2000/2001
DESCRIPTION
Merseyside Pension Fund's financial and administrative report for the year ending 31 March 2001.TRANSCRIPT
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snb Metrooolitan?6lF Borough of Wirral EEffieFr*aFlftifit il
KI(NOIAISLEY
The City of Liverpool
CHAI RMAN'S I NTRODUCTION
MANAGEMENT STRUCTURE
INVESTMENT REPORT
FINANCIAL STATEMENTS
STATEMENT OF RESPONSI BI LITI ES
AUDIT REPORT
SCHEME ADMINISTRATION
CONSU LTI N G ACTUARY'S STATEM ENT
APPENDIX A EMPLOYER MEMBERSHIP
APPENDIX B FUND BACKGROUND
APPENDIX C PENSIONS COMMITTEE ITEMS
APPENDIX D INFORMATION CONTACTS
2
4
5
9
14
15
16
20
21
22
23
24
As Chair of the Pensions Commiftee, I am pleased topre sent the Mersey side Pension F u nd's Annual Report forthe year ended 31 March 2001. The aim of the report is tohighlight the importanf r.ssues affecting the Fund over thelast twelve months as well as providing more generalinformation regarding the pension scheme.
llr r l l
tugWThe OverallAim of the Fund
The principal aim of the Fund remains the same, namely, to provide secure pensions, effectively and efficientlyadministered at the lowest cost to the contributing employers. This requires the Fund striking a balance betweenachieving the most from its investments and the need to exercise prudence and caution in considering the future liabilityprofi le of the Fund. To this end the Pensions Committee regularly reviews, together with the help of its variousprofessional advisers, the Fund's investments in order to ensure that these are appropriate for the Fund.
Investment Performance of the Fund
The period under review has been a diff icult and disappointing one for overallinvestment returns. The average return of all Local Authority pension funds for theyear ended 31 March 2001 was a negative 6.3%- This proved to be the worstreturn for 25 years and only the second time in the last two decades thatperformance has been negative. Against this background, the Merseyside Fundhas, again, significantly outperformed its public and private sector peer groups, byproducing a return of minus 3.9% for the period. This return placed the Fund inthe top 25o/o of Local Authority and private sector pension funds. Over the last twoand three year periods the Fund ranks in fourth place in the league table of the 93Local Authority pension funds. I am very pleased to report that the excellentrelative investment performance of recent years has now placed the Fund firmlywithin the top 33% of Local Authority pension fund performance over all t imeperiods of 1, 3, 5, 10 and 20 years.
The past year has seen very disappointing returns from all of the world'sstockmarkets. The Fund's more cautious investment style and greater exposure tosmaller and medium sized companies contributed to strong relative equity returns,particularly in the United Kingdom where the portfolio declined approximately 5%compared to the general stockmarket fall of 11%. fhe positive returns achievedfrom the fixed interest portfolios and solid returns from property helped balancethe overall result. The individual highlight was produced by the Fund's venture capital investments returning a staggering60% - which followed on from a 50% gain the previous year! The value of a well diversif ied, balanced portfolio ofinvestments has once again been clearly evident in the figures. Although the latest year's return of minus 3.9% has beensomewhat of a setback, the ten-year return on the Fund of 11.6% per annum compound is sti l l significantly ahead ofboth inflation and average earnings. The management of the fund, distribution of assets and performance are dealt within more detail later on in this report.
2
ffiffi...investment
performance... has now
placed the Fund firmly
within the top 33% of
Local Authority pension
Fund ...over all time
periods of 1,3,5,10 and
20 years.
€e
Councillor Bill Nock
Actuarial Valuation
The Fund's actuary is currently conducting the triennial actuarial review, basedon the various data as at 31 March 2001. The interim review as at March 2000indicated an improvement in the overall funding level from g4o/o to 96%. At thispoint in time it is too early to predict accurately the outcome of the current reviewbut, clearly, investment returns over the last accounting period have not beenhelpful. However, the Fund has continued to benefit from improvements in i l lhealth retirement levels and pay increases which have been less than expected.The continued improvement in mortality statistics and consequent increased lifeexpectancy of members of the Fund wil l have a marginal adverse impact onrequired contribution rates. Employers wil l be consulted with the outcome of thereview as soon as possible. which is exoected in October.
** ...th. Fund has
continued to benefit from
improvements in ill health
retirement levels.,. € sF:tr
Communication with Fund Members
The current active membership of the Fund stands at approximately 45,000 with36,000 in receipt of pensions.
The fourth annual employers' conference was again well attended in November 2000 and featured speakers from theFund's Actuary, William M Mercer and officers from the Fund, and covered changes to Pensions on Divorce Provisions,the Interim Actuarial Review and Stakeholder Pensions.
Past Changes and the Future
The Fund continually strives to improve the way it conducts its business. This not only applies to the investment,administration and Committee operations but also the delivery of services to its employer, employee, pensioner andother stakeholders. Over the past year the Fund has undertaken an extensive, detailed Best Value Review of the way itconducts and delivers its various services. This Review is currently being considered by the Pensions Committee andwill lead to further improvements in the service. The Fund has also considered the various recommendations of 'best
practice' as outl ined in the Myners Report on the pension fund industry, Although some modifications to the servicedelivery are required, I am pleased to report that the Fund already complies with the majority of the recommended bestpractice procedures in the conduct of its business.
