annual report 2008/09
My pension, your pension, their pension –ourpension, for all our futures Photograph, Harold Banks, retired member formerly employed by Shrewsbury and Atcham Borough Council Iwantmypensionto: allowmetocarry on enjoying the great outdoors Laura Davies and Meg an active member from Wrekin Housing Trust
i contents
Introduction 1 Members, Managers and Advisors 3 Participating Employers 4 Review of the Year 6 Communications 11 Publications 15 Myners Principles 16 Pension Fund Account 18 Net Asset Statement 19 NotestotheAccounts 20 Investment of Funds 26 Investment Performance 30 Corporate Governance and Socially 33 Responsible Engagement Statement by the Consulting Actuary 36 Audit Opinion and Certificate 38 Glossary of Terms 41
ii I want my pension to: allowmetotryout things I have not done before Carol Fox an active member from Shropshire Council
iii welcome to the 16th annual report and accounts of the shropshire county pension fund
Thelastyearhasseendevelopedcountries term returns of the Fund. Towards the end of the entering recession, a global banking crisis and financial year the strategic asset allocation was reductions in interest rates to record lows. The reviewed. The Committee concluded that the split Shropshire County Pension Fund is not immune to between equities, bonds and alternative assets these global economic conditions. The Shropshire remains appropriate and is expected to deliver the Fund was valued at £716 million at the end of the investment returns required over the long term. year, 21% lower than it started the year. However, the Committee believe that it is appropriate to make some minor changes to the type of Stock markets in the UK, Europe and Emerging portfolios the Fund holds with the introduction of new Markets have fallen by over 25% in the last year allocations to global equities and infrastructure. which inevitably had a negative impact on the overall These changes will be made by reducing the Funds value of the Fund. All asset classes from equities to allocation to UK equities. It is expected that these hedge funds have suffered, negative returns over the changes will provide further diversification of returns last year. However, the Funds investments in UK and the Fund is now working towards implementing bonds have fallen only marginally over the last year these changes in 2009/10. offering some protection for the Fund in the difficult economic environment that has existed. Overall the The Pensions Committee undertakes thorough Fund has underperformed its benchmark by 8% monitoring of the Fund’s investment managers and is during this difficult year for investment. prepared to make changes in response to investment underperformance or new investment opportunities. The Pensions Committee determine the strategic In the last year the economic environment has had a asset allocation for the Fund. This outlines the significant impact on the pricing of financial assets proportion of assets that the Fund invests in equities, which has negatively impacted on the performance bonds and alternative assets such as property. This of some investment managers. This has also created is the most important decision that the Committee opportunities for investment managers to deliver makes because it has the biggest impact on the long strongreturnsinthefuture.Followingteamchanges
1 at Aberdeen Asset Management the Fund During the last year the pension website has been tendered for a new Global Bond Manager. A new updated and we are continually looking to improve manager was selected at Pensions Committee in the information we provide in this format. The March 2009. websitecanbefoundat www.2shrop.net/shropshire-county-pension-fund The last actuarial valuation for the Shropshire Fund was conducted in March 2007. At this time the Fund These and other developments are covered in more had a funding level (the relationship between detail on the following pages. We hope you find the estimated future pension payments and the funds report interesting and informative. As always we held to pay for these pensions) of 85%. The Fund welcome your feedback on the report and indeed, had a funding level above the average of council on any aspect of the Scheme’s activities. pension funds and one of the lowest employers’ contribution rates of all council funds. Global If you wish to make a comment or if you have any economic conditions over the last year have questions, our contact details are given on the back impacted on the value of assets. Liabilities will be page of the report. recalculated at the next actuarial valuation in 2010. As a local government pension scheme the Fund is able to take a long term view to the recovery of any funding deficit.
During the last year the Administration team have implemented the changes required to ensure calculations and processes can be carried in line with introduction of the ‘New Look’ Local Government Pension Scheme. Laura Rowley Dave Wright The Scheme literature has been updated and Director of Resources and Chair, newsletters reinforcing the changes were issued Scheme Administrator Pensions Committee Shropshire Council to all employees.
2 members, managers and advisors
Dave Wright – Brian Gillow OBE – Joyce Allaway – Adrian Coles MBE – Ron Pugh – Telford & Wrekin County Council County Council County Council Pensioner Council Representative, Representative, Representative Representative Representative Chair Vice Chair
Malcolm Smith – Tom Biggins – Patricia Wilson – Mike Owen – Charles Tranter – Telford & Wrekin Council County Council Employee Association of Employee Representative Representative Representative Shropshire Local Representative Government Representative Administering Authority Fund Managers Actuary Shropshire Council, Aberdeen Fund Management Ltd Mercer Human Resource Consulting Shirehall, Abbey Foregate, AXA Rosenberg Investment AVC Providers Shrewsbury, SY2 6ND Management Ltd Prudential Assurance Scheme Administrator Baillie Gifford & Co Company Ltd Laura Rowley Blackrock Alternative Advisors Equitable Life Assurance Society Independent Advisors F & C Management Ltd Corporate Governance Russell Investment Group Pensions Investment Research Mercer Investment Consulting Goldman Sachs Asset Management Consultants Ltd (PIRC) Roger Bartley HarbourVest Partners (UK) Ltd Responsible Engagement Advisor Custodian Legal & General F&C Management Ltd Northern Trust Company Majedie Asset Management Performance Measurement Banker Man Investments Northern Trust Company National Westminster Bank plc Martin Currie Investment Auditor Management Ltd Audit Commission PIMCO Europe Ltd 3 participating employers
Scheme Employers have the right to join the scheme and their employees are automatically admitted to the Fund unless they indicate in writing that they do not wish to participate. Employees of Parish and Town Councils and other Admission Bodies must be nominated by their employer before they are admitted to the scheme.
