns from the Pacific Basin (excluding Japan) and from Emerging Markets were well ahead of their respective benchmark targets.

In the UK, the Fund returned 26.8% against a target benchmark of 28%. European equities (excluding UK) returned 35.7% against a benchmark return of 36%. In North America, the Fund returned 26.3% against a benchmark return of 24.3%. This marks a reversal of last year's underperformance and resulted from a combination of strong stock selection and a recovery in the dollar. Performance in Japan was also strong

Investment

The Fund's fixed income investments (bonds) performed broadly in line with their benchmarks and property enjoyed another strong period of growth returning 21.9%, ahead of the benchmark return of 20.9%. Returns from cash and other alternative investments (including hedge funds) were particularly robust with the Fund returning 9.5% compared to its benchmark return of 4.6%. Comparative returns for the Fund underline strong sustained growth over an extended period.

Comparative Returns for the Fund

Merseyside Pension Fund Benchmark Inflation Average Earnings

9

1 Year % 22.9 21.9 2.2 4.6

3 Years % 18.0 18.1 2.8 4.2

5 Years % 6.8 6.0 2.4 3.7

10 Years % 8.5 7.6 2.6 4.3


Financial Statements FUND ACCOUNT for the year ended 31 March 2006 Note

2006 £’000

2005 £’000

184,304 20,131 204,435 174,933 17,682 3,253 195,868

170,130 18,472 188,602 163,490 31,721 3,150 198,361

8,567

-9,759

70,181 679,507 330 -4,058 00745,960

70,413 271,194 -144 -4,156 337,307

754,527

327,548

Net Assets of the Fund at start of year

3,287,006

2,959,458

Net Assets of the Fund at end of year

4,041,533

3,287,006

Contributions and Benefits Contributions receivable Transfers in Benefits payable Leavers Administration expenses

3

4 5

Net additions from dealings with members Return on Investments Investment income Change in market value of investments Exchange Investment management expenses Net return on Investments

6 7 8

Net increase in the Fund during the year

NET ASSETS STATEMENT AS AT 31 MARCH 2006 Note

2006 £’000

2005 £’000

0

294,167

0 120,743 1,065,982

173,227 74,732 954,443

Properties Short Term Deposits

2,409,519 307,225 103,974

1,365,242 287,450 108,796

Other Assets and Liabilities

4,007,443 34,090

3,258,057 28,949

4,041,533

3,287,006

Investments Fixed Interest Securities Index-linked Securities

7

Other Investments Equities Managed or Unitised Funds

9

Net Assets of the Fund as at 31 March 2006

10


Financial Statements Notes to the Accounts

Gerard Moore, Financial Controller

1 GENERAL

2 ACCOUNTING POLICIES

2 ACCOUNTING POLICIES

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 within the guidelines set out in the Statement of Recommended Practice, Financial Reports of Pension Schemes (SORP).

Basis of preparation

Rental income

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.

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. The Fund accrues rent up to 24 March each year. Rent in advance received on the Quarter Day, 25 March, is accounted for in full in the following year.

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.

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 2006.

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". 11

Contributions and benefits Contributions 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 schemes Transfer 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 expenses In accordance with the SORP, for the accounts for year ended 31 March 2006, certain costs, totalling ÂŁ611,000, have been re-classified as investment management expenses rather than as administrative expenses. The figures for 2004/05 have been amended on a comparable basis.


2006 £’000

2005 £’000

125,920 11,523

114,129 10,113

46,861 184,304

45,888 170,130

27,394 135,755 21,155 184,304

26,025 123,754 20,351 170,130

Pensions Lump sum retiring allowances Lump sum death benefits

150,533 21,810 2,590 174,933

142,773 18,745 1,972 163,490

relating to: Administering Authority relating to: Statutory Bodies relating to: Admission Bodies

26,394 132,401 16,138 174,933

24,854 123,425 15,211 163,490

3 CONTRIBUTIONS RECEIVABLE Employers Normal Early retirement funding Employees Normal

relating to: Administering Authority relating to: Statutory Bodies relating to: Admission Bodies

4 BENEFITS PAYABLE

5 PAYMENTS TO AND ON ACCOUNT OF LEAVERS Refunds to members leaving service Payments for members joining state scheme Individual transfers to other schemes