The past year has been a challenging one for the pension administration team. The new legislation on Pensions Sharingon Divorce and the changes to the Scope of the Scheme to deal with the admission of contractors as a result of BestValue initiatives has created a great deal of activity. The Fund has also been dealing with the effects of the EquitableLife Assurance Society (ELAS) situation regarding Guaranteed Annuity Rates (GAR) following the House of Lordsdecision last July. The Fund reacted to the announcement made by ELAS in December 2000 that it was closing for newbusiness, by appointing Standard Life as an additional AVC provider from March 2001 . What has happened at ELAS isextremely disappointing and the Fund, together with other local authorit ies, is considering its legal position, in an effort toexplore all means of protecting the interests of those affected by the events at Equitable Life.
The Fund has coped well with the above developments thanks to the combined efforts of all those concerned with theFund. I would l ike to thank the Committee, f inancial advisers as well as the investment and admlnistration staff of WirralBorough Council for all their continued effort.
1 PENSION FUND MANAGEMENT COMMITTEE
Voting Members
Chairman:
C l l r W D N o c k *
Vice Chairman:
C l l r D T K n o w l e s *
Cllr P J Corcoran
Cllr G Davies
Cllr S A Holbrook*
Cl l r A Jones ' ,
Cllr I Lewis
Cl l r R K Moon
Cllr J Stapleton
C l l r G C J W a t t .
Wirral
Wirral
WirralWirralWirralWirralWirralWirralWirralWirral
Director of Finance
Head of Pensions& Investments
Cllr L T Byrom*
Cllr J Keight OBE
Cllr F L Ruse
Cllr A Smith*
Mr T Jones- (JMU)
Peter Mawdsley
Phi l ip Manson
Sefton
Knowsley
Liverpool
St Helens
Non district employer representati''E
Principal Pensions Officer
Borough Solicitor & Secretary
* denotes Members of the Investment Advisorv Panel
Employee Representatives
Ms J Boyle (Unison)Mr A Cusack (TGWU)
Mr D Jenkins (Unison)
Officers of the Fund
lan Coleman
Simon Edwards
2 ADVISERS TO INVESTMENT ADVISORY
Director of Finance
Head of Pensions & Investments
3 OTHERS
Auditor
Bankers
Consulting Actuary
Custodian of Assets
Ethical Advisers
Performance Measurement
Property Advisers
Solicitor
Additional Voluntary Contributions Providers
PANEL
J P Morgan Fleming Asset Management
Will iam M Mercer Ltd (Actuary)
District Audit
The Royal Bank of Scotland plc
Will iam M Mercer Ltd
The Bank of New York
Pensions and Investment Research Consultants Ltd
The WM Company
Edmund Kirby
Savil ls Fund Management
Wirra lMBC
Equitable Life Assurance Society
Standard Life
Management of the Fund
The overall responsibil i ty for the management of the Fund rests with the PensionsCommittee, chaired by Council lor Bil l Nock. In 2000/01 the Committee comprised ofCouncillors from the Wirral Labour group (6), Conservatives (2), Liberal Democrats (2),representatives of the four other District Authorities (Liverpool, St. Helens, Knowsley andSefton), an independent representative from the other employers, employeerepresentatives (3), the Director of Finance and other officers of the Fund. TheCommittee meets at least three times a year to review the administrative and investmentissues affecting the Fund. The Committee also ensures that the management of theFund's assets falls within the reouirements of the Local Government Pension Scheme(Management and Investment of Funds) Regulations 1998. These regulations require theFund to have regard to both diversification and suitability of investments and stipulate therequirement to take proper advice when making investment decisions.
Sinon EdwardsHead of Pensions & lnyesfmenfs
The more detailed responsibility for investment strategy and asset allocation of the Fund's portfolios is delegated to theInvestment Advisory Panel. This Panel meets quarterly to review investment strategy and to receive reports oninvestment activity undertaken in the previous period. The Panel comprises representatives from the PensionsCommittee, an independent tactical asset allocation advisor - J.P Morgan Investment Management - and members ofthe in-house investment team.
Day-to-day management of the Fund's assets is handled by the in-house fund managers, who report directly to theDirector of Finance through formal monthly Investment Operating Committee meetings. Internal managers follow ruleslaid down in a compliance manual which cover the managers' responsibil i t ies, dealing l imits and reporting requirements,as well as rules covering all investment transactions. This process is monitored by a compliance officer based within theinvestment section, and is subject to audit review
Internal fund managers maintain contact with various brokers and advisers who are considered specialists in therespective markets in which the Fund invests. They are also able to follow market developments and trends by using arange of sources including Bloomberg information screens, an important tool in today's volati le markets. Investmentdecisions are made by the in-house managers following consultation and discussion with advisers, and quite oftenfollowing contact with investee company management. Certain specialist management services are provided by externalfund managers, mainly in the areas of small companies, emerging markets and development capital. The externalmanagers are actively monitored and reviewed annually by the Fund's internal team. This team is based in Liverpool andis led by the Head of Pensions and Investments, Simon Edwards.
The Fund's property portfolio is managed by Savills Fund Management and Edmund Kirby, who both report to the Headof Pensions and Investments. The day-to-day management of the properties is handled by Insignia Richard Ellis, with anindependent annual valuation of the portfolio being carried out by Coll iers Erdman Lewis.
F igu re 1 . PropertyVenture Capital
CashIndex LinkedFixed lnterest
Emerging MarketsFar East Equities
Japanese EquitiesEuropean Equities
US EquitiesUK Equities
Total Return by Asset Class in year ended 31 March 2001
Investment Strategy
The Fund is managed within the rules and guidelines set out in the 1998 Regulations (which consolidated and simplifiedprevious regulations). These regulations set parameters for the types and limits that the Fund can invest in certain assetclasses.
