Report & Accounts 2004/2005
Contents 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 PENSIONS COMMITTEE ITEMS
22
APPENDIX C INFORMATION CONTACTS
23
Chair’s Introduction
Sue Brown Chair of Pensions Committee
As the Chair of the Pensions Committee, it is my pleasure to introduce the Merseyside Pension Fund Annual Report for the year ended 31 March 2005. 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 Fund
continues to
rank within the
“
top quartile.
2
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 Following strong equity returns in 2003/04 which saw the end of a particularly difficult bear market in equities, the year under review has been stable rather than spectacular. With the exception of Japan, all the main markets generated positive returns, and overall the Fund has advanced by some £300m producing a favourable return of some 12.2% or 1.1% ahead of its bespoke strategic benchmark, which puts the Fund in the top 25 of Local Authority pension funds for the year. The Fund continues to rank within the top quartile of such funds regarding its investment performance over the three, five and ten year periods respectively. In a more settled environment, equity markets in UK and continental Europe produced returns of 15.5% and 15.9% respectively. The weak dollar restricted the return in the United States to 1.7% whilst following an exceptional return of around 60% in the previous year, the value of Japanese holdings retreated by some 3.2%. The Fund also benefited from double-digit returns in property, private equity and other alternative investments. The management of the Fund, distribution of assets and performance are dealt with in more detail later in this report.
Actuarial Valuation The Fund’s triennial actuarial review, based on the figures as at 31 March 2004, has been completed and employers have been notified of the results. Although investment performance was good when compared with other pension funds, the returns were lower than in previous years and the funding level over the three years dropped from 94% to 76% against the background of three consecutive years of negative equity growth. The average employer contribution rate to meet the funding objective is 16.1% (14.0% at the previous valuation), which assumes that the deficit will be removed by an average contribution addition of 6.8% of pensionable pay for 25 years. The Fund continues to benefit from improvements in ill health retirement levels.
The current active membership of the Fund stands at approximately 49,500 with some 36,900 in receipt of pensions and a further 18,600 members with deferred benefits. Effective communication remains an important issue for the Fund, which has continued to offer a variety of presentations and training courses during the year. Members are also kept informed from the Fund newsletter and information published on the web-site. The annual employers’ conference held at the Maritime Museum in November 2004 was again well attended and featured David Laverick the Pensions Ombudsman, and 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 information on the latest actuarial position and updates on changes to the Scheme from April 2005, and proposals for a new scheme from 2008.
“
The average employer contribution rate to meet the
“
Communication with Fund Employers and Members
funding objective is 16.1%.
Seminars have also been arranged during the year for employers which covered: z
Guidance on the revised Internal Dispute Resolution Procedures (IDRP).
z
Training on the 2005 changes to the Scheme organised in association with the LGPC.
Past Changes and the Future During the year, the administration team 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 and to monitor developments at its Additional Voluntary Contribution providers; Equitable Life Assurance Society, Standard Life Assurance and Prudential Assurance. Significant developments have involved dealing with the changes to the options available to re-employed deferred beneficiaries, new IDRP arrangements from June 2004 as well as changes to earliest retirement age and the 85-year rule, laid before Parliament with effect from April 2005. Following the revocation of the April 2005 Regulation changes, further consultation is continuing with a view to introducing new regulations by April 2006 to ensure the long term financial security of the Scheme. The ongoing Stocktake Exercise into the operation of the Local Government Pension Scheme which HM Government has been undertaking, has involved a further major consultation exercise with the various stakeholder groups on options for change from April 2006 in line with Inland Revenue reforms and for the introduction of an entirely new scheme to replace the present Scheme, possibly from April 2008. As ever, the continued success of the Fund depends on the combined efforts of all concerned with the Fund. In conclusion, I should like to thank the Committee, the financial advisers, the external investment managers and all of Fund’s Investment and Administration staff for their considerable work.