255 111 17,316 17,682

504 313 30,904 31,721

11,555 1,194

10,333 3,132

35,298 16,242 5,814 78 70,181

34,186 17,285 5,365 112 70,413

6 INVESTMENT INCOME Fixed interest securities Index-linked securities Dividends from equities, managed and unitised funds Net rents from properties Interest on deposits Other

Dividends from equities, managed and unitised funds include an expected £512,000 net tax recovery relating to unfranked income from 2001 to 2006. As at 31 March 2006, £52.4 million of stock was on loan to market makers, which was covered by non-cash collateral totalling £55.3 million. 12


7 INVESTMENTS

Fixed interest securities Index-linked securities Equities Managed & Unitised Funds Other Properties Short term deposits

Market Value 31/3/05 £'000 294,167 173,227 954,443 1,365,242 74,732 287,450 108,796 3,258,057

Purchases at cost £'000 173,346 17,802 364,169 990,133 46,942 2 0 1,592,394

Sale Proceeds £'000 470,239 195,200 499,584 313,416 20,097 19,157 4,822 1,522,515

Change in Market* value £'000 2,726 4,171 246,954 367,560 19,166 38,930 0 679,507

Market Value 31/3/06 £'000 0 0 1,065,982 2,409,519 120,743 307,225 103,974 4,007,443

*Note: The change in market value of investments during the year comprises all realised and unrealised appreciation and depreciation. During the year, the Fund's holdings in fixed interest and index-linked securities moved from segregated (directly held) to unitised funds.

2006 £’000

2005 £’000

0 0 0 0

110,788 132,861 50,518 294,167

0

173,227

438,542 627,440 1,065,982

419,393 535,050 954,443

241,444 192,970 26,181 425,995 883,391 517,035 83,003 39,500 2,409,519

28,480 28,853 7,328 249,944 646,144 288,325 79,795 36,373 1,365,242

120,743

74,732

245,700 61,525 307,225

233,025 54,425 287,450

103,974

108,796

Fixed Interest Securities (segregated holdings)* UK Fixed Interest UK Corporate Bonds Overseas Fixed Interest *Other than Corporate Bonds, all are public sector securities.

Index-Linked Securities (segregated holdings) Equities (segregated holdings) UK Quoted Overseas Quoted Managed and Unitised Funds UK Fixed Interest UK Corporate Bonds Overseas Fixed Interest Index-Linked Securities UK Equities Overseas Equities Unlisted Securities (Private Equity) Property Unit Trusts

Other Investments UK Properties Freehold Leasehold

Short Term Deposits

8 INVESTMENT MANAGEMENT EXPENSES Fees paid to the six major investment managers amount to £3.389m and constitute the bulk of the figure of £4.058m investment management fees. Charges vary between fund managers,

13

and between markets and types of security. Charges are calculated as a percentage of the value of the investments. Costs of the internal investment team are also included here.


9 CURRENT ASSETS AND LIABILITIES Assets Contributions due Accrued and outstanding investment income Due from stockbrokers Cash at bank Sundries Liabilities Due to stockbrokers Transfer values payable Provisions Miscellaneous Total Other Assets and Liabilities The high level of funds due from and to stockbrokers as at 31.3.2005 reflected the implementation of the changes in Asset Allocation, following the Triennial Valuation of the Fund as at 31 March 2004. The figure of debtors does not include future payments from employers who are making special additional payments in respect of early retirement costs over an agreed number

2006 £’000 16,840 7,067 12,274 8,179 4,457 48,817

2005 £’000 15,550 7,086 8,777 90,326 3,173 124,912

1,305 5,000 935 7,487 14,727

79,142 10,086 522 6,213 95,963

34,090

28,949

of years. As funding arrangements for these will change from 1 April 2006, a change of accounting policy will be reviewed for that year. The transfer values payable figure reflects an anticipated payment from the Fund in 2006-2007 in respect of the membership of a significant group of former MPF members who have moved their membership to a new employer.

10 COMMITMENTS Commitments for investments amounted to £77,484,000 as at 31 March 2006.

11 RELATED PARTY TRANSACTIONS Administration and investment management costs include charges by Wirral MBC in providing services in its role as administering authority to the Fund, which amount to £3,087,000 (2005 £2,934,000). Such charges principally relate to staffing required to maintain the pension service.