The investment strategy of the Fund, developed by the lnvestment Advisory Panel, has been to maximise returns overthe medium to long term whilst having regard to its l iabil i ty commitments. Early in 1999 an asseUliabil ity study was
carried out by the Fund's consulting actuary, William M. Mercer Ltd. This study resulted in some changes to the assetbenchmark for the Fund, moving away from the local authority typical asset structure previously adopted, to a morebespoke structure better suited to matching the Fund's maturity and liabil i ty profi le. The requirement to maintain abalanced portfolio of assets across a diversified portfolio invested in a range of stocks and sectors, remains ofparamount importance.
Corporate Gorrernance
Merseyside Pension Fund supports the principles of corporate governance outlined in the'combined code' establishedby the Cadbury, Greenbury and Hampel Committees. In order to promote best practice, the Fund votes at all AGMs andEGMs of U.K. companies in which it has holdings. The Fund receives detailed advice and recommendations fromPensions and Investment Research Consultants Ltd. to support managers in making voting decisions and is an activemember of the Local Authority Pension Fund Forum. This policy meets the principle outlined in the Myners report oninstitutional investment on shareholder activism and is subject to periodic review to ensure that the Fund responds to
developments in best practice.
In accordance with Local Government Pension Scheme Regulations, a formal Statement of Investment Principles isregularly reviewed following consultation with members and advisers. The current statement is available from the Fund
office at PO Box 120, Castle Chambers, 4/6 Cook Street, Liverpool 169 2NW and covers:
Overall Responsibility for Managing the Pension FundInvestment ObjectivesInvestment PolicyRisk and Expected ReturnPolicy on Socially Responsible InvestmentPolicy on Shareholder Voting
The policy will be reviewed each year to ensure that the Fund remains in line with best practice. The Fund continues toinvest in an ethically managed fund, as well as in local companies and business initiatives.
Portfolio Distribution (Market Value at 31 March)
Figure 2.
Review of lnvestment Performance
Alan BorrowsSenior Investment Manager
The background for investment markets over the yearwas uncer ta in, wi th equi ty markets being p lagued byconcerns over the weakening world economic outlookand the reduced prospects for corporate profits. Returnsin all major equity markets were negative, with the worstfa l ls occurr ing in the previously g lamorous TMT(Telecom, Media and Technology) sectors. The Fund'sinvestment returns were effected by this troubled marketenvironment, resulting in a negative return of 3.9% onthe year Whilst this return was disappointing in absoluteterms, it sti l l placed the Fund in the top 25oh of LocalAuthority returns for the year. The average LocalAuthority Fund produced a negative return of 6.3%, withthe worst performing fund fall ing over 15%. The bespokebenchmark a lso showed a negat ive return of 6.3%.Longer term returns for the Fund have been reduceddue to this year's poor out-turn, but are sti l l well ahead ofthe average Local Authority fund over all t ime periods.
Comparative Returns for the Fund
The Fund subscribes to the WM Company performance measurement service, whichenables comparison of the Fund's investment with other Local Authority pension funds,together with the 50 largest pension funds In the United Kingdom (WM50). In addition, theperformance within asset classes is measured against relevant index benchmarks. Inearly 1999, following consultation with the Fund's actuary, the asset structure of the Fundwas changed to more closely reflect the l iabil i t ies of the Fund. A new strategic benchmarkwas established, which is shown below together with the parameters within which theFund's Tactical Asset Allocator is allowed to vary from the 'Core' position. The newstrategic benchmark is the main gauge against which investment performance wil l bemeasured in the future. The strategic benchmark wil l be reviewed to ensure it continues tomeet the l iabil i ty position of the Fund when the Fund's actuary has completed the threeyearly actuarial valuation at 31 March 2001.
Core Asset Structure,
UK EquitiesOverseas EquitiesNorth AmericaJapanEuropePacificOtherFixed InterestUK GiltsOverseas BondsUK Index LinkedCashOtherPropertyVenture CapitalTOTAL
Core Positiono/o Yo
M21
4821
24
21 4
0I3
ToleranceYo
39,4917-254-82-66-1 0040-3
24.281-504
10.183-70-26.101.5
100
Merseyside Pension FundLocal Authority UniverseInflationAverage Earnings
1 Year 5 Years 10 Yearso / o % %
-3 .9 10.3 11.6-6.3 9.5 11.42.3 2.6 2.73.8 4.7 4.6
Over all time periads (other than 1 year), the
Fund has achieved an investment return well
in excess of the rate of bath inflation and
earnings growth
The year was disappointing for equity investors with all major markets fall ing and almost unprecedented volati l i ty beingseen in share prices. The poor performance of share markets led to the first negative returns seen since'1988. Bondmarkets faired somewhat better as investors sought the safety of less volati le risk averse assets. The Fund's UK equityportfolio did particularly well during the year - in relative terms at least - with a return of -5.3%, which compared well withthe FTSE All Share Index fall of 10.8%. The Fund's returns in the United States and European equity portfolios werealso ahead of the relevant index returns.