Scheme Employers Shropshire & Wrekin Fire Authority Initial Catering Services Abraham Darby Academy Shropshire County Council** Interserve Project Services Ltd Abraham Darby School* Shropshire Probation Committee* Ironbridge Gorge Museum Trust Adams Grammar School South Shropshire Landau Consultants* Blessed Robert Johnson College District Council** Mencap Bridgnorth District Council** Telford College of Arts Meres and Mosses Housing Charlton School and Technology Association Corbet School Telford & Wrekin Education Relate Shropshire Ercall Wood School Action Zone* Severnside Housing Association Grange Junior School Telford & Wrekin Council Severn Gorge Countryside Trust Greenacres Primary School Walford and North Shropshire Shrewsbury, Telford & Wrekin Holy Cross CE School College Learning Hub* Ludlow College West Mercia Supplies Shropshire Disability Consortium* Madeley Court Academy School Admission Bodies Shropshire Association of Moorfield Primary School Accord Housing Association Local Councils New College, Wellington Age Concern, Shropshire, South Shropshire Housing North Shropshire District Council** Telford and Wrekin Association North West Shropshire Education BelmontArtsCentre(TheHive) South Shropshire Leisure Limited Action Zone* Commission for Social Care Telford & Wrekin Services Limited Oswestry Borough Council** Inspection Telford Development Corporation* Shrewsbury & Atcham Connexions* Telford Trust Borough Council** Coverage Care Ltd Transforming Telford Shrewsbury College of Arts Drayton in Hales Burial Joint Womens Royal Voluntary Service and Technology Committee* Wrekin Housing Trust Shropshire Magistrates Fastrack Maintenance Veolia Environmental Court Committee* Harper Adams University College Services (UK) Plc Shrewsbury Sixth Form College
4 My pension: is an important part of the employment package that I recieve from my employer Designation Bodies Andy Farrell an active member from Albrighton Parish Council Telford & Wrekin Council Alveley Parish Council* Bayston Hill Parish Council Bridgnorth Town Council Broseley Town Council Church Stretton Town Council Condover Parish Council Craven Arms Parish Council Dawley Hamlets Parish Council Gorge Parish Council Great Dawley Parish Council Hadley and Leegomery Parish Council Hollinswood and Randlay Parish Council Ketley Parish Council Lawley and Overdale Parish Council Lilleshall and Donnington Parish Council Ludlow Town Council Madeley Parish Council Market Drayton Town Council Much Wenlock Town Council Newport Town Council Oakengates Town Council Oswestry Town Council Shrewsbury Town Council Stirchley and Brookside Parish Council St Georges and Priorslee Parish Council Wellington Town Council Wem Town Council Whitchurch Town Council Wrockwardine Parish Council
* Employers with pensioner liability but no current employees. ** Employers merged on 1st April 2009 to form Shropshire Council. 5 review of the year
Legislation Changes Any member who has previously opted out of With 3.5 million members, the Local Government membership can opt back into the Scheme provided Pension Scheme (LGPS) is one of the largest public theyhaveacontractofemploymentthat’sforatleast sector pension schemes in the UK. As part of a 3monthsandareunderage75. general review of public sector pension schemes, the LGPS in England and Wales changed from New contribution rates 1 April 2008. In the new scheme, instead of most people paying a standard contribution rate of 6%, there are different More of us are living longer and so receiving contribution rates for different pay bands. The rates pensions for longer, which means the cost of applicable for 2008/09 were; providing pensions has risen. Also, the nature of the Pay bands for contributions 1st April 2008 workforce has changed, with more scheme Band Range (2008/09) Contribution members working part-time and looking to achieve a better work-life balance. As a result, the LGPS has Rates been updated to reflect the work patterns of a 1 £0 - £12,000 5.5% modern workforce, and to ensure that the New Look 2 >£12,000 - £14,000 5.8% LGPS is affordable whilst still providing valuable 3 >£14,000 - £18,000 5.9% pension benefits. 4 >£18,000 - £30,000 6.5% These changes do not apply to councillors in 5 >£30,000 - £40,000 6.8% England and Wales or members who were deferred 6 >£40,000 - £75,000 7.2% or retired members prior to the regulation changes. 7 >£75,000 7.5%
Joining the LGPS This change has been designed to give more From 1 April 2008 to be able to join the LGPS equality between the cost and benefits of individuals need a contract of employment that’s scheme membership. for at least 3 months and also be under age 75. New employees who are eligible are automatically If an individual works part-time, their rate is brought into the Scheme, except for employees of based on a whole time pay rate for that job, admitted bodies who can join by completing an although they will only pay contributions on the application form. pay they actually earn. 6 Changestobenefits Increasing Benefits How benefits are worked out when you retire Under the New-Look LGP Scheme, changes have changed from 1 April 2008. The New-Look LGPS is been made from 1 April 2008 to the ways members still a final salary scheme. This means that benefits can buy extra LGPS benefits. Additional Regular are normally based on the final year’s pay and Contributions (ARCs) can be made to increase thenumberofyearsamemberhasbeeninthe theamountofpensionuptoamaximumof Scheme, but in the New-Look LGPS a pension of £5,000 per annum. 