3
Management Structure At 31 March 2005 1 PENSION FUND MANAGEMENT COMMITTEE Voting Members Chair: Cllr S A Brown
Wirral
Cllr G Davies Cllr F M Doyle
Wirral Wirral
Cllr P Parry Cllr B O Hare
Sefton Knowsley
Cllr W A Duffey Cllr T Harney Cllr A McLachlan
Wirral Wirral Wirral
Cllr K Turner Cllr A Smith Mr T Jones (L JMU)
Cllr R K Moon
Wirral
Liverpool St Helens Non district employer representative
Cllr S R Mountney Cllr H Smith Cllr G C J Watt
Wirral Wirral Wirral
Employee Representatives Mr P Goodwin Mr P Wiggins
Unison Unison
Officers of the Fund Ian Coleman David Smith John Parry
Director of Finance Deputy Director of Finance Assistant Director of Finance
Peter Mawdsley Mark Reaney Colin Hughes
Principal Pensions Officer Head of Legal and Member Services Assistant Borough Solicitor
2 ADVISERS TO INVESTMENT MONITORING WORKING PARTY Director of Finance Assistant Director of Finance Mercer Investment Consulting Sarah Bates Noel Mills
3 OTHERS
4
Auditor Bankers Consulting Actuary
Audit Commission The Royal Bank of Scotland plc Mercer HR Consulting
Custodian of Assets Ethical Advisers Property Advisers Performance Measurement Solicitor Additional Voluntary Contributions Providers
The Bank of New York Pensions and Investment Research Consultants Ltd Savills Fund Management The WM Company Wirral MBC Equitable Life Assurance Society Standard Life Prudential
Investment Report Year ended 31 March 2005 Management of the Fund The overall responsibility for the management of the Fund rests with the Pensions Committee, chaired by Councillor Sue Brown. In 2004/05 the Committee comprised of Councillors from the Wirral Labour group (4), Conservatives (3), Liberal Democrats (3), representatives of the four other District Authorities (Liverpool, St. Helens, Knowsley and Sefton), 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. The more detailed responsibility for investment strategy and asset allocation of the Fund’s portfolios is delegated to the Investment Monitoring Working Party. This Working Party, which comprises representatives from the Pensions Committee, two independent advisers as well as Mercers Investment Consulting and members of the in-house investment team, 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, Assistant Director of Finance, Pension Fund.
The Fund uses a combination of internal and external investment managers, who work within a framework determined by the Pensions Committee. UK and Pan-European equity portfolios are managed internally with parallel portfolios managed by Barclays Global Investors and Wellington Investment Management respectively. Nomura are responsible for equities in Japan, the Far East and Emerging Markets, with RCM Dresdner managing the North America portfolio. Active bonds are managed by Schroders and Legal & General Investment Management. Legal & General also manage the passive investments in a pooled fund. Internal fund managers report to the Director of Finance through regular meetings of the Fund Operating Group and follow laid down compliance procedures. All fund managers (external and internal) have been given specific benchmarks against which performance is measured and monitored quarterly at meetings of the Investment Monitoring Working Party. The Fund’s property portfolio is managed by Savills Fund Management, who report 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.
5
Investment Report Year ended 31 March 2005 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. Since 1999, there has been a movement 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 most recently reviewed by Mercer HR Consulting in 2005 and the recommendations substantially implemented at the year end. Figure 1. Portfolio Distribution (Market Value at 31 March) 40
Leyland Otter Senior Investments Manager % of total assets
35 30 25 20 15 10 5
2005
Ca pit al
Ve nt ur e
Pr op ert y
Ind ex Lin ke d Ca sh /O th er
Gi lts
US Eq uit Eu ies ro pe an Eq uit Ja ies pa ne se Eq uit ies Fa rE as tE qu iti Ma es rke tin Em g E erg qu ing itie s
UK
Eq uit ies
0
2004
Corporate Governance Merseyside Pension Fund recognises its responsibility as an investor to promote and encourage good 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 company AGMs and EGMs to promote best practice. The Fund has recently extended its voting to include the top 300 European companies. The Fund receives detailed advice and recommendations from Pensions and Investment Research Consultants Ltd.(PIRC) to inform its voting decisions and is an active member of the Local Authority Pension Fund Forum. Councillor Sue Brown, Chair of the Fund, is on the Local Authority Pension Fund Forum (LAPFF) executive board. The Fund is also an active member of the Institutional Investors Group on Climate Change (IIGCC). Through its PIRC, LAPFF and IIGCC affiliations, the Fund seeks to support the development of consistent, informed and fair corporate governance policies that promote good practice across the market as well as for individual companies. The Fund is substantially compliant with the Myner’s principles. 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 and published on the Fund’s website. It covers: 6
• Effective Decision Making • Explicit Mandates • Performance Measurement • Clear Objectives • Activism • Transparency • Focus on Asset Allocation • Appropriate Benchmarks • Regular Reporting • Expert Advice
Investment Report
for year ended 31 March 2004
Strategic Asset Structure
Fund Composition
Asset Class
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.