Net Investment by Asset Class in year ended 31 March 2001
Figure 3UK EquitiesUS Equities
European Equit iesJapanese
Far EaslEmerging
Fixed
tn0ex
The Japanese market performed very badly over the year (fall ing 27 .9%) with the Fund's Japanese portfolio achieving adisappointing fall oI 37.7% - this followed an excellent performance in the previous year. UK Bond positions performeowell returning 9.4% against an index return of 7.3%, whilst Index l inked holdings only showed a return of 0.6% - roughlyhalf of the index return. The Fund's relatively large property portfolio provided another positive return at 6.8% althoughthis was some 2.2o/o behind the Local Authority average. The best performance achieved from any of the Fund's assetscame from the Venture Capital holdings, with a second consecutive yearly rise of over 50% being achieved.
Largest UK Equity31 March 2001
Holdings as at Largest Overseas Equity Holdings as at
Company
1 Glaxo Smithkline
2 BPAmoco
3 Vodafone
4 ShellTransport
5 HSBC
6 RB Scotland
7 Barclays
8 BritishTelecommunications
9 Astra Zeneca
10 Lloyds TSB
Market Value
f '000
101,255
87,300
72,375
54,400
48,952
41,924
36,218
34,170
33,600
32,15s
31 March 2001Company
Total Fina Elf
Novartis
Societe Generale
Royal Dutch Petro
Calpine
Country
France
Switzerland
France
Netherlands
US
Market Value
f '000
8,369
6,624
6,288
6,267
6,1 98
Market Value
f'000
19,750
12,750
12,450
12,150
11 ,600
542,349
The top ten holdings represent 403%of the total UK Equity Portfolio
Largest Property Holdings as31 March 2001
Property
Tunsgate Square, Guildford
Horns Road, llford
Avalon House
Farnham Retail Park, Farnham
Arun Retail Park, Bognor Regis
UK Equity
%
7.5
6.5
5.4
4 .1
3.6
3 .1
2.7
2.5
2 .5
2.4
1
2
3
4
1
2
3
4
5
at
40.3
FUND ACCOUNTFor the year ended 31 March 2001
Gontributions and Benefits
Contributions receivable
Transfers in
Benefits payable
Leavers
Administratiqn Expenses
Net withdrawals from
dealings with members
Return on Investments
lnvestment income
Change in market value of investments
Exchange
Investment Management Expenses
Net return on lnvestments
Net change in the Fund during the year
Net Assets of Fund at start of year
Net Assets of Fund at end of year
NET ASSETS STATEMENT AS
lnvestments
Fixed lnterest Securities
lndex Linked Securities
Equities
Managed or Unitised Funds
Properties
Short Term Deposits
AVC Investments
Other Assets and Liabilities
Net Assets of the Fund as at 31 March 2001
MARCH 2AO1
145,515
-22,411
81,833
422,245-170
-421
503,487
481,076
2,692,933
3,174,009
2000
E'000
203,684
304,430
1,889,380
391,660
219,350
132,789
7,485
3,148,778
25,231
2001
€'000
117,641
18,249
13s,890
151,632
11,369
3,343
166,344
-30,454
85,835-207,591
867-360
-121,249
-151,703
3,174,009
3,022,306
2000
t'000
104,819
18,285-tzs,104
134,414
8,142
2,959
AT 31
Note 2001
f'000
195,420
325,702
1,779,979
317,116
242,850
126,800
8,954
2,995,820
26,486
3,022,306 3,174,009
NOTES TO THE ACCOUNTS
1 GENERALAlthough the Scheme is exempt from the requirements of the Occupational PensionSchemes (Requirement to obtain Audited Accounts and a Statement from the Auditor)Regulations 1996, the financial statements have been prepared in accordance with theseregulations and with the guidelines set out in the Statement of Recommended Practice,Financial Reports of Pension Schemes.
The financial statements record the transactions of the Fund during the year andsummarise 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 afterthe end of the Fund year: The actuarial position of the Fund, which does take account ofsuch obligations, is dealt with in the statement by the Actuary on page 20 and thesefinancial statements should be read in conjunction with it.
John ParryFinancial Controller
2 ACCOUNTING POLICIES
a 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.
a Valuation of investments
lnvestments are stated at market value. For this purpose unlisted investments are included at manager'svaluation 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 2001.
O 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.
I lnvestment income
lnterest on fixed interest stocks and on short term deposits has been accounted for on an accruals basis, lncome
from equities is accounted for when the related investment is quoted "ex-dividend".
a Rentalincome
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.
a Contributions and benefits
Contributions, excluding additional voluntary contributions, are accounted for on an accruals basis. Benefitspayable represent the benefits paid during the financial year.
a Transfers to other schemes
Transfer payments relate to those early leavers whose transfers have been paid during the year.