1/60th of the final years pay is purchased for each year in the Scheme with no automatic lump sum. One of the main attractions of the LGPS is that However, it is possible to give up some pension to theemployerpaysalargepartofthecostof receive a lump sum. providing the benefits. It is however important that overall the scheme remains affordable, so increases To be entitled to retirement benefits an individual or decreases in the cost of providing the scheme must have been a member of the LGPS for at least 3 may, in the future, need to be shared between months or have transferred in other pension rights. members and employers. This is currently being Changes have also been made to the considered by the DCLG and would need to be earliest age benefits can be paid if you are made introduced in accordance with any future redundant, are retired on efficiency grounds, take government guidance. earlyretirementortakeflexibleretirementwith employer’s consent. The ill-health retirement benefits The introduction of the New-Look LGPS has kept package has also been changed. theteamverybusyduringtheyear.Newsletters were sent out to all active members, roadshows Improved death benefits were held on request and training sessions were run Provided a member is paying into the LGPS on or for scheme employers. The Pension Team works after 1 April 2008, there have been improvements hard to keep scheme members informed of changes to the Scheme’s benefits if you die. The death in to scheme benefits and are available for one-to-one service grant is now 3 X pensionable pay. meetings on request.
Pension team staff have been trained thoroughly on the new regulations and the new processes put in place.
7 Scheme Administration assessment allows us to react and make changes to address any issues that are raised.
As well as the feedback from these questionnaires all comments, compliments and complaints received are recorded and reported to the Scheme Administrator.
Some of the comments made within the last twelve months include:
“Thank you for taking the time to talk to me and Our computerised pension system (called “AXIS”) my colleagues on Tuesday. We were very underwent a software update last year which was impressed with your knowledge and expertise. tested and installed successfully. This involved a lot Your helpfulness and enthusiasm on the of work for the Pensions Team, changing letters and practicalities of implementation has given us calculations. The pension system’s workflow and both encouragement and reassurance for the document scanning facilities are an important part of task in hand” –(APensionFundEmployer) our computerised operations and these have also been developed. Regular computerised checks are “I would like to thank all at Shirehall who work in made on our data throughout the year. These the Pensions Team. They do a fantastic job in include checks on the amount of pensions increase what is an increasingly complex task and have paid to our pensioners. Our computer systems are also done much to create awareness among both vital for our work and we continually review the way present staff and pensioners of the issues relating we use them and make improvements that enhance to the benefits and investment sides of Pensions.” the delivery of our service. – (Retired Member)
The Shropshire County Pension Fund has continued “Thank you for your prompt and accurate throughout the last twelve months to monitor response, I’m not surprised that Shropshire as a member satisfaction. A member satisfaction survey Fund implemented the Regulations correctly.” which is issued with all calculations ensures that we – (Scheme Member) have an awareness of how the service we provide to the membership is viewed. This continual
8 Clearly the Shropshire County Pension Fund also If you have any comments that you wish to make does receive a number of complaints and comments to us, please do so by phone, letter, e-mail or in suggesting improvements to Scheme literature and person at Shirehall. practices. We are happy to say that very few have been received over the last year but when they are, As well as monitoring the team’s performance the Fund where applicable takes them on board. throughmembers’feedback,theamountofwork processed is monitored electronically. Reports are Project groups have reviewed our newsletters produced monthly and reported quarterly to the which has resulted in changes to both their content Pension Committee meeting. The Fund is also a and layout. member of the CIPFA Benchmarking club and measures its performance and costs against other Pension Funds. Pension Fund Administration 2008/09
9 Scheme Membership Statistics Membership Local Government employees across the county Status Number as at Number as at clearly view their pension scheme as a valuable 31.3.2008 31.3.2009 benefit as membership of the Fund continues Actives - Full time 6,175 6,053 togrow.Asofthe31stMarch2009therewere Actives - Part time 8,800 8,793 14,846 active contributors, 9,335 deferred beneficiaries (former members who have left the Deferred Pensions 8,309 9,335 scheme prior to retirement but have elected to Pensioners 5,976 6,320 keep their benefits in the scheme until they Widows/Dependants 1,107 1,153 become payable at retirement age) and 7,473 pensioners and dependants. Frozen Refunds 1,634 1,362 Total Membership 32,001 33,016 A summary of how the Fund membership has grown over the last 4 years is represented in the following graph:
Membership Statistics
Membership is spread over 90 or so associated bodies, who currently or have previously, participated in the Fund. A full list of the employer bodies can be on pages 4 and 5 of this report.