A specific declaration has been obtained from principal officers and Pensions Committee members regarding transactions with such persons or their related parties. No declarable related party transactions have been reported under this procedure.

12 SUMMARY OF MANAGERS' PORTFOLIO VALUES 12 AS AT 31 MARCH 2006 Externally Managed Barclays Global Investors Dresdner Nomura Schroders Legal & General (Pooled Assets) Legal & General (Bonds)

£m 511 177 354 271 1,154 268 2,735

% 12.8 4.4 8.8 6.8 28.8 6.7 68.3

Internally Managed

1,272 4,007

31.7 100.0

13 ADDITIONAL VOLUNTARY CONTRIBUTIONS 13 INVESTMENTS The Committee holds assets invested separately from the main fund. The Scheme providers are Equitable Life, Standard Life and Prudential. Members participating in this arrangement each Equitable Life Standard Life Prudential

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: 2006 2005 £’000 £’000 3,893 4,537 6,316 5,204 2,264 1,129 12,473 10,870 14


Statement of Responsibilites

The Authority's Responsibilities The Council as Administering Authority of the Merseyside Pension Fund is required: z 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.

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 2006. In preparing this statement of accounts, the Director of Finance has: z Selected suitable accounting policies and then applied them consistently

z To manage the affairs of the Fund to secure economic, efficient use of resources and safeguard its assets.

z Made judgements and estimates that were reasonable and prudent

The Director of Finance's Responsibilities

The Director of Finance has also: z Kept proper accounting records which were up to date

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

z Complied with the Code

z 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 2006, and its income and expenditure for the year then ended.

Director of Finance Date 25 September 2006

15 Ian Coleman, Director of Finance


Auditors’ Report Independent Auditors’ Report to the Members of the Merseyside Pension Fund on the Pension Fund Annual Report

I have examined the financial statements included in the Pension Fund Annual Report which comprise the Fund Account, the Net Assets Statement and the related notes. 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 36 of the Statement of Responsibilities of Auditors and of Audited Bodies prepared by the Audit Commission.

Basis of Opinion I conducted my work in accordance with paragraphs 15-18 of Bulletin 1999/6 ' The Auditor’s statement on the summary financial statement' issued by the Auditing Practices Board.

Opinion In my opinion the financial statements included in the Annual Report are consistent with the statutory financial statements of the Authority for the year ended 31 March 2006.

Respective Responsibilities of the Director of Finance and Auditors

Auditor: Name

The Director of Finance is responsible for preparing the Annual Report in accordance with the Statement of Recommended Practice 'Financial Reports of Pensions Schemes 2002'. My responsibility is to report to you my opinion on the consistency of the financial statements. I also read the other information contained in the Annual Report and consider the implications for my report if I become aware of any misstatements or material inconsistencies with the statutory financial statements.

Signature:

Judith Tench

Address: Audit Commission The Heath Runcorn Cheshire WA7 4QX Date: 29 September 2006

16


Scheme Administration

Peter Mawdsley, Principal Pensions Officer

Merseyside Pension Fund operates the Local Government Pension Scheme, (LGPS) which provides 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 the participating employers is shown at Appendix A. The Scheme is a public service pension scheme regulated by statute through the Department for Communities and Local Government (DCLG). It is a contributory final salary scheme, which is contracted out of the Second State Pension and is exempt approved for tax purposes.

17

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/civil partners and children's pensions, ill health, redundancy and death cover. Quite clearly it is a comprehensive scheme and yet, through the co-operation of the Government, employer and employee representatives, the Scheme is constantly changing and adapting to modern day needs and demands. The Government is still in the process of undertaking a review of all public service pension schemes to tackle the issues of increasing longevity and the consequential increase in pension costs. For the LGPS the DCLG is involved to ensure continuity with other public service scheme responses but scheme specific changes following on from the

Stocktake Review of the LGPS are being discussed at the recently established Tripartite committee. New LGPS regulations came into force on 6 April 2006 and reflect changes made by HM Revenue & Customs to the tax treatment of pensions. To ensure the long term security of the Scheme, changes to the “85 year� rule on retirement before the normal retirement age of 65 take effect from 1 October 2006. Discussions are also still continuing on transitional protection proposals and about the introduction of a new-look Scheme from April 2008.