10
3 CONTRIBUTIONSRECEIVABLEEmployers
Normal
Early retirement funding
Employees
Normal
relating to;
Additional Voluntary Contributions
{dministering Authority
Scheduled Bodies
Admission Bodies
BENEFITS PAYABLEPensions
Lump sum retiring allowances
Lump sum death benefits
Relating to AVCs
relating to: Administering Authority
Scheduled Bodies
Admission Bodies
PAYMENTS TO AND ON ACCOUNT OF LEAVERSRefunds to members leaving service
Payment for members joining state scheme
Individual transfers to other schemes
Relating to AVCs
INVESTMENT INCOMEFixed interest securities
Index Linked Securit ies
Dividends from equities, managed and unitised funds
Net rents from properties
Interest on deposits
Other
72,748
8,065
35,298
1,530
117,641
19,662
90,537
7,442
117,641
123,866
24,794
2,593
379
151,6n
17,276
119,065
15,291
151,632
317
241
10,384
427
11,369
12,144
6,821
43,515
15,376
7,979
0
17,094
82,742
4,983
ro+Brg
1 17,698
14,764
1,902
50
1 U A 1 4
18,889
106,016
9,509
134,4'14
292
207
7,135
508
62,827
5,982
34,555
1,455
104,819
8.142
7,389
6 ,140
43,874
14,306
10,097
27
81 ,83385,835
11
T INVESTMENTSMarket Value
31.3 .00t'000
Purchasesat costt '000
SaleProceeds
t'000
Change inMarket value
t'000
Market Value31.3 .01E'000
Fixed lnterest securities
lndex Linked securit iesEquitiesManaged & Unitised FundsPropertiesShort term depositsAVC Investments
203,684
304,4301,889,380
391 ,660219 ,350132,789
7,485
45,13726,264
321,92818,06030,077
02,113
77,6370
212,259AO AR6
2,669
5,989807
24,236-4,992
-220,071-3 ,019-? onR
0163
195,420325,702
1,778,978317,',116242,850126,800
8,9543,',t48,778 443,579 388.946 -207.591 2,995,820
*Note: The change in (arket value of investments during the year comprises all realised and unrealised appreciation and depreciation
Fixed Interest Securities*UK Fixed InterestUK Corporate BondsOverseas Fixed Interest
*Other than Corporate Bonds, all are public sector securities
lndex Linked Securities
Equities
UK QuotedOverseas Quoted
Managed* and Unitised FundsUK managed fundsOverseas managed fundsProperty Unit trusts
*Unlisted Securities (mainly venture capital investments) are included inManaged Funds at a market value of f 1 10,805,000 (2000 - €97,929,000).
UK propertiesFreeholdLeasehold
Short term Deposits
Equitable Life with-profits fundEquitable Life managed pension fundEquitable Life building society fund
208,30034,550
242.850
126,800 132,789
Additional Voluntary Contributions Inveslments
The Committee hold assets invested separately from the main fund with Equitable Life Assurance Society. Membersparticipating in this arrangement each receive an annual statement made up to 30 June confirming the amounts held ontheir account and the movements in the yean The aggregate amounts of AVC investments are as follows:
200'lf'000
80,5648,596
106,260195,420
325,702
1,159,'|'52619,826
1,778,978
191,787106,79118,538
317,116
2001['000
6,484981
1,489
2000e'000
137,7848,836
57,064203,684
304,430
1,110,228779,152
1,889,380
221,948155,78313,929
391,660
196,76022,590
219,350
2000t'000
5,762o?o
784
12
8,954 7,485
II
CURRENT ASSETS AND LIABILITIES
Assets
Contributions due
Accrued and outstanding investment income
Due from stockbrokers
Cash at Bank
Sundries
Liabil it ies
Due to stockbrokers
Transfer values payable
Provisions
Miscellaneous
Externally Managed
Phill ips & Drew
Lombard Odier
Internally Managed
2001
€'000
10,048
12,857
2,894
3,386
2,874
32,059
0
444
398
4,731
fm
21
21
2,987
2000
f'000
7,448
11,695
2,888
3,987
4,422
30,440
1 9
280
43
4,867
10
5,573 5,209
Total Other Assets and Liabilities 26.486 25,231
COMMITMENTS
Commitments for investments amounted to f31.960,000 at 31 March 2001.
RELATED PARTY TRANSACTI ONS
Administration costs include charges by Wirral MBC in providing services in its role as administering
authority to the Fund, which amountto t2,243,000 (2000 t2,011,863). 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.
SUMMARY OF MANAGER'S PORTFOLIO VALUES
VALUES AT 31 MARCH 2001 (excluding AVC Assets)
11
0.7
0.7
42
2,945
1 . 4
98.6
100^0
13
The Authority's Responsibilities
The Council as Administering Authority of the Merseyside Pension Fund is required:
O 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.
a To manage the affairs of the Fund to secure economic, efficient use of resources and safeguard its assets.
Ian ColemanDirector of Finance
The Director of Finance's Responsibilities
The Director of Finance is responsible for the preparation of the Fund's Statement of
Accounts which, in terms of the Chartered Institute of Public Finance and Accountancy
Code of Practice on Local Authority Accounting in Great Britain (the Code), is required to
present fairly the financial position of the Fund at the accounting date and its income and
expenditure for the year ended 31 March 2001.
In preparing this statement of accounts, the Director of Finance has:
a Selected suitable accounting policies and then applied them consistently
a Made judgements and estimates that were reasonable and prudent
O Complied with the Code
The Director of Finance has also:
Kept proper accounting records which were up to date
Taken reasonable steps for the prevention and detection of fraud and other
irregularities
The Director of Finance's Certificate
I certify that the Statement of Accounts presents fairly the financial position of the Fund at 31 March 2001 and its
income and expenditure for the year then ended.
o
O
Director of Finance
17 September 2001
1 4
I have completed the audit of the Statement of Accounts of the Merseyside Pension Fund on pages 9 to 13 which have
been prepared in accordance with the accounting policies applicable to local authorities as set out on page 10.
Respective Responsibilities of the Director of Finance and Auditors
As described on page 14, the Director of Finance is responsible for the preparation of the Statement of Accounts. lt is
my responsibil i ty to form an independent opinion, based on my audit, on that Statement and to report my opinion
thereon.
Basis of Opinion
I carried out my audit in accordance with the Audit Commission Act 1998 and the Code of Audit Practice issued by the
Audit Commission,vhich requires compliance with relevant auditing standards.