10 communications
There have been major changes imposed on the A copy of the Communications Policy is available Local Government Pension Scheme over the last on our website: year and as a result the Pension Administration team www.2shrop.net/shropshire-county-pension-fund have had to undertake work in order to keep all Fund members informed of the statutory changes An effective communications policy is vital for the to their Scheme. Fund which aims to provide a high quality and consistent service to its members. The introduction of the ‘New-Look’ Local Government Pension Scheme from 1st April 2008 The activities undertaken by the communications has however, provided the ideal opportunity to team over the past year include: overhaul all of the existing documentation and web based information previously produced. Annual Benefit Statements In the last year the Shropshire County Pension Fund has issued annual benefit statements to all its active and deferred members. During the year over 23,000 annual benefit statements were issued.
The statements are valuable and important documents, which list the benefits members hold within the Fund. This year we also gave further information to active members on the benefit structure of the ‘New Look’ Scheme.
From next year we hope to issue combined statements, showing the benefits from the Shropshire County Pension Fund, along with details of member’s state pension entitlement.
The Fund is continually working to improve the Our Communications Policy outlines the principles statements that we issue to ensure they provide on which the Fund bases its communications and more information to the membership in the most the many methods used. understandable format possible. 11 Interactive CD Rom changes will affect the scheme membership. Our new interactive CD Rom was launched The Funds newsletter for deferred members was during the last year. It provides all the details issued with their annual benefit statements and currently contained within our ‘Brief Scheme Guide’ contained information on subjects such as the as well as an interactive section that allows members annual pension increase and tracing other to obtain an approximate calculation of the value of pension rights. their benefits at age 65 and a calculator that works out the cost of paying ‘Additional Regular Our newsletter for retired members “inTOUCH” Contributions’. It is hoped that by providing details was issued in the Spring and Autumn and as about the Scheme in this alternative format, usual received many positive comments from its a wider audience will access information about readership. Currently it offers articles from the the scheme. membership, Pensioner Representative, competitions and news and events.
Website Annual Meeting www.2shrop.net/shropshire-county-pension-fund The Annual Meeting was held in November 2008 to update members on the activities of the Fund. During the last 12 months we have also launched a Topics covered included the introduction of the ’new new website. The new layout provides clear access look’ Scheme and the investment performance of to a variety of pages offering information about the the Shropshire Fund. Three meetings were held scheme, downloadable publications, on-line which were attended by approximately 350 people. calculators and the latest news and events.
Thesitewillcontinuetobedevelopedtoensure Retired Members Meeting we provide our membership with the best Our retired members’ meeting was held in the service available. Council Chamber at the Shirehall this year and our guest speakers included Carolyn Downs, former Newsletters Chief Executive of the County Council and Martin Wood, the Shrewsbury Town Crier. This continues to The Fund has continued to issue newsletters to our be a popular event which allows former colleagues active, deferred and retired members. togettogetherinafriendlyandrelaxedenvironment. The introduction of the ‘new look scheme’ has created the need to distribute extra editions of our ‘Pension Planning’ newsletter. Each edition has aimed to provide an explanation of how the scheme
12 Pension Consultations and Roadshows Working with Employers Pension consultations have continued to be held Employershavecontinuedtobeprovidedwith around the county, offering members the details of regulation changes, through the opportunity to talk to a member of the team on a distribution of Statutory Instruments and inserts to ‘one to one’ basis. their Employer Guides.
ConsultationswereheldatalltheDistrictand Meetings and training sessions have also been held Borough Councils prior to the introduction of the and last year an Employment Lawyer attended to new Unitary Council for Shropshire. Many staff speak to employers about the importance of during this period took up the opportunity of making a formal policy on the discretions made discussing their forthcoming retirements with available to them under the regulations. thefundstaff. Induction Courses In addition to these we have held roadshows when PresentationsareheldatInductionCoursesona requested by members or employers in particular regularbasis.TheFundtriestoensurethatnew on the benefits of the new scheme. staff are made aware of the benefits of belonging to an occupational final salary pension scheme.
Iwantmypensionto: help me to relax more when I retire David Hall-Salter, an active member from Shropshire Council
13 Iwantmypensionto: to help me travel and see the wonders of the world Angela Porteous, an active member from Wrekin Housing Trust
14 publications
Local Government Pension Schemes are required contribution rates. It outlines the financial to publish a number of reports which are available assumptions used in the actuarial valuation and on request. Copies are also available at the website identifies the risks and countermeasures employed www.2shrop.net/shropshire-county-pension-fund by the Fund.