Legislation The principal regulations were amended during the year by the following statutory instruments: The Local Government Pension Scheme (Amendment) Regulations 2005 (Into force retrospectively to 1 April 2005) To revoke the changes previously made to the 85 year rule.

Membership

31 March 2006

31 March 2005

Contributors

49,307

49,559

Pensioners

37,535

36,994

Deferred beneficiaries

20,572

18,654


The LGPS and Management and Investment of Funds (Amendment) Regulations 2005 (Into force 17 August 2005) Changes to limits on stock lending and minor technical amendments to the main regulations including the definition of “qualified in occupational health medicine�.

The Local Government Pension Scheme (Amendment) Regulations 2006 (Into force from 1 and 6 April and 1 October 2006) Changes linked to the introduction of the new simplified tax regime and the abolition of the 85 year rule, subject to further discussions on transitional protection.

The Local Government (Civil Partnership) (Amendment) Regulations 2005 (Into force 5 December 2005) To make provision to implement the survivor pension provisions for same sex partners of the Civil Partnership Act 2004.

The Draft Local Government Pension Scheme (Amendment) (No 2) Regulations 2006 Draft regulations proposing extended transitional protection for the changes to the 85 year rule were issued for consultation on 26 May 2006 and intended to be implemented in place of the previous arrangements proposed for implementation from 1 October 2006.

The Local Government Pension Scheme (Amendment) (No 2) Regulations 2005 (Into force 14 December 2005) Requirement for the Fund to publish a Representation Policy Statement and Communication Policy Statement.

Service Standards Charter Results of performance against target are shown below: -

Performance Targets

Target

Within Target %

Payment of retirement benefits

7 days

95

Payment of monthly pensions

100%

100

Payment of transfer values

7 days

96

Provision of inward transfer quotes

10 days

96

Payment of refunds

7 days

94

Provide mis-selling costs

10 days

99

Provide valuation in divorce cases

10 days

99

Respond to members enquiries

10 days

87

(Details given in respect of 12 month period to 31 March 2006)

18


Scheme Administration

Key Improvement Areas The key improvement areas identified for the pension administration unit are as follows: 1. Improved efficiency through development of information technology capability and application. Scheme members are now able to gain online access to their own pension details and to perform benefit projections to enable them to see the value of their benefits through the internet. Further development and enhancement of these facilities is to take place. 2. Enhanced communications, consultation and marketing of the benefits of the Scheme to employers, employees and beneficiaries. Further improvements to the range of Scheme literature and the Fund website are planned as part of the communication required of the future Scheme changes as modernisation continues in the run up to April 2008. 3. Development of training policies and procedures to ensure the quality of Membership Merseyside Pension Fund CIPFA Average Private Sector In-house Private Sector Outsourced

19

service provision to Scheme members. Further work is underway both within the Fund and with partners to extend the training opportunities available for Scheme members, employers and elected members. 4. Efforts to increase take up of Scheme membership. A major review of the current arrangements for promotion of the Scheme is underway in conjunction with employers, in an effort to identify any improvements required to ensure Scheme members maximise their pension opportunities.

Comparisons/Benchmarking The Fund continues to participate in the Chartered Institute of Public Finance and Accountancy (CIPFA) annual benchmarking survey. The results of unit cost comparison for the most recent report published (2004/2005) are shown below: The individual totals within the survey showed that the MPF had a lower 2004/05

2003/04

£19.61 £22.23 £37.81 £29.05

£19.31 £22.53 £38.91 £29.95


staffing cost than the CIPFA average, but had a higher expenditure on Communications. This reflects MPF's greater commitment to quality communications especially in such areas as postage of relevant information to members’ home addresses. 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 Since 1 June 2004, individual employers are responsible for considering Stage 1 appeals against decisions made by 7

them, with the Fund responsible for considering Stage 1 appeals against its own decisions and all Stage 2 appeals, instead of the ODPM/DCLG. During the year to 31 March 2006, there were no new cases to be dealt with by the panel of Appointed Persons responsible for complaints against decisions made by the Fund. A total of 14 new cases were dealt with by the panel of Appointed Persons responsible for considering Stage 2 appeals against employer decisions. As in previous years, a significant number of cases have concerned either refusal to grant ill health retirement or to bring preserved benefits into payment early on ill health grounds.