My audit included eiamination, on a test basis, of evidence relevant to the amounts and disclosure in the Statement of
Accounts. lt also included an assessment of the significant estimates and judgements made by the Fund in the
preparation of the Statement of Accounts and of whether the accounting policies are appropriate to the Fund's
circumstances, consistently applied and adequately disclosed.
I planned and performed the audit so as to obtain all the information and explanations which I considered necessary in
order to provide me with sufficient evidence to give reasonable assurance that the Statement of Accounts is free from
material misstatement, whether caused by fraud or other irregularity or error. In forming my opinion I also evaluated the
overall adequacy of the presentation of information in the Statement of Accounts.
Opinion
In my opinion the Statement of Accounts presents fairly the financial transactions of the Fund for the year ended 31
March 2001, and of the amount and disposition at that date of its assets and liabil i t ies, other than liabil i t ies to pay
pensions and benefits after the end of the scheme vean
/tU-''* @DistrictAuditor
-
17 Seotember 2001
1 5
The Merseyside Pension Fund operates the Local Government Pension Scheme whic-
provides for the occupational pensions of employees, other than teachers, police officers
and fire fighters, of the local authorities within the Merseyside area. lt also operates the
Scheme for members of other organisations which have made admission agreements
with the Fund.
A list of participating employers is shown at Appendix A. The Scheme is a public service
pension scheme regulated by statute through the Secretary of State for the Environment
Transport and the Regions. lt is a contributory final salary scheme which is contracted ou:
of the State Earnings Related Pension Scheme and is exempt approved for tax purposes
Peter MawdsleyPrincipal Pensions Officer
Development of the Scheme
Since 1922 the Local Government Pension Scheme has developed from a scheme which just provided pensions for
officers only, to today's Scheme which provides pensions and lump sums for all members, spouses and children s
pensions, i l l 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.
Membership
Contributors
Pensioners
Deferred beneficiaries
31 March 2001
45,240
35,84
1 3,{ 01
31 March 2000
46,788
34,682
1 0 , 8 1 9
1 6
Legislation
The principal regulations were amended during the year by the following statutory instruments:-
The Local Government Pension Scheme (Amendment) Regulations 2000
(lnto force 28 April 2000)
The Local Government Pension Scheme (Greater London Authority etc.) Regulations 2000
(lnto force 18 May 2000)
The Local Government (Early Termination of Employment)(Discretionary Compensation)(England and Wales)
Regulations 2000
(lnto force 21 June 200O)\
The Local Government Pension Scheme (Management and Investment of Funds)(Amendment) Regulations 2000
(lnto force 17 October 2000)
The Local Government Pension Scheme (Pensions Sharing on Divorce) Regulations 2000
(lnto force 1 December 2000)
The Local Government Pension Scheme (Miscellaneous) Regulations 2001
(lnto force 2 April2001)
The Local Government Pension Scheme (Amendments) Regulations 2001
(lnto force 1 May 2001)(Regulation 17(f) 1 September 2001)
Further information on the content and effects of these changes is available on request from the Fund.
1 7
Control of Early Retirement Costs
The Fund is continuing to monitor the costs of non-il l health early retirements and to require additional contributions fror-those employers who exceed their agreed capital allowance..
Service Standards Charter
Results of performance against target are shown below:
Performance Targets
1 Payment of retirement benefits
2 Payment of monthly pensions
3 Payment of transfer values
4 Provision of inward-transfer quotes
5 Payment of refunds
6 Provide mis-selling costs
7 Provide valuation in divorce cases
8 Respond to members'enquiries
Target
7 days
100Yo
7 days
10 days
7 days
10 days
10 days
10 days
Within Target Performance %
88
100
92
88
97
88
96
85
In-House AVC Arrangement
In July 2000, following the House of Lords decision in the case concerning Guaranteed Annuity Rates (GARs) and theru l ing that f1 .5 b i l l ion had to be t ransferred f rom non GAR pol icyholders to GAR pol icyholders, Equi table L i feannounced that it was putting itself up for sale. lt announced that with-profits policyholders would suffer a loss o'investment growth for the period 11112000 to 311712000 equivalent to 5% of fund value.
In December 2000, the Society closed to new business having failed to find a buyer and deductions were introduced fornon-contractual withdrawals from the with-profits fund. The Halifax Group announced on 6 February 2001 that it hacagreed to buy Equitable but that the purchase would not include the with-profits Fund, which would remain independentbut be managed by Halifax. As part of the deal Halifax has agreed to make further payments into the with-profits fundsubject to a compromise deal being agreed to cap the size of the GAR liabil i t ies and future sales targets being metFollowing further falls in the value of the stock market between December and March the early withdrawal reduction wasincreased from 10% to 15%.
On 16 July 2001, Equi table L i fe announced that i t was imposing a reduct ion of up to 16% of the pol icy values o iwith-profits funds as at 31 December 2000 and that no investment growth was to be added to such policies for theperiod 11112001 to 30/6/2001. In addition the assumed future investment growth for such policies from 11712001 was tobe reduced from 8% to 6% oer annum.
Following these changes the early withdrawal adjustment on with-profits policies was reduced, it is now to be applied forthe first t ime to members who choose to transfer their benefits on change of employer.
The consultation process on the proposed compromise deal to cap the GAR liabil i t ies is expected to take place in theautumn with policyholders asked to vote around December. A report on whether policyholders can claim compensatiorfrom Equitable for mis-sell ing and a separate report from the Financial Services Authority on the regulation of theSociety are awaited.