UK Equities Overseas Equities North America Europe (exUK) Japan Asia Pacific Emerging Markets Bonds UK Fixed Interest Gilts UK Index Linked Corporate Bonds Overseas Gilts Property Venture Capital / Other Investments Cash
TOTAL
Strategic Detail Benchmark % % 31 25 8.0 9.0 3.0 2.5 2.5 26 7.0 13 6.0 0.0 10 6 2
100
Figure 2. Total Return by Asset Class in year ended 31 March 2005
25 15 10 5 0 -5
Largest UK Equity Holdings as at 31 March 2005
Largest Property Holdings as at 31 March 2005
Fund
Ca sh /O th er Ind ex Lin ke Ov d ers ea sB on ds
Benchmark
Gi Em lts erg ing M Eq ark u itie et Fa rE s as tE qu iti Ja es pa ne se Eq uit Eu ies ro pe an Eq uit ies US Eq uit ies UK Eq uit ies
-10 Pr op ert y
Total Return (%)
20
Company BP Vodafone HSBC R. B. of Scotland GlaxoSmithKline Shell Transport AstraZeneca Barclays HBOS Mersey Docks & Harbour
Market Value £’000 35,113 33,737 29,666 22,585 20,924 19,040 15,554 11,103 10,317 8,694 206,733
Equity % 7.8 7.5 6.6 5.0 4.6 4.2 3.5 2.5 2.3
Property
Market Value £’000
Tunsgate Square, Guildford
26,200
Cunard Building, Liverpool
25,100
Farnham Retail Park
20,100
Middlemarch, Coventry
18,800
Horns Road, Ilford
16,000
1.9 45.9
The top ten holdings represent 45.9 % of the total UK Equity Portfolio
7
Investment Report Year ended 31 March 2005 Review of Investment Performance During the year to 31 March 2005 the Fund’s return was 12.2%, which was ahead of the Fund’s bespoke strategic benchmark return of 11.0%. Over the same period, the average return of Local Authority Pension Funds based on the WM Universe was 11.7%. This performance enabled the Fund to continue to rank in the top 25% of Local Authority returns over 3, 5 and 10 years.
Comparative Returns for the Fund 1 Year 3 Years 5 Years 10 Years % % % % Merseyside Pension Fund
12.2
4.6
1.7
8.4
Benchmark*
11.0
3.5
0.5
7.5
Inflation
3.2
3.0
2.5
2.6
Average Earnings
5.0
4.2
4.0
4.3
* The Fund has achieved an investment return well in excess of benchmark over all of 1,3,5 and 10 years.
After rallying strongly in the previous financial year, major equity markets, with the notable exception of Japan, consolidated their gains in the year ending in March 2005. The United Kingdom stock market delivered a return of over 15% while stocks in continental Europe returned just under 16%. The continuing weakness of the US dollar against sterling over the period contained returns from North America to just under 5%. Japanese stock market returns declined by just over 4% as the economy slipped into technical recession. Highlights of Emerging Markets include Czech Republic, Hungary, India, Indonesia, Brazil and Colombia, all of whom advanced by more than 20% in local currency terms. In the UK, the Fund returned 15.5%, close to the target benchmark of 15.6%, whilst in North America, the delivered return after the impact of foreign exchange was only 1.7% against a benchmark figure of 4.8%. This US underperformance was principally due to adverse stock selection. Stock selection was also a significant feature behind an underperformance in continental Europe equities of over 2.5%. Benchmark targets were comfortably exceeded on equity investments in Japan, the Pacific Basin and Emerging Markets. In Japan the Fund returned a negative 3.2% against a negative 4.3% benchmark return and there were satisfactory positive returns in other markets. In fixed income investments (bonds), the fund generated returns in excess of benchmark, the feature being overseas bonds achieving 4% against the benchmark target of 2.3%. Property enjoyed another good year, with the fund returning 20.7% relative to a benchmark return of 18%. Elsewhere alternative investments featured prominently returning 14.5% for the Fund. With assets of ÂŁ3.28 billion at 31 March 2005, the fund ranked fifth largest Local Government Fund, and amongst the top 40 largest pension funds in the United Kingdom.