Breakdown of Appeals against Employer Decisions

6 5 4 3 2 1 0

d nt l d h ase e nce d il eme rre rele ionat use retir efe healt nha f d e d e d d R lth ll use ass use n i use Ref comp hea Ref efit o Ref rs on unds ea ben unds y gro gro

y arl dE use ent f e R irem ret

le nab sio ed in n e P us ion pay culat cal

20


Consulting Actuary’s Statement

21


22


Supplementary Note

23


Appendix A Employer Membership CURRENT SCHEDULED BODIES Academy of St Francis Birkenhead School (2002) Birkenhead Sixth Form College Burton Manor Residential Home Carmel College 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 Holdings Limited Merseyside Fire & Rescue Authority Merseyside Passenger Transport Authority

Merseyside Passenger Transport Executive Merseyside Police Authority Merseyside Valuation and Community Charge Tribunal Merseyside Waste Disposal Authority National Probation Service (Merseyside) North Liverpool Academy Prescot Town Council Rainford Parish Council Rainhill Parish Council Sefton MBC Southport College St. Helens College St. Helens MBC Whiston Parish Council Wirral Metropolitan College Wirral MBC Woodchurch High School

CURRENT ADMISSION BODIES 2020 Knowsley Parkman 2020 Liverpool Parkman Age Concern - Liverpool Arriva North West Association of Police Authorities Beechwood & Ballantyne Housing Association Beechwood Educare Centre Berrybridge Housing Ltd. Birkenhead Citizens Advice Bureau Birkenhead Market Services C.I.C. Drug Services Catholic Childrens' Society CDS Housing Cobalt Housing Ltd. Commission for Social Care Inspection Community Technical Services Agency Enterprise (Liverpool Cleansing) Enterprise (Liverpool Housing) Enterprise (Liverpool Highways) Ltd. Enterprise (Liverpool Repairs) Enterprise (St. Helens) Geraud Markets (Liverpool) Ltd. Glenvale Transport Ltd. Greater Hornby Homes Greater Merseyside Connexions Green Apprentices Ltd. Groundwork Trust Ltd. Helena Housing Hopkinson Catering (Sacred Heart School) Jarvis Workplace FM Ltd (Liverpool Schools) Jarvis Workplace FM Ltd. (Wirral Schools) Knowsley Housing Trust LACORS/LACOTS Lairdside Communities Trust Lee Valley Housing Association Ltd. Libraries North West Liverpool 8 Law Centre Liverpool Association for the Disabled

Liverpool Citizens Advice Bureau Liverpool Community Rights Liverpool Council for Social Aid Liverpool Hope University College Liverpool Housing Trust Liverpool John Lennon Airport PLC Liverpool Vision Local Government Association Local Government International Bureau Merseyside Lieutenancy Merseyside Society for the Deaf Merseyside Welfare Rights Merseyside Youth Association Mott McDonald (M.I.S.) Netherley Citizens Advice Bureau North Huyton New Deal New Future North Liverpool Citizens Advice Bureau Nugent Care Partners Credit Union Sefton Education Business Partnership Sir Robert Jones Memorial Workshops South Liverpool Housing Ltd. Southern Neighbourhood Council St. Gabriel's Community Home Taylor Shaw Catering Ltd. (St Wilfred's) The Peoples Centre The Port Sunlight Village Trust University of Liverpool Upton Hall Convent Vauxhall Neighbourhood Council Village Housing Association Ltd. Vinci Services Ltd. (Holst FM) Vinci Services Ltd. (Lorne Stewart) Wavertree Citizens Advice Bureau Wirral Autistic Society Wirral Council for Voluntary Services Wirral Partnership Homes (Building Services) Ltd. Wirral Partnership Homes Ltd.

24


Appendix B Pensions Committee Items WIRRAL MBC PENSIONS COMMITTEE The Committee met on 5 occasions during 2005/06 to discuss the following items. Reports from the Investment Monitoring Working Party are also considered at Committee.