In January 2001 the Fund met to consider the appointment of an additional provider of in-house AVCs and Standard Lifebegan accepting contributions in March. The Fund wil l contlnue to inform members of developments as they occur:
1 8
Administration Expenses Benchmarking Survey.
The Fund is continuing its participation in a benchmarking survey of administration costs. For the Financial Year1999/2000 the relevant costs for the Fund were as follows: -
Cost per Member: - f5.73
Weighted Unit Cost *: - e 10.97
Overalf Position: - 4th out of 11
Average f7.73
Average t11.99
*Weighted Unit Costs are based upon the volume and type of transactions undertaken by the Pension Fund duringthe year
Internal Dispute Resolution Cases.
During the year to 31 March 2001 , a total of 9 new cases were dealt with by the panel of Appointed Persons responsiblefor complaints against decisions made by the Fund. In the cases determined, the Appointed Person rejected all of theappeals and confirmed the decisions of the Fund.
A total of 'l 5 cases were dealt with by the Appointed Person responsible for complaints against decisions made byemployers. In the majority of cases determined the Appointed Person confirmed the decisions made by employers but in3 cases payment of ill health benefits was upheld following consideration of further medical evidence.
10 cases have proceeded \o s\age 2, oi \hose cases deirded, 3 have been confirmed b1 \he Secre\ary o\ S\a\e and \case has been referred back for the employer to reconsider; on the grounds that a decision to refuse ill-health retirementwas not taken by an independent doctor; because the Authority's own approved Occupational Health Advisor was used.
The number of complaints concerning refusal to allow ill-health retirement remains at a high level.
Complaints to the Pensions Ombudsman.
\\e\e\\Srsns\rsr\u\snram\e\e\(rse\\Nsssrtrl\trs\s\utnrq\e1eannr.\ansurs\\e\us\.
Annual Employers' Conference.
The fifth Annual Conference is to be held on Tuesday 27 November, at the Peter Jost Conference Centre in Liverpool
and the results of the actuarial valuation as at 31 March 2001, as well as the latest position regarding Equitable Life wil l
be amongst the items to be discussed.
19
Merseyside Pension Fund
Accounts For The Year Ended 31 March 2001
Statement by the Consulting Actuary
The levels of contribution paid into the Fund in 2000/01 were governed by the 1998 actuarial valuation of the Func
Each employer paid the contribution rate certified in our contribution certificate dated 24February 1999 - these rates
were determined having regard to the individual circumstances of that employer.
The principal f inancial assumptions used for the 1998 actuarial valuation were as follows:
lnvestment return
Earnings growth"
Price inflation
For past service liabilities
6.3 per cent per annum
3.7 per cent per annum
2.7 per cent per annum
For future service liabilities
7.0 per cent per annum
4.0 per cent per annum
3.0 per cent per annum
The valuation method used was the Proiected Unit Method.
The results of the 1998 valuation showed that, at the valuation date of 31 March 1998, the Fund's assets were sufficienl
to cover 94 per cent of its liabilities.
At)til/ [ I${t ,H
Carol Pearl
Fellow of the Institute of Actuaries
August 2001
Birkenhead Sixth Form CollegeBurton Manor Residential College
Carmel CollegeDingle, Granby, Toxteth Education Action Zone
Halewood Parish CouncilHugh Baird College
King George V CollegeKnowsley Community College
Knowsley MBCKnowslev Parish Council
Liverjoot City CouncilLiverpool Community College
', Liverpool John Moores UniversityMersey Waste Limited
Merseyside Fire & Civil Defence AuthorityMerseyside Magistrates Committee
Merseyside Passenger Transport Authority
CURRENT SCHEDULED BODIES
CURRENT ADMISSION BODIES
Merseyside Passenger Transport ExecutiveMerseyside Police AuthorityMerseyside Probation ServicePrescot Town CouncilRainford Parish CouncilRainhil l Parish CouncilSefton MBCSouthport CollegeSt. Helens Community CollegeSt. Helens MBCSpeke Garston Education Action ZoneValuation and Community Charge TribunalWaste Disposal AuthorityWhiston Parish CouncilWirral Metropolitan CollegeWirra lMBC
Age Concern - LiverpoolAnfield Citizens Advice Bureau
Arriva (Merseyside)Bellerive Convent
Birkenhead Citizens Advice BureauBirkenhead Council for Voluntary Service
Birkenhead School LtdCareer Connections Ltd
Career Decisions LtdCDS Housing
Central Youth Club LtdCommunity Technical Services
Compass Group PlcCornerstone Care Ltd
David Lewis Hotel and Club AssociationDiocese of Liveroool
Drug FreeEton Lodge Training HomeFalkner House Association
Garston Citizens Advice BureauGlenvale Transoort LtdGroundwork Trust Ltd
Holst FM LtdInterserve Ltd
Jarvis Worksoace FMKensington Citizens Advice Bureau
LACOTSLiverpool 8 Law Centre
Liverpool Airport PLCLiverpool and Knowsley Family Service Unit
Liverpool Association for the DisabledLiverpool Citizens Advice Bureau
Liverpool Community RightsLiverpool Council for Social Aid
Liverpool Hope University CollegeLiverpool Housing TrustLocal Government AssociationLocal Government lnternational BureauLorne Stewart PlcMerseyside Equal Opportunities ProjectMerseyside Development CorporationMerseyside LieutenancyMerseyside Society for the DeafMerseyside Welfare RightsMerseyside Youth AssociationMTUCU Resource CentreNetherley Citizens Advice BureauNorth West Tourist BoardNugent Care SocietyOld Swan Citizens Advice BureauParkhaven TrustSheila Kay FundSouthern Neighbourhood CouncilSpeke Citizens Advice BureauSpeke Garston Development CompanySt. Gabriel 's Community HomeSt. Helens and District Society for the DeafSt. Helens CareersThe Catholic Children's Society (Shrewsbury Diocese) IncToxteth Citizens Advice BureauUnicorn Consultancy Services LtdUniversity of LiverpoolVauxhall Neighbourhood CouncilVil lage Housing Association LtdWalton Citizens Advice BureauWirral Autistic SocietyWirral Council for Voluntarv Service
21
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Merseyside Pension Fund - Background Detai ls
The Merseyside Pension Fund was formed upon the re-
organisat ion of Local Government in 1974 when the
Merseyside County Counci l was set up to carry out
selected funct ions for the area. Smal ler funds were
combined to form one laroe fund wi th an in i t ia l s ize of
around f42 mi l l ion.