8
Financial Statements FUND ACCOUNT For the year ended 31 March 2005
Note
2005 £’000
2004 £’000
3
170,130 18,472
156,457 18,825
188,602
175,282
163,490 31,721
153,359 16,462
3,765
3,529
198,976
173,350
-10,374
1,932
6 7
70,413 271,194 -144
71,678 422,520 -29
8
-3,541 337,922
-2,762 491,407
327,548
493,339
2,959,458 3,287,006
2,466,119 2,959,458
Note
2005 £’000
2004 £’000
7
294,167 173,227 74,732 954,443 1,365,242
222,077 126,823 91,569 887,085 1,233,828
287,450 108,796 3,258,057
264,750 108,375 2,934,507
28,949 3,287,006
24,951 2,959,458
Contributions and Benefits Contributions receivable Transfers in
Benefits payable Leavers
4 5
Administration expenses
Net withdrawals (additions) from dealings with members Return on Investments Investment income Change in market value of investments Exchange Investment management expenses Net return on Investments Net increase in the Fund during the year Net Assets of the Fund at start of year Net Assets of the Fund at end of year
NET ASSETS STATEMENT AS AT 31 MARCH 2005 Investments Fixed Interest Securities Index-linked Securities Other Investments Equities Managed or Unitised Funds Properties Short Term Deposits
Other Assets and Liabilities Net Assets of the Fund as at 31 March 2005
9
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 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 the 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 page 20 and these financial statements should be read in conjunction with it.
2 ACCOUNTING POLICIES Gerard Moore Financial Controller
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.
z
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 2005. z 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. z 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". z
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.
z
Contributions and benefits Contributions are accounted for on an accruals basis. Benefits payable represent the benefits paid during the financial year. It is impractical to quantify precisely the value of benefits payable on an accrual basis, but this will be estimated within the accounts for 2005/2006 onwards.
z
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. Accruing for such bulk transfer arrangements represents a change of accounting policy. For the production of the accounts for the year end 31 March 2005, the Fund has adopted the SORP guidance of not accruing for imminent transfers in relation to individuals. As a result, for the 2004/2005 accounts, 11 months expenditure is shown. Similar principles apply to transfers in to the Fund.
z
Additional voluntary contributions A change of accounting policy is introduced for the accounts for the year ended 31 March 2005 (and for the previous year for comparison purposes). The AVC holdings of Fund members are no longer integrated into the accounts of the Fund. Note 13 provides more detailed information on the size and breakdown of these independent holdings.
z
10
Financial Statements 2005 £’000
2004 £’000
Normal Early retirement funding
114,129 10,113
104,684 9,815
Normal
45,888 170,130
41,958 156,457
Administering Authority Statutory Bodies Admission Bodies
26,025 123,754 20,351 170,130
24,506 114,745 17,206 156,457
Pensions Lump sum retiring allowances Lump sum death benefits
142,773 18,745 1,972 163,490
137,046 13,452 2,861 153,359
relating to:
24,854 123,425 15,211 163,490
22,693 119,175 11,491 153,359
504 313 30,904 31,721
416 176 15,870 16,462
10,333 3,132 34,186 17,285 5,365 112 70,413
8,176 8,539 31,812 17,552 5,433 166 71,678
3 CONTRIBUTIONS RECEIVABLE Employers
Employees
relating to:
4 BENEFITS PAYABLE
Administering Authority Statutory Bodies Admission Bodies
5 PAYMENTS TO AND ON ACCOUNT OF LEAVERS Refunds to members leaving service Payment for members joining state scheme Individual transfers to other schemes
6 INVESTMENT INCOME Fixed interest securities Index-linked securities Dividends from equities, managed and unitised funds Net rents from properties Interest on deposits Other
As at 31 March 2005, to facilitate the imminent change of Custodian, no stock was on loan to market makers.
