Pension Fund Annual Report for the Year Ended 31 March 2018 1 Pension Fund Annual Report for the Year Ended 31 March 2018 Page Introduction 3 Governance, Management & Financial Performance 4 – 15 Investment Policy & Performance 16 – 27 Arrangements for the Administration of the Fund 28 – 32 Fund Activity 33 – 35 Actuarial Report 36 – 37 Statement of Accounts 38 – 81 Auditor’s Opinion 82 – 83 Appendix 1: Governance Policy and Compliance Statement 84 – 91 Appendix 2: Investment Strategy Statement 92 – 100 Appendix 3: Actuarial Valuation Report 2016 101 – 146 Appendix 4: Funding Strategy Statement 147 – 191 Appendix 5: Employee’s and Employers’ Contributions 192 – 194 Appendix 6: Communications Policy 195 – 198 Appendix 7: Pensions Administration Strategy 199 – 219 Appendix 8: Common and Conditional Data Certificate 220 – 223 2 Introduction Derbyshire County Council is the administering authority for the Local Government Pension Scheme within Derbyshire, investing and administering Derbyshire Pension Fund on behalf of over 200 participating employers and over 100,000 members. The value of the assets in the Pension Fund at 31 March 2018 was £4.6bn. Assets in the pension fund are accumulated through a combination of contributions from employees and employers within the scheme and from investment returns. In the twelve months to March 2018, the Fund’s investments returned 3.8%, 0.6% higher than the strategic benchmark return, with market returns moderating following an unusually strong year to March 2017. Over the last three years, the Fund’s investments have returned an average of 7.9% pa against a benchmark of 7.2%. Derbyshire Pension Fund has partnered with the LGPS pension funds of Cheshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, Worcestershire and West Midlands to form a collective investment pool, known as LGPS Central, in accordance with Government requirements for the pooling of LGPS investment assets. These pension funds currently manage over £40bn of assets. Collective investment management offers the potential for substantial savings in investment management fees, increased opportunities for investor engagement and access to a shared pool of knowledge and expertise. LGPS Central Limited, the company established to manage investments on behalf of the LGPS Central Pool, has now received authorization from the Financial Conduct Authority and has completed the recruitment of its Executive Team. Four members of Derbyshire County Council’s In-House Investment Team transferred to the company on 1 April 2018 and the Council has entered into a discretionary management agreement with the company for the management of the Fund’s UK Equity portfolio. The transition of the Fund’s remaining assets into products offered by LGPS Central Limited is likely to take several years. During the year a new pension administration system has been procured and data migration and system implementation plans are being developed. Despite recent success in the reduction of overall backlogs, significant backlogs remain in some areas of administration due to the difficulties experienced with the existing system. It is likely that meaningful inroads into the remaining backlogs will only be made once the new system is fully established. Derbyshire Pension Board continues to assist Derbyshire County Council with the effective governance and administration of the Pension Fund and has contributed in particular to the development of enhanced reporting on the delivery of the Fund’s administrative responsibilities. A separate Derbyshire Pension Board Annual Report is available on Derbyshire County Council’s website. Further information relating to the Fund is available on Derbyshire County Council’s website at http: -www.derbyshire.gov.uk-working for us-pensions-. 3 Governance, Management and Financial Performance Administering Authority Derbyshire County Council Derbyshire County Council Officers Responsible for the Fund Director of Finance & ICT Peter Handford Head of Pension Fund Dawn Kinley Head of Investments Neil Smith Pensions Administration Manager Nigel Dowey Pension Fund Accountant Rajwant Dosanjh Derbyshire County Council Pensions and Investments Committee Derbyshire County Council Councillor Jim Perkins (Chair) Councillor Ron Ashton Councillor Neil Atkin Councillor Alison Fox Councillor Peter Makin Councillor Steve Marshall-Clarke Councillor Ron Mihaly Councillor Brian Ridgeway Derby City Councillor Mike Carr Councillor Paul Hezelgrave Non-voting trade union representatives Paul Beresford (Unison) Mick Wilson (Unison) Derbyshire Pension Board Independent Chair Ronald Graham Member Representative Karen Gurney Member Representative Nick Read (Unison) Employer Representative Mike Nelson (Avrato) Employer Representative James