The Local Government re-organisation of 1986 saw the
abolit ion of the Metropolitan County Council, and the Fund
initially passed to the Merseyside Residuary Body. On 1
October 1987 the responsibil i ty was transferred by statute
to Wirral Metropolitan Borough Council, who were charged
with the administration and manaoement of the Fund.
The Fund at that t ime had increased in value to
approximately f1 .1 b i l l ion, a l though the October 1987
stock market crash wioed some f300 mill ion off the value
in the f i rs t month of Wirra l 's s tewardship. Since then
growth of the Fund has been steady and at t imes
spectacular With the current size of assets at 13.0 bil l ion.
the Fund is currently the fifth largest Local Government
fund, and amongst the top 40 Pension funds in the Uni ted
Kingdom.
Wirra l Counci l gave a commitment in 1987 to mainta in a
Fund presence in L iverpool to fac i l i ta te v is i ts f rom the
majority of its members, who live on the north side of the
Mersey. The administration offices are in Cook Street in
Liverpool City Centre, within Castle Chambers, an office
bui ld ing owned by the Fund.
.9+
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WIRRAL MBC PENSIONS COMMITTEE
Reports Considered at Pensions Committee
The Committee met on 4 occasions during 200012001 to discuss the following items. Reports from the lnvestmenlAdvisory Panel and the Pensions Information Office are also considered at each Committee Meeting.
24 May 2000
Statement of Investment PrinciplesFunding of Early RetirementPension Sharing on divorce
Scheme of delegation
Admission Body application
12 September 2000
I nterim Actuarial Review
Mortality Rates - lmpact on contribution ratesApproved lending l istAdditional Voluntary Contributions provider (Equitable Life)Pension Fund DiscretionsInternal Dispute Resolution Procedure - UpdateBest Value ReviewDocument lmaging System - Hardware problems
Computer Hardware: Supply and Maintenance - TendersPensions Ombudsman - Appeal against decision
3 January 2001
Fund Accounts year ended 3'l March 2000 and Budget 200112002Draft Administrative Budget 2001 | 2002Best Value - Scoping Report for Best Value ReviewRevised Compliance ReportPensions Sharing on Divorce
Funding of Early Retirement costsAdmission Body application
AVC provision - Equitable Life updateLocal Authority Pension Fund Forum
14 March 2001
Best Value - Progress report
Strategic Asset Allocation Benchmark and InvestmentPerformance Target
Proposal for the introduction of dependants' pensions
Admission Body applicationCIPFA Pensions Conference
Non-recovery of Overpayments
I NVESTI \1ENT ADVISORY PANEL
Meetings were held on:- 10 May 2000, 20 July 2000,26 October 2000,
and 8 Februarv 2001.
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Internet Website
Merseyside Pension Fundhttp:/AffWW. M E RSEY-PE NS-FU N D. DEMON.CO. U K
Head of Pensions & lnvestments
Pensions Admi nistration
Pensions lnvestment
Financial Contro'ller
Transfers
Benefits/Payroll
Communicat ion
AVC / Added Years
I nformation Technology
Simon Edwards
Peter Mawdsley
Alan Borrows
John Parry
Margaret Rourke
Kevin Greenough
Sue Davies
David Brown
Karl Sherbrooke
0151 227 3316
0151 236 4205
0151 227 3316
0151 227 3316
0151 236 4197
0151 236 4208
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0151 236 4240
0151 236 4208
1307
1 333
1 309
1312
1 369
1354
1 361
1 380
1342
Fund Decisions
Employer Decisions
Directorof Finance 0151 666 3491
Principal Pensions Officer 0151 236 4205
Fire and Civil Defence
Knowsley M.B.C.
LiverpoolC.C.
LiverpoolJ.M.U.
Arriva North West
MerseyTravel
Sefton M.B.C.
St.Helens M.B.C.
Police Authority
Probation Service
Waste Disposal
Wirral M.B.C.
Helen Jones
Pauline Jackson
Mike McGurk
Terry Jones
Les Usher
Linda Gedman
Mike Nelson
Eric Astley
Ann Wil l iams
Kevin Stamper
Peter Leyland
Brian Beecroft
0151 225 2194
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0151 225 2221
0151 231 3562
0151 5222814
0151 227 5181
0151 922 4040
01744 456038
0151 709 6010
0151 920 9201
0151 709 3607
0151 666 3524
4126
8251
2351