11
Financial Statements 7 INVESTMENTS
Fixed interest securities Index-linked securities Equities Managed & unitised funds Other Properties Short term deposits
Market Value 31.3.04 £’000 222,077 126,823 887,085 1,233,828 91,569 264,750 108,375 2,934,507
Purchases at cost £’000 353,728 116,873 348,238 187,001 1,965 6,303 421 1,014,529
Sale Proceeds £’000 287,577 75,395 356,397 203,680 26,705 12,419 0 962,173
Change in Market value* £’000
Market Value 31.3.05 £’000
5,939 4,926 75,517 148,093 7,903 28,816 0 271,194
294,167 173,227 954,443 1,365,242 74,732 287,450 108,796 3,258,057
*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
2005 £’000
2004 £’000
110,788 132,861 50,518 294,167
79,682 100,076 42,319 222,077
173,227
126,823
419,393 535,050 954,443
420,592 466,493 887,085
1,033,215 295,654 36,373 1,365,242
979,849 229,697 24,282 1,233,828
74,732
91,569
233,025 54,425 287,450
257,450 7,300 264,750
108,796
108,375
*Other than Corporate Bonds, all are public sector securities. Indexed-Linked Securities Equities UK Quoted Overseas Quoted Managed* and Unitised Funds UK managed funds Overseas managed funds Property Unit trusts
*Unlisted Securities are included in Managed Funds at a market value of £79,794,490 (2004 - £86,898,459). Other Investments UK Properties Freehold Leasehold Short Term Deposits
8 INVESTMENT MANAGEMENT EXPENSES Fees paid to the six major investment managers amount to £3.508m and constitute the bulk of the figure of £3.541m investment management fees. Charges vary between fund managers and between markets and types of security. Charges are calculated as a percentage of the value of the investments.
12
Financial Statements 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
2005 £’000 15,550 7,086 8,777 90,326 3,173 124,912
2004 £’000 14,196 7,617 7,370 6,531 5,223 40,937
79,142 10,086 522 6,213 95,963
7,213 686 507 7,580 15,986
28,949
24,951
The high level of funds due from and to stockbrokers reflects the implementation of the changes in Asset Allocation, following the Triennial Revaluation 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 of years, usually five. As funding arrangements for future cases changes on 1 April 2005, a change of accounting policy will be reviewed for that year. The transfer values payable figure reflects payments from the Fund due for payment in 2005-2006 in respect of the service of 3 significant groups of former MPF members who have moved their service to new employers.
10 COMMITMENTS Commitments for investments amounted to £81,289,100 at 31 March 2005.
11 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 £2,934,000 (2004 £2,802,000). 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.
12 SUMMARY OF MANAGERS’ PORTFOLIO VALUES AS AT 31 MARCH 2005 Externally Managed Barclays Global Investors Dresdner Wellington Nomura Schroders Legal & General (Pooled Assets) Legal & General (Bonds)
£m 406 120 164 207 234 792 233 2,156
% 12.5 3.7 5.0 6.4 7.2 24.3 7.2 66.2
Internally Managed
1,102 3,258
33.8 100.0
13 ADDITIONAL VOLUNTARY CONTRIBUTIONS 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 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: 2005 2004 £’000 £’000 Equitable Life 4,537 4,738 Standard Life 5,204 4,518 Prudential 1,129 741 10,870 9,997
13
Statement of Responsibilities 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.
z
To manage the affairs of the Fund to secure economic, efficient use of resources and safeguard its assets.
The Director of Finance's Responsibilities
Ian Coleman Director of Finance
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 2005. In preparing this statement of accounts, the Director of Finance has: z
Selected suitable accounting policies and then applied them consistently
z
Made judgements and estimates that were reasonable and prudent
z
Complied with the Code
The Director of Finance has also: z
Kept proper accounting records which were up to date
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 2005 and its income and expenditure for the year then ended.