Governance Compliance Statement Statement of Investment Principles This document describes how the Shropshire Fund This document sets out the investment objectives is governed. It explains the role of the Pensions of the Fund and how investments are allocated Committee and how it reports into the Council. The between equities, bonds and alternatives. Target make-up of the Committee is outlined and the investment performance is defined for each of the reasons for the current representation. The role of Investment Managers. The Fund’s approach to officers, independent advisors and employee social, environmental and ethical issues is also representatives are clearly explained. explained as is the Fund’s compliance with Myners Principles. The Governance Compliance Statement includes details of compliance against the best practice Communications Policy guidelines on pension fund governance that have This document sets out the principles on which been issued by the Department for Communities the Fund bases its communication activities. The and Local Government. The governance Communications Strategy is outlined and the many arrangements of the Shropshire Fund adhere to methods of communication and publications are these best practice guidelines. described to the reader.
Funding Strategy Statement Hard copies of these documents are available This document provides the basis for the actuarial from the Pensions Team:- valuation which occurs every three years. The Telephone: 01743 252130 Funding Strategy Statement formed the basis of the Email: [email protected] 2007 actuarial valuation. It sets out in a transparent way the Fund’s prudent approach to meeting pension liabilities and maintaining stable employer
15 myners principles
Pension funds are required by government to 3. Focus on Asset Allocation – report the level of compliance with the ten principles Full Compliance of good governance as set out in the Myners Review The Fund recognises that the single most of Institutional Investments in the UK. The Shropshire important investment decision is the strategic County Pension Fund’s compliance statement is allocation between equities, bonds and published in the Statement of Investment Principles. alternatives. A comparison of assets against Asummaryisshownbelow;- liabilitiesiscarriedoutevery3yearsandthe funding position monitored annually by 1.EffectiveDecisionMaking– Pensions Committee. Full Compliance The Pensions Committee takes decisions 4. Expert Advice – Full Compliance relating to investment objectives, strategic asset Contracts are in place for actuarial and allocation and appointment of investment investment advice. The Governance Compliance managers. The relatively small size of the Statement outlines the duties of Pensions Pensions Committee enables it to fully consider Committee including the consideration of advice. investment issues. Members of the Committee receive regular training to support their 5. Explicit Mandates – Full Compliance decision making. All investment management agreements 2. Clear Objectives – Full Compliance specify objectives, performance targets, risk levels and measurement timescales. Where The Fund has the clear objectives of maintaining soft commissions are permitted, the reasons a 100% funding level with low and stable are stated. employers’ contributions. Performance and risk levels are clearly specified in agreements with fund managers.
16 6. Activism – Partial Compliance and member level. The level of compliance will An external voting agent is appointed to vote be improved by developing similar arrangements at company meetings in the UK and US. for monitoring advice. Extending the service to other geographical regions will be considered when such a service 9. Transparency – Full Compliance becomes available. The Statement of Investment Principles has been updated regularly and stakeholders 7. Appropriate Benchmarks – consulted on amendments. Full Compliance All investment management agreements 10.Regular Reporting – have index related benchmarks which are Full Compliance reviewed triennially. Compliance with Myners Principles is monitored andreportedtoschememembersinthe 8. Performance Measurement – Statement of Investment Principles and Partial Compliance Annual Report. Formal performance appraisal procedures are in place for investment managers, at both officer
Iwantmypensionto: helpmegofaster Phil Guy, a retired member from Shropshire County Council
17 pension fund account PensionFundAccountfortheyearended31March2009
2007/08 2007/08 Notes 2008/09 Original Restated £m £m (pgs 20 - 25) £m Contributions & Benefits 30.901 30.901 Employers 12 39.164 13.192 13.192 Employees 12 14.910 54.074 6.096 6.096 Transfers in 12 7.666 50.189 50.189 Total Income 61.740 Benefits payable 28.756 28.756 Pensions 12 30.952 7.469 7.469 Lump sums 12 13.175 44.127
Payment to and on account of leavers 0.004 0.004 Return of contributions 12 0.065 4.750 4.750 TransfertootherFunds 12 8.591 8.656 0.985 0.985 Administrative expenses borne by the Fund 12 1.070 41.964 41.964 Total Expenditure 53.853 8.225 8.225 Net additions from dealings with scheme members 7.887
Returns on Investments 22.608 22.608 Investment Income 3, 6, 15, 16 23.518 (12.169) (12.169) Gain/(loss) on cash and currency hedging 17, 18 (61.090) (0.510) (0.510) Irrecoverable Tax 3 (0.524) (8.950) (9.784) Change in Market Value 8 (156.974) (5.595) (5.595) Less Investment Management Expenses 9 (5.912) (200.982) (4.616) (5.450) Net returns on investments (200.982) 3.609 2.775 Net Increase (decrease) in the Fund during the year (193.095) 906.475 906.475 Opening Net Assets of the Scheme 909.250 910.084 909.250 Closing Net Assets of the Scheme 716.155
18 net asset statement
Net Asset Statement as at 31 March 2009
31 March 31 March Notes 31 March 2009 2008 2008 Original Restated £m £m £m %