28 June 2005 Fund Accounts: Year Ended 31 March 2005 Audit Plan 2005/06 Consultation on changes to the LGPS External Managers Evaluation Policy Investment Performance 2004/05 Arrangements for administration of the Firefighters Pension Scheme Investment in Henderson PFI Secondary Fund Admission Body Application Mellors Catering Services - Liverpool City Council - Catering at St. Julie's School. Investment in Standard Life ESP Fund Reserve Transition Manager Tenders

21 September 2005 Audit of Accounts Inland Revenue Regulations Consultation Review of Scheme Additional Voluntary Contributions (AVC) Arrangement Consultation on Draft Local Government (Civil Partnership) (Amendment) Regulations 2005 Update on the Future of the LGPS Review of Statement of Investment Principles (SIP) Funding Strategy Statement Corporate Governance - Environmental Issues Annual Employers Conference Merseyside Special Investment Fund Interim Actuarial Review as at 31 March 2005 Reserve Transition Managers Review of Potential Unfunded Liabilities for Admission Bodies Admission Agreement - Purchase of Glenvale Transport by the Stagecoach Group Actuarial Services Tenders Investment Consultancy Tenders Tenders for Banking Services

24 November 2005 Management of European Equities: Transition of Wellington Portfolio and Future Strategy Merseyside Special Investment Fund

25

19 January 2006 Presentation by the District Auditor on the Annual Audit Letter 2004/05 Requirement to Publish Governance Policy Statement Pension Commission Second Report November 2005 Payment of Death Grant Local Government Pension Scheme (Civil Partnership) (Amendment) (England and Wales) Regulations 2005 Communications Policy Consultation on Changes to the Local Government Pension Scheme (LGPS) Treasury Management: Plan and Strategy 2006/07 Budget 2006/07 Local Government Pension Scheme Members Seminar Helena Housing and Knowsley Housing Trust Applications for Review of Bond Requirements Standard Life Assurance Company Proposed Demutualisation Management of European Equities: Manager Selection Tenders - Alternative Assets Portfolio Merseyside Special Investment Fund

7 March 2006 Bank Signatories Finance Department Plan 2006/09 Requirement to publish a Governance Policy Statement Communications Policy Consultation on Changes to the Local Government Pension Scheme (LGPS) including Taxation Matters Member Training 2006 Appointment of Investment Manager Consultants Investment in Cordea Savills Student Hall Fund Private Equity Investment in Rising Stars II Merseyside Special Investment Fund Investment Monitoring: Inalytics

INVESTMENT MONITORING WORKING PARTY Meetings were held on:- 25 May 2005, 14 September 2005, 17 November 2005 and 23 February 2006.


Appendix C Information Contacts MERSEYSIDE PENSION FUND Internet Website Address: www.merseysidepensionfund.org.uk Area

Name

Telephone number

Head of Pension Fund

John Parry

0151 242 1381

Principal Pensions Officer

Peter Mawdsley

0151 242 1333

Financial Controller

Gerard Moore

0151 242 1307

Investments

Leyland Otter

0151 242 1316

Member Services

Margaret Rourke

0151 242 1369

Benefits/Payroll

Kevin Greenough

0151 242 1354

Operations (IT/Communications)

Guy Hayton

0151 242 1361

Employer Decisions

Principal Pensions Officer

0151 242 1333

Fund Decisions

Director of Finance

0151 666 3491

Arriva North West

Angela Irwin

0151 522 2814

Fire and Rescue Service

Helen Jones

0151 225 2194

Knowsley MBC

Mary McDonald

0151 443 4177

Liverpool City Council

Vanessa Duncan

0151 233 3003

Liverpool John Moores University

Jayne Brown

0151 231 3564

Merseytravel

Linda Gedman

0151 227 5181

National Probation Service (Merseyside)

Kevin Stamper

0151 920 9201

Police Authority

Ann Williams

0151 709 6010

Sefton MBC

Mike Nelson

0151 922 4040

St. Helens MBC

Eric Astley

01744 456038

Waste Disposal Authority

Paula Pocock

0151 255 1444

Wirral MBC

Helen Watkins

0151 666 3524

RESOLUTION OF DISPUTES

SCHEME EMPLOYERS CONTACTS

26


MPF R&A/600/10.06

Merseyside Pension Fund PO Box 120, Castle Chambers, 43 Castle Street, Liverpool L69 2NW. Email: mpfadmin@wirral.gov.uk www.merseysidepensionfund.org.uk

Report & Accounts 2005/2006  

Merseyside Pension Fund's financial and administrative report for the year ending 31 March 2006.

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