Director of Finance September 2005
14
Auditor’s Report To Wirral Borough Council on the Merseyside Pension Fund Annual Report I have examined the financial statements included in the Merseyside Pension Fund Annual Report set out on pages 9 to 13. This report is made solely to Wirral Borough Council 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 Director of Finance and Auditors As described on page 14, the Director of Finance is responsible for preparing the Annual Report in accordance with the Statement of Recommended Practice “Financial Reports of Pension Schemes 2002”. My responsibility is to report to you my opinion on the consistency of the financial statements within the Annual Report with Wirral Borough Council’s statutory 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.
Basis of Opinion I conducted my work in accordance with paragraphs 15 to 18 of Bulletin 1999/6 “The auditor’s statement on the summary financial statement” issued by the Auditing Practices Board for use in the United Kingdom.
Opinion In my opinion the financial statements set out on pages 9 to 13 of the Annual Report are consistent with the statutory financial statements in respect of the Pension Fund of Wirral Borough Council (pages 67-72) for the year ended 31 March 2005 on which I have issued an unqualified opinion. Signature Name
Judith Tench
Date
October 2005
Address
Audit Commission The Heath Business and Technical Park Runcorn Cheshire WA7 4QX
15
Scheme Administration Since 1974, Merseyside Pension Fund has operated 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. The administration offices are in Castle Street in Liverpool City Centre, within Castle Chambers, an office building owned by 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.
Development of the Scheme Peter Mawdsley Principal Pensions Officer
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. Today, 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 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 ODPM is involved to ensure continuity with other public service scheme responses but scheme specific changes following on from the Stocktake Review of the LGPS will be discussed through the newly established Tripartite committee. Following the revocation of the April 2005 changes, consultation is continuing with a view to introducing further new LGPS regulations by April 2006 to ensure the long term security of the Scheme and to reflect changes to the tax treatment of pensions to be made from then, by the Inland Revenue. Discussions are also still continuing on proposals for the introduction of a new scheme, possibly from April 2008.
Membership
31 March 2005
31 March 2004
Contributors
49,559
48,175
Pensioners
36,994
36,603
Deferred beneficiaries
18,654
18,330
Legislation The principal regulations were amended during the year by the following statutory instruments:The Local Government Pension Scheme (Amendment) (No.2) Regulations 2004 (Into force 1 April 2005) Made changes to the Regulations as follows: - to raise the normal retirement date for members who joined the scheme prior to 1 April 1998, to their 65th birthday - to raise the age at which a member will be entitled to the immediate payment of retirement benefits following redundancy from 50 to 55
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- to raise the age at which a member can elect to receive early payment of their retirement benefits from 50 to 55 and to provide that where an early leaver retires and elects to receive benefits prior to their 65th birthday, those benefits are reduced as advised by the Government Actuary; and
Scheme Administration - to provide that an administering authority may require an employer to make additional payments where there is an extra charge on the fund resulting from a pension and retirement grant becoming payable to a member under regulation 26, 31(1) or 31(6) The effect of these changes is to remove the “85-year rule” from the Scheme. This allowed benefits to be paid before age 65 without being reduced to reflect the fact that they were being paid early, provided that the member’s age and period of Scheme membership totalled 85 years or more. The Schedule to these Regulations provides for transitional arrangements for members who were members of the Scheme before 1 April 2005. Note On 14 July 2005 the ODPM issued the LGPS (Amendment) Regulations 2005, which came into force on 3 August 2005 and have retrospective effect from 1 April 2005, to revoke the April 2005 changes and to ensure that any member adversely affected by the changes is not disadvantaged. Consultations on further regulations to protect the long term stewardship of the Scheme will take place in time for them to take effect from 1 April 2006. The Local Government Pension Scheme (Management and Investment of Funds) (Amendment) Regulations 2005 (Draft) On 24 September 2004, the Office of the Deputy Prime Minister circulated draft regulations which proposed amendments to the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 and to the Local Government Pension Scheme Regulations 1997. The subjects covered by the draft regulations included stocklending, representation and communication policy statements, conservation boards and other miscellaneous technical amendments. On 7 March 2005, a further letter was issued which confirmed that, to allow time for further consideration of the changes and the development of associated best practice advice, the formal amendment processes had been placed in abeyance and that the amendments will be brought forward in due course. Further information on the content and effects of these changes is available on request from the Fund and copies of the regulations can be accessed via the Fund website.