Investment assets Fixed Interest Securities 27.557 27.549 Public Sector Bonds 28.918 4.04 115.416 115.416 Corporate Bonds 79.272 11.07 104.963 104.857 Index Linked Securities 68.452 9.56 502.555 501.835 Equities 397.438 55.49 20.307 20.307 Futures 21.991 3.07 Unit Trusts 43.187 43.187 Property 38.388 5.36 0.026 0.026 Other 0.020 0.00 91.330 91.330 Hedge Funds 75.967 10.61 Other Investments 1.762 1.762 Cash 4.293 0.60
907.103 906.269 Net Current Assets and Liabilities 714.739 99.80
4.136 4.136 Debtors 5 3.951 0.55 (1.155) (1.155) Creditors 5 (2.535) (0.35)
910.084 909.250 Net Assets at 31 March 716.155 100.00
19 notes to the accounts
1. Purchases & Sales 2007/08 2008/09 The table shows the values of purchases and sales Purchases Sales Purchases Sales made by the fund over the year to 31 March 2009 £m £m £m £m and for comparison, the year to 31 March 2008. 98.309 82.513 Fixed Interest 78.688 136.110 In 2008/09 the volume of trading was relatively high 541.758 537.462 UK Equities 613.814 601.121 as investment managers reacted to the high volatility 258.267 270.875 Overseas Equities 255.030 257.024 in the market. 27.316 28.508 Property 4.457 1.458 2. Related Party Transactions 6.955 1.952 Private Equity 8.015 1.663 As Administering Authority, Shropshire Council has 0.000 0.000 Hedge Funds 0.000 0.000 control of the Fund within the overall statutory 932.605 921.310 960.004 997.376 framework. During the year the Pension Fund had an average cash balance of £1,477,089 in the Council 4. Value Added Tax accounts for which interest of £40,570 was paid by the Council. The Council was also reimbursed TheFundisreimbursedVATbyHMRevenue& £1,022,394 for the cost of the Pension Team and Customs. The accounts are shown exclusive of VAT. other administration costs. 5. Debtors and Creditors 3. Taxation Provision has been made for debtors and TheFundisanexemptfundandsomeUKincome creditors known to be outstanding at 31 March tax is recoverable from HM Revenue and Customs. 2009. No provision has been made for transfer The investment income shown in the accounts is values and interfund adjustments where the therefore, shown gross of UK tax, except UK equity amount was unknown. dividends which are shown net as the Fund’s ability to reclaim tax on this income was abolished from 6. Investment Income July 1997. No capital gains tax is chargeable. Tax The following table breaks down the investment deducted from income on overseas investments is income received by the Fund (mostly in the form of recovered wherever possible. Irrecoverable dividends) over the last 12 months. Overseas Tax in 2008/09 was £524,112.
20 2007/08 2008/09 £m £m
Fixed Interest 3.684 3.451 Equities 14.454 15.973 8. Valuation of Investments Unit Trust 1.703 1.329 InvestmentslistedintheStatementofNetAssetsare Other 2.767 2.765 shown at bid-market values as at the last day of trading, if this is not the Balance Sheet date. Prices in 22.608 23.518 foreign currencies are converted at the closing rates of exchange on valuation date. 7. Accounting Policies The accounts have been prepared to meet the Dividends, interest, purchases and sales have requirements of the Local Government Pension beenaccountedforatthespotmarketratesatthe Scheme (Management and Investment of Funds) date of transactions. Spot market exchange rates Regulations 1998 (as amended), and to meet the have been used to value cash balances held in requirements of the Statement of Recommended foreign currency bank accounts, market values of Practice Number 1 of the Accounting Standards overseas investments and transactions outstanding Board of Professional Bodies in the United Kingdom. at 31 March 2009. The accounts also meet the requirements of the Code of Practice on Local Authority Accounting for Transaction costs (e.g. broker commission, stamp Great Britain issued in 1991 and comply with the duty) are added to the purchase cost and deducted SORP (Statement of Recommended Practice for from the proceeds received on sales at source. Financial Report of Pension Schemes) which was revised in 2007. Contributions, investment income and benefits are on an accruals basis. Investment 9. Investment Management Expenses income is accrued to the extent that the dividend is Each external Investment Manager receives a fee for due but unpaid at 31 March 2009. These accruals their services based on the market value of the do not include the Fund’s liabilities to pay pensions assets they manage on the Fund’s behalf. Active and other benefits in the future to all present managers are required to produce a specific target contributors to the Fund. These liabilities are taken return in excess of their benchmark return and are into account in periodic actuarial valuations of the paidaperformancerelatedfee(overandabovea Fund and are reflected in the levels of the employers’ basic fee) for reaching required levels of contributions determined at these valuations. outperformance. Transfers to and from other funds are included on a receipts and payments basis.
21 The table below analyses the figures included in the 11. Additional Voluntary Contributions Pension Fund Accounts between Fund Managers Scheme members have the option to make fees and investment administration charges (e.g. Additional Voluntary Contributions (AVC’s) to custodian and advisor fees). enhance their pension benefits. These contributions are invested with an appropriate provider and used to purchase an annuity at retirement. Contributions 2007/08 2008/09 are paid directly from scheme members to the AVC £m £m provider and are therefore not represented in these 4.734 Fees paid to Investment 5.076 accounts. Contributions are invested in with-profit, Managers unit linked or deposit funds of the scheme member. At present there are around 568 scheme members 0.861 Investment Administration, 0.836 with AVC policies. These policies are held either by Custodian, Investment Equitable Life or Prudential. During 2008/09 Advisors and other costs contributions to the schemes amounted to 5.595 TOTAL 5.912 £874,802. The combined value of the AVC funds as at 31 March 2009 was £3,655,077.