Watson (Pinxton Parish Council) 4 Independent External Investment Adviser Anthony Fletcher (MJ Hudson-Allenbridge) Main Investment Managers In House Investment Team – Multiple Asset Classes – details included in Investment Policy and Performance Section. Colliers International - Property UBS Asset Management – European Equities (Passive) Wellington Management - US Equities Actuary Hymans Robertson LLP Auditor KPMG AVC Providers Clerical Medical Equitable Life Prudential (Principal Provider) Standard Life Custodian BNP Paribas Securities Services Banker Lloyds Bank Legal Advisers Derbyshire County Council Legal Services Performance Measurement Performance Evaluation Ltd Property Valuation Savills Scheme Administrator Derbyshire County Council Pensions Administration Voting Services Institutional Shareholder Services 5 Pensions and Investments Committee Responsibility for discharging Derbyshire County Council’s statutory functions as an employing authority and as the administering authority for Derbyshire Pension Fund is delegated to Derbyshire County Council’s Pensions and Investments Committee. In discharging these statutory functions the Committee’s responsibilities include: i. Considering applications for admission body status to the Derbyshire Pension Scheme; ii. Management of the resolution of pension disputes in accordance with the Internal Dispute Resolutions Procedure, including the appointment of adjudicators; iii. Formulating and reviewing policies under the discretionary payments legislation; iv. Appointing and reviewing the performance of the Pension Fund’s actuary, additional voluntary contribution providers and independent investment advisers; v. Formulation of the Fund’s investment strategy in line with the Investment Strategy Statement, Funding Strategy Statement and Risk Strategy. Approval of a Treasure Management Policy; vi. Ensuring effective communications with Pension Scheme members and pensioners; vii. Approving and monitoring performance targets for the Pension Fund; and viii. Considering recommendations from the Joint Committee of the administering authorities which are shareholders in LGPS Central Limited and making decisions in respect of those recommendations on behalf of the Council. Structure The Committee comprises eight Councillors representing the County Council and two Councillors representing Derby City Council. The County Council members of the Committee reflect the political balance of the Council. The composition of the Pensions and Investments Committee changed significantly following the local elections in May 2017. Two trade union representatives also attend meetings of the Pensions and Investments Committee as non-voting members. Meetings The Pensions and Investments Committee is required to carry out certain statutory functions on at least a quarterly basis – for example reviewing investments, reviewing transactions, reviewing fund performance. The Committee timetable is designed to fit in with those requirements. Urgent matters which need to be addressed outside the committee timetable are dealt with by the County Council’s Director of Finance & ICT in consultation with the Chair of the Pensions and Investments Committee as required. The Pensions and Investments Committee meets eight times a year. Meetings are open to the public except for exempt and confidential items as defined by the Local Government Act 1972. The minutes of the Pensions and Investments Committee are presented to meetings of the Full County Council, copies of which are available on the Derbyshire County Council website. A register of attendance for 2017-18 is set out on the following page. 6 Register of Councillor Attendance at 2017-18 Pensions and Investment Committee Meetings 14 Jun-17 2 Aug-17 6 Sept-17 1 Nov-17 12 Dec-17 24 Jan-18 7 Mar-18 DCC Councillors R Ashton ✓ ✓ ✓ ✓ ✓ ✓ ✓ N Atkin (Vice Chair) ✓ ✓ ✓ ✓ ✓ ✓ ✓ T King ✗ ✓ ✗ ✗ ✗ A Fox ✓ ✓ P Makin ✓ ✓ ✓ ✓ ✓ ✓ ✓ S Marshall-Clarke ✗ ✓ ✗ ✓ ✓ ✓ ✓ R Mihaly ✓ ✓ ✗ ✓ ✓ ✓ ✓ J Perkins (Chair) ✓ ✓ ✓ ✓ ✗ ✓ ✓ B Ridgeway ✗ ✓ ✗ ✓ ✗ ✗ ✓ Substitute Members 1 - 2 1 1 - - Derby City Councillors M Carr ✗ ✗ ✓ ✓ ✓ ✓ ✓ P Hezelgrave ✗ ✗ ✗ ✗ ✗ ✗ ✗ There was no Pensions & Investments Committee in April 2017 reflecting the timing of the timing of the local election in May 2017. Councillor Alison Fox replaced Councillor Tony King on the Committee in December 2017. 7 Derbyshire Pension Board The Public Service Pensions Act 2013 introduced a framework for regulatory oversight by the Pensions Regulator and introduced a new governance structure for the LGPS which came into effect in April 2015. The new governance structure is intended to ensure better management and improved accountability in the LGPS. A national Scheme Advisory Board has been established to provide advice