Service Standards Charter Results of performance in respect of the 12 month period to 31 March 2005 against target are shown below:
Performance Targets
Target
Within Target %
1 Payment of retirement benefits
7 days
90
2 Payment of monthly pensions
100%
100
3 Payment of transfer values
7 days
99
4 Provision of inward-transfer quotes
10 days
95
5 Payment of refunds
7 days
99
6 Provide mis-selling costs
10 days
99
7 Provide valuation in divorce cases
10 days
99
8 Respond to members’ enquiries
10 days
97
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Scheme Administration 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. 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 expected from April 2006. 3. Development of training policies and procedures to ensure the quality of 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 to be undertaken in conjunction with employers, in an effort to identify any improvements required to ensure scheme members maximise their pension opportunities.
Comparison/Benchmarking The Fund continues to participate in the Chartered Institute of Public Finance and Accountancy (CIPFA) annual benchmarking survey 2004/2005. The results of unit cost comparison for the most recent report published (2003/2004) were as follows: Merseyside Pension Fund CIPFA Average Private Sector in–House Private Sector Outsourced
2003/04 £19.31 £22.53 £38.91 £29.95
2002/03 £20.50 £21.00 £37.80 £29.10
The figures reflect a reduction in Unit Costs for MPF from £20.50 in 2002/2003. This is as a result of a reduction in IT charges, and an increase in overall membership due to an increase in Frozen Refund cases. The individual totals within the survey showed that the MPF had a lower 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 member’s 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.
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Scheme Administration Internal Dispute Resolution Cases Since 1 June 2004, individual employers became responsible for considering stage 1 appeals against decisions made by them, with the Fund responsible for considering stage 1 appeals against its own decisions and all stage 2 appeals, instead of the ODPM. During the year to 31 March 2005, 1 new case was dealt with by the panel of Appointed Persons responsible for complaints against decisions made by the Fund. A total of 5 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.
Complaints to the Pensions Ombudsman There were no complaints to the Pensions Ombudsman during the year regarding Merseyside Pension Fund.
Annual Employers Conference The ninth Annual Conference is to be held on Tuesday 22 November 2005, in the Lecture Theatre at the Maritime Museum at Albert Dock, Liverpool. (Pictured below)
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Consulting Actuary’s Statement
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Appendix A Employer Membership CURRENT SCHEDULED BODIES 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 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 Valuation and Community Charge Tribunal Waste Disposal Authority Whiston Parish Council Wirral Metropolitan College Wirral MBC
CURRENT ADMISSION BODIES 2020 Liverpool Parkman 2020 Knowsley Parkman Age Concern Arriva North West 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 Central Youth Club Ltd. Cobalt Housing Ltd. Commission for Social Care Inspection Community Technical Services Agency Diocese of Liverpool Enterprise (Liverpool Cleansing) Enterprise (Liverpool Housing) Enterprise (Liverpool Highways) Ltd. Enterprise (St. Helens) Garston Citizens Advice Bureau Geraud Markets (Liverpool) Ltd. Glenvale Transport Ltd. Greater Merseyside Connexions Greater Hornby Homes Green Apprentices Ltd. Groundwork Trust Ltd. Helena Housing Hopkinson Catering Jarvis Workspace FM Ltd. (Wirral Schools) Jarvis Workspace FM Ltd (Liverpool Schools) Knowsley Housing Trust LACORS/LACOTS Lairdside Communities Trust Lee Valley Housing Association Ltd. Libraries North West Liverpool & Knowsley Family Service Unit Liverpool 8 Law Centre
Liverpool John Lennon Airport PLC Liverpool Citizens Advice Bureau Liverpool Community Rights Liverpool Council for Social Aid Liverpool Hope University College 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 McDonald (M.I.S.) Netherly Citizens Advice Bureau North Huyton New Deal New Future North Liverpool Citizens Advice Bureau Nugent Care Parkhaven Trust Partners Credit Union Sefton Education Business Partnership Sir Robert Jones Memorial Workshops South Liverpool Housing Ltd. Southern Neighbourhood Council St. Gabriel's Community Home St. Helens & District Society for the Deaf Taylor Shaw Catering Ltd. 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) Wavertree Citizens Advice Bureau Wirral Autistic Society Wirral Council for Voluntary Services Wirral Partnership Homes Ltd. Wirral Partnership Homes (Building Services) Ltd.