10. Custody of Investments Custodial Services are provided to the Fund by a single Global Custodian (Northern Trust). This includes the safekeeping of assets, the collection of income, the exercise of voting rights, and the monitoring and execution of corporate actions in conjunction with investment managers. The custodian also provides independent confirmation of the assets and their value held by the Fund. Securities are held on a segregated basis via a nominee account and are clearly separated from the custodians own assets.
22 12. Analysis of Main Revenue Account Transactions The table below provides further analysis of contributions received and benefits paid between Administering Authority (Shropshire Council), Designation Bodies and Scheme Employers (e.g. District Councils, Unitary Council, Parish Councils) and Admission Bodies (Private Bodies carrying out former Local Government functions or bodies providing a public service on a non profit making basis).
Administering Admission Designation Total Authority Bodies Bodies/Scheme Employers 2008/09 £m £m £m £m Contributions Received - Employees 5.793 1.629 7.488 14.910 - Employers 13.700 4.053 21.411 39.164 - Transfers In 3.085 0.623 3.958 7.666 Total Income 22.578 6.305 32.857 61.740 Payments Made -Pensions 14.248 3.740 12.964 30.952 - Lump Sum 4.167 1.271 7.737 13.175 - Refunds 0.029 0.006 0.030 0.065 - Transfers Out 3.233 0.979 4.379 8.591 - Administration Fees 1.070 0.000 0.000 1.070 Total Expenditure 22.747 5.996 25.110 53.853 2007/08 £m £m £m £m Contributions Received - Employees 5.165 1.396 6.631 13.192 - Employers 11.085 4.436 15.380 30.901 -TransfersIn 2.080 1.002 3.014 6.096 Total Income 18.330 6.834 25.025 50.189 Payments Made -Pensions 13.240 3.384 12.132 28.756 - Lump Sum 2.620 1.949 2.900 7.469 - Refunds 0.003 0.000 0.001 0.004 - Transfers Out 1.229 0.236 3.285 4.750 - Administration Fees 0.985 0.000 0.000 0.985 Total Expenditure 18.077 5.569 18.318 41.964
23 13. Contractual Commitments In September 2008 this arrangement was The Fund has a 5% (£36 million) strategic asset suspended due to increased counterparty risk. allocation to Private Equity. It is necessary to over At31March2009nostockwasonloan. commit the strategic asset allocation because some private equity investments will mature and be repaid 16. Commission Recapture before the committed capital is fully invested. The Fund participates in Russell Investment Group’s Commission Recapture Programme whereby As at 31 March 2009 £74.434m had been Investment Managers execute a proportion of trades committed to investment in private equity via a fund through specific brokers nominated by Russell of funds manager (HarbourVest Partners). Investment Group. In return the Fund receives a Investment in this asset class will be made as rebate which is included within the investment opportunities arise over the next 2-3 years. As at 31 income in the Pension Fund Account. This March 2009 the funds Private Equity investments programme allows the fund to reduce trading costs totalled £32.287m. without compromising the Investment Managers ability to achieve best execution. Commission 14. Audit Certificate Recapture income during 2008/09 was £1,096. The Audit Commission has completed its audit in accordance with the Audit Commission Act 1998, 17.CurrencyHedging the Code of Audit Practice issued by the Audit In November 2007 the Pensions Committee took a Commission and International Standards on decision to passively hedge 50% of all currency Auditing (UK and Ireland) issued by the Auditing exposure. This move was designed to eliminate Practice Board and the Audit Certificate is published some of the risks involved in holding an increased within this report. In 2008/09 the Shropshire proportion of overseas investments. The aim of this County Pension Fund incurred an external audit hedging strategy was not to produce returns but to fee of £33,329. reduce risk over the long term. It was accepted that there would be periods where passively hedging 15. Securities Lending would cost the Fund but equally there would be periods where it provides gains. The aim is to The Fund had an arrangement with its custodian reduce the volatility of the overall Fund value due to (Northern Trust) to lend eligible securities from within currency movements. its portfolio of stocks to third parties in return for collateral. Lending was limited to a maximum of 20% of the total fund value.
