INVESTMENT COMMITTEE
TUESDAY 20TH JUNE 2006 AT 2 PM / Agenda Item No:
14
PENSION FUND ANNUAL REPORT AND ACCOUNTS 2005/06
Report of the Finance Director
Author of the report: Nicola Webb (Telephone: 01992 555394)
1.Purpose of the Report
1.1.To provide the Committee with the unaudited Pension Fund Annual Report and Accounts for 2005/06 for consideration and comment before they are considered by the Audit Panel and County Council. This is attached at Appendix A.
2. Summary
2.1The 2003 Accounts and Audit Regulations require the County Council to approve the 2005/06 Statement of Accounts (including the Pension Fund) by the 30th June 2006.
2.2During 2005/06 the value of the Pension Fund increased by £430m, from £1,532m to £1,962m. The market value of investments increased by £366m during the year and the overall investment return for the year was 27.4%, 1.2% above the fund specific benchmark.
2.3Overall, the number of active members in the scheme has fallen slightly from 25,944 at 31st March 2005 to 25,599 at 31st March 2006 while the numbers of pensioners and deferred beneficiaries have both increased. The number of employers in the fund has increased from 168 to 172.
2.4Reports on internal control have been received from3 Fund Managers and the Fund’s Custodian and no issues for concern have been raised by their auditors. Reports are expected from the other 3 Fund Managers by the end of June.
3.Conclusion
3.1The Committee is asked to approve the Statement of Investment Principles and the Annual Report. The Committee is invited to make comments on the Pension Fund accounts which can be referred to County Council, where the accounts will be approved.
3.2The accounts will then be subject to audit and once certified, will be printed and circulated to all employers and other interested parties.
4.Background
4.1The 2003 Accounts and Audit Regulations required the County Council to bring forward the approval of its Statement of Accounts (including the Pension Fund) by three months over a three year period. 2005/06 is the final year of this process and the approval of the 2005/06 Statement of Accounts and all future years must be before 30th June.
4.2Extracts of this report and accounts will be included within the County Council’s Statement of Accounts submitted to County Council for approval on 27th June 2006.
5.2005/06 Accounts
5.1During the year, the value of the Fund increased by £430m, from £1,532m to £1,962m; the net addition in the fund from dealing with members was £21m and the net return on investments for the year was £409m.
5.2Contributions of £117m were received during the year. This is an increase from the £116m received in 2004/05, in the main reflecting annual pay awards, offset by a reduction in the number of active members paying contributions.
5.3Benefits payable also increased in 2005/06. £97m was paid during the year on pension benefits, payments to and on account of leavers and administrative and other expenses (£85m in 2004/05). This increase was mainly due to an increase in the number of pensioners and the number of transfers to other funds.
5.4Investment income of £51m was received during the year in the form of interest on fixed interest stocks and cash and dividends on equity securities.
5.5The market value of investments increased by £366m as a result of good performance in equity markets during the year.
5.6Investment management expenses increased from £4m in 2004/05 to £8m in 2005/06 due to the increase in the market value of investments and the performance fees of the specialist fund managers.
6.Annual Report
6.1The annual report summarises the main aspects of the Pension Fund. It is split into three sections – Administering Authority Report (scope and management of the Fund), Financial Statements and Investment Report.
6.2The Governance and Communication Strategy Statements approved by the Committee at the meeting in March have been included in the Administering Authority section of the Annual Report. The membership table shows the number of active members has fallen slightly, while the numbers of pensioners and deferred beneficiaries have increased. Pensioners and deferred beneficiaries have increased across all categories of employer, while the number of active members has increased in scheduled and resolution bodies, despite reducing in the administering authority (HCC) and admitted bodies. The number of employers has increased from 168 to 172 during the year.
6.3The Statement of Investment Principles has been updated with current information and a reference to the Governance Statement has been included. The section on investment performance shows that the return over 2005/06 was 27.4%, 1.2% over the benchmark. Looking at longer term performance, it shows that the Fund was in the15th percentile of local authorities over the last 10 years.
7.Statements of Internal Control
7.1All the fund managers and the custodian are required to submit a report on the internal controls operating within their organisations on an annual basis. Reports have been received from Capital, Merrill Lynch, Schroders and ABN Amro Mellon to date, and all have been signed off by their auditors following sample testing, and no issues have been raised.
7.2Alliance Bernstein, Baillie Gifford and Jupiter expect their reports to be complete by the end of June and do not envisage any major issues. If there are any issues raised, these will be reported to the Committee verbally at this meeting or at the next meeting in September.
7.3The reports set out the organisations’ risk controls covering areas such as ensuring client agreements are followed, transactions are properly authorised and records are complete and accurate.