Events for 2006-2007

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Transcript of Events for 2006-2007

London Borough of Newham

Annual Pension

Fund Report

2005-2006

Contents

Introduction

The London Borough of Newham Pension Scheme is part of the Local Government Pension Scheme (LGPS), which is statutory pension scheme. It is governed by the LGPS regulations, which means that the benefits are set out and guaranteed by law. The LGPS is a defined benefit final salary scheme and the annual pension and the retirement lump sum are both based upon the length of the employees service.

The Council is the administering authority and manages the fund for all employees in Newham and other eligible organisations (Scheduled and Admitted bodies). The fund is financed by contributions from employees, employers and earnings from investments. Funds not immediately required to meet pensions and other benefits are invested in a selection of securities, equities and property.

The management and administration of the scheme is delegated to the Pension Fund Investment Committee, with the chief financial officer taking responsibility at the officer level. Elected members are appointed to the committee and decisions relating to the scheme are delegated to the committee. The elected members are not trustees of the pension fund, however many of the requirements of trust law are considered relevant to the LGPS.

The investment objective of the fund is to achieve a rate of return sufficient to meet its liabilities, with the strategy adopted taking this into account. The pension fund must be sufficient to sustain the future pension entitlements of both past and present employees and is achieved by adjusting the level of employers contributions every three years. The funding position is the relationship between estimated future pension payments and the funds held to pay for these pensions and the fund has published a funding strategy statement, which outlines the plan for achieving a funding level of 100%.

The following annual report provides a summary of the performance of the London Borough of Newhams Pension Fund as at 31st March 2006.

Highlights of 2005-2006

Active Membership to the Fund increased by 3.9% from 6,631 to 6,889.

As part of Best Practice a review of the contracts for Actuarial Services and Investment Advisory Services was undertaken which resulted in the appointment of Mercer Human Resources Ltd for the Actuarial Services and Hewitt Bacon & Woodrow for the Investment Advisory Services.

In line with the Myners report the Fund published its first Business Plan which can be reviewed on the Councils web-site www.newham.gov.uk

In accordance with the requirements of the Office of the Deputy Prime Minister (ODPM) the Fund published its first Communications Strategy and Governance Statements. These documents together with a full set of the Annual Accounts can also be found on the Councils web-site www.newham.gov.uk

The Fund welcomed two new admitted bodies FM Conway and Community Links (Arc in the Park)

The Fund welcomed one new scheduled body - Newham Homes.

A review of the contract with our custodian, Northern Trust, resulted in a re-negotiation of terms and fees that will benefit the Pension Fund.

Events for 2006-2007

Introduction of the Pension Simplification A Day

Appointment of the Global Equity Fund Manager

Appointment of the Currency Manager

Seminar for the Admitted and Scheduled bodies.

Seminar for the members of the scheme

Preparation of the Triennial Valuation

Re-tendering of the Custodian Contract

Forthcoming Changes In LGPS Regulations

The newly formed Department for Local Government and Communities (DCLG), which replaced the ODPM, is embarking upon a number of consultation exercises regarding the future of the Local Government Pension Scheme. Details of these can be found on their website (www.communities.gov.uk).

Members, Managers and Advisors

The Role of The Pension Fund Investment Committee

All of the Councils employees, except those covered by the Teachers Pension Scheme regulations, can join the Councils pension scheme and the LGPS regulations also provide for specified bodies (employers) to be admitted.

As at 31 March 2006, the value of the pension fund was approximately 552m. Membership of the pension scheme for the year 2005-2006, along with a comparison to previous years, is as follows:

Measurement of the performance of the funds investment returns is provided to the pension fund investment committee, on a quarterly basis by each of the fund managers and the WM Company. The WM Company is employed by the Fund to provide analysis of the fund managers performance, detailing the returns in each asset class and the reasons for over/under performance in relation to market returns. For each manager, and the fund as a whole, they provide details on quarterly, annual and three-year returns for comparison against each Fund Managers customised benchmark.

An actuarial review of the fund in 2004, showed that the pension fund had liabilities totalling 620m but assets of only 378m, thus producing a shortfall of 243m, i.e. the fund was only 61% funded. In order to reduce this deficit, the Council carried out a review of the Investment Strategy, which resulted in a change in the fund managers mandates. As a result of the changes in the strategy, together with improved stock market returns, the value of the fund increased and latest estimates indicate a funding level of around 67%.

The Investment Managers are given individual performance benchmarks related to the indices of the assets in which they invest, which are used to assess their performance and are as follows;

Individual Fund Manager Performance 2005/06

Their performance relating to their benchmark for the year is shown on the chart below.

Corporate Governance

Corporate Governance is a general term describing how companies are directed and controlled. Boards of Directors are responsible to shareholders for how they run their companies and shareholders can play an active part in corporate governance by using their voting rights at annual general meetings.

Ensuring the highest standards of governance and accountability within the companies we invest in will lead to increased profitability and will benefit the shareholders with enhanced investment returns.

Following the recommendations of the Cadbury Committee, the members of the Pension Fund Investment Committee believe in encouraging good corporate governance in the companies in which the fund invests and have adopted voting principles in respect of the funds voting rights, to influence the way in which these companies are managed in the future. The voting policy is based upon the guidelines issued by the Pensions Investment Research Consultants Ltd (PIRC), who are hired to provide advice on corporate governance issues.

Authority to vote is delegated to the individual fund managers, who cast the funds votes within the policy guidelines. The fund managers discuss any matters of concern with the company management boards and report voting issues to the investment committee.

In addition to encouraging best practice through voting, the London Borough of Newham remains a committed and active member of the Local Authority Pension Fund Forum (LAPFF). The LAPFF promotes the investment interests of Local Authority Pension Funds and maximise their interests as shareholders to promote corporate social responsibility and high standards of corporate governance amongst the companies in which they invest.

Socially Responsible Investment

The Pension Fund Investment Committee recognises that investment managers must consider social, environmental and ethical issues when selecting investments.

In considering these issues, the London Borough of Newhams fund managers are instructed to invest in the best interest of the fund, whilst also having regard for non-financial factors in selecting investments.

Pension Fund Accounts

The Pension Fund Accounts summarise the transactions of the fund during the year, both for benefits and investments, and show the position of the fund on 31st March 2006. The financial statements provide information about the financial position, performance and financial adaptability of the fund.

Income received from contributions and transfers in were greater than expenditure on benefits payable and administration, which along with an increase in investment income resulted in a net increase in the pension fund of 126m.

2004/05

Pension Fund

2005/06

000s

000s

000s

FUND ACCOUNT

Contributions Receivable:

8,091

Contributions from Employees (note 1)

8,434

28,601

Contributions from Employers (note 1)

31,515

39,949

4,838

Transfer Values in

5,136

Benefits Payable:

(19,993)

Pensions Payable

(20,629)

(2,830)

Lump Sum Benefits Payable

(2,958)

(23,587)

Payments to and on account of leavers:

(92)

Refunds of Contributions

(45)

(7,667)

Transfer Values Out

(6,879)

Net Additions From Dealing With Members

(6,924)

(692)

Administration and other expenses borne by the scheme

(606)

10,256

13,968

Return on Investments:

8,108

Investment Income

9,932

9,932

Changes in Market Value of Investments:

18,524

Realised Gains and Losses on Investments Sold

30,425

13,739

Unrealised/Other Changes in Market Value