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Appendix B Pension Committee Items Wirral MBC Pensions Committee Reports Considered at Pensions Committee The Committee met on 5 occasions during 2004/2005 to discuss the following items. Reports from the Investment Monitoring Working Party are also considered at each Committee Meeting.
6 July 2004
11 January 2005
Internal Dispute Resolution Procedure Inland Revenue Reform of Taxation of Pensions Stocktake of the LGPS – Phase 2 Funding Strategy Statement Main Issues for 2004-05 Real Estate Investment Trusts Audit Plan 2004-05 Banking Services Information Security Management Scheme AVC Arrangements
Presentation by the District Auditor – Audit Letter Compliance Manual Treasury Management Policy and Strategy 2005/06 Capitalisation of LGPS Contributions Tenders for Services Consultation on Changes to the LGPS regulations Pension Fund Budget 2005 – 06 The Employer Task Force on Pensions Report Admission Applications Review of Pensions Administration Staffing Structure
14 September 2004 LGPS Consultation on draft Amendment Regulations Fund Accounts: Year Ended 31 March 2004 Investment Performance Review 2002 - 2003 Review of Statement of Investment Principles Investment Performance 2003 – 2004 Funding Strategy Statement Stocktake – Funding Strategy Proposals Future Transitional Arrangements Soft Commission Recapture Agreement Non recovery of Overpayments Admission Body Matters
23 November 2004 Treasury Management: Use of Pooled Funds Amendments to LGPS Management & Investment Regulations Pension Commission Report 2004 Environmental Award – Tunsgate Square Shopping Centre Standard Life AVCs With-Profits Fund ODPM Consultation on a Revised LGPS Admission Applications Global Custody Services Property Management Services Actuarial Valuation as at 31 March 2004
15 March 2005 Finance Department Plan 2005 – 2008 Consultation on Changes to The LGPS Admission Body Procedures Principles for Reform – The National Pensions Debate Proposed Revision To Myners’ Principles Asset Allocation Seminar for Trustees on Climate Change Performance Monitoring – External Managers Pensions Investment Research Consultants (PIRC) Death Grant Nomination Dispute Asset Liability Study and Strategic Asset Allocation Admission Applications
Investment Monitoring Working Party 22
Meetings were held on:- 19 May 2004, 21 September 2004, 25 November 2004 and 22 February 2005.
Appendix C Information Contacts Merseyside Pension Fund Internet Website Address: www.merseysidepensionfund.org.uk
Area
Name
Telephone number
Extension
Assistant Director of Finance
John Parry
0151 227 3316
1312
Principal Pension Officer
Peter Mawdsley
0151 236 4205
1333
Accounts
Gerard Moore
0151 242 1307
Investments
Leyland Otter
0151 242 1316
Benefits/Payroll
Kevin Greenough
0151 236 4208
1354
Member Services
Margaret Rourke
0151 236 4197
1369
Operations Communications
Steve Jones
0151 236 4208
1359
Information Technology
Karl Sherbrooke
0151 236 4208
1342
Employer Decisions
Principal Pension Officer
0151 236 4205
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 M.B.C.
Mary McDonald
0151 443 4177
Liverpool City Council
Vanessa Duncan
0151 233 3003
Liverpool John Moores University
Nora Hignett
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
8251
Sefton M.B.C.
Mike Nelson
0151 922 4040
4126
St. Helens M.B.C.
Eric Astley
01744 456038
Waste Disposal Authority
Paula Pocock
0151 255 1444
Wirral M.B.C.
Helen Watkins
0151 666 3524
Resolution of Disputes
Scheme Employers Contacts
23
Notes
24
25
MPF R&A/600/10.05
Merseyside Pension Fund PO Box 120 Castle Chambers 43 Castle Street Liverpool L69 2NW Email: mpfadmin@wirral.gov.uk www.merseysidepensionfund.org.uk