24 Forward currency contracts were put in place which most underweight asset class. In the financial year are rolled every quarter and take account of any the cash equitisation programme made a loss of changes to the composition of the Fund. In the £17.518 million. financial year 2008/09 currency hedges made a loss of £43.572 million which was offset by currency 19. Restatement of 2007/08 accounts gains in the value of the underlying assets owned The SORP Financial Reports of Pension Schemes by the Fund. (Revised May 2007) has been updated and as a consequence it has been necessary to restate the 18. Cash Equitisation 2007/08accountstoreflecttherequirementtovalue The Fund employs Russell Investment Group to investments at their bid price. The 2007/08 conduct a cash equitisation programme. This accounts are shown both at their original valuation, programme is designed to reduce risk by and at their restated valuation at bid cost in maintaining the Fund close to its strategic asset accordance with these changes. The 2008/09 allocation and minimise the drag on investment accounts have also been produced in accordance performance caused by holding cash. This risk is with the updated SORP requirements. hedged with the purchase of financial futures on the
Iwantmypensionto: help my family if anything happens to me Clare Hall-Salter, an active member from Telford & Wrekin Council
25 investment of funds
The Fund pursues a policy of managing risk by During the last year the Fund has conducted a diversifying both investments and investment review of its bond investments following concerns managers. Towards the end of last financial year the surrounding team changes at its UK Bond Manager, Pensions Committee completed a formal review of its Aberdeen Asset Management. The Pensions investment arrangements. It was concluded that the Committee felt that Global Bonds offered greater specialist manager structure and existing strategic opportunities to deliver returns in the future. The asset allocation should continue. However, the Fund tendered for a Global Bond manager during decision was made to introduce new allocations to thelaterhalfoftheyear.Anewmanagerwas global equities and infrastructure. It was also selected at Pensions Committee in March 2009. decided to increase the allocation to private equity. The Fund’s strategic asset allocation at AssetsareheldbytheFundinordertoachieve 31 March 2009 is shown below ;- returns consistent with the cost of future pension liabilities as assessed by the actuary at the 2007 valuation. For 2008/09 the Fund’s strategic Spread of Assets between Fund Managers allocation was :-
Fixed Interest Stocks 25% of Fund
Equities, Property 75% of Fund and Hedge Funds Fixed Interest Stocks (also known as Bonds) are generally considered to be less risky, as returns are less volatile than Equities. Bonds are deemed to closely match liabilities as they are both valued on the same basis. Over longer periods, investment returns achieved by Bonds are expected to be lower than those achieved by Equities.
26 The following table shows the managers responsible for individual portfolios and the value of the Funds they manage. Fund Manager Percentage Value of Funds Portfolios Held of Fund (%) Held (£m) Majedie Asset Management 13.22 94.651 UK Equities Goldman Sachs Asset Management 9.74 69.739 UK Equities 7.68 55.018 US Equities Aberdeen Fund Management Ltd 7.56 54.154 UK Aggregate Bonds F&C Management Limited 5.37 38.478 Emerging Markets Equities HarbourVest Partners Limited 4.51 32.287 Private Equity Aberdeen Property Investors 5.73 41.069 Property Unit Trusts Legal & General Investment Managers 9.56 68.451 UK Index Linked Bonds Man Investments Limited 6.96 49.859 Hedge Fund PIMCO Europe Limited 7.62 54.575 Global Aggregate Bonds Blackrock 3.65 26.111 Hedge Fund Martin Currie Investment Management 4.02 28.799 Pacific Equities Baillie Gifford & Co 4.76 34.087 Japanese Equities Axa Rosenberg Investment Mgt 7.18 51.423 European Equities Russells Investment Group 1.57 11.233 Futures
Total assets held by Fund Managers 99.13 709.934
Net Current Assets 0.87 6.221 Net Current Assets
Total Fund 100.00 716.155
27 I want my pension to: Provide me with secuirty in the future Joanne Oliver, an active member from Telford & Wrekin Council
28 The largest shareholdings of the Fund at 31 March 2009 are:
Major Shareholdings at 31 March 2009
UK Equities Sector Value £m % of Fund
BP Energy 16.161 2.257 Royal Dutch Shell Energy 13.499 1.885 Vodafone Group Communications 11.945 1.668 GlaxoSmithKline Health Care 9.560 1.335 HSBC Holdings Financials 9.086 1.269 BG Group Energy 6.132 0.856 Morrisons Supermarket Consumer Staples 5.250 0.733 Astrazeneca Health Care 4.275 0.597 BHP Billiton Materials 4.075 0.569 Unilever Consumer Staples 3.759 0.525
Overseas Equities Country Value £m % of Fund China Mobile China 3.359 0.469 Exxon Mobil Corp United States 2.682 0.374 Novartis Switzerland 2.358 0.329 Taiwan Semicon Taiwan 2.305 0.322 Samsung Electronic Republic of Korea 2.277 0.318 Toyota Motor Corp Japan 2.243 0.313 Sanofi-Aventis France 2.239 0.313 France Telecom France 2.042 0.285 China Life Insurance China 1.983 0.277 Vivendi France 1.732 0.242 Total Fund Value 716.155
29 investment performance
The last year has seen developed countries entering which inevitably had a negative impact on the overall recession, a global banking crisis and reductions in value of the Fund. All asset classes from equities to interest rates to record lows. The Shropshire County hedge funds have suffered negative returns over the Pension Fund is not immune to these global last year. However, the Funds investments in UK economic conditions. The Shropshire Fund ended bonds have fallen only marginally over the last year the year valued 21% lower than it began the year. offering some protection for the Fund in this difficult economic environment. Overall the Fund has Stock markets in the UK, Europe and Emerging underperformed its benchmark by 8% during this Markets have fallen by over 25% in the last year difficult year for investment. Individual Fund Manager Performance 2008/09
30 Individual portfolio managers are given performance 21.7%. Despite the significant market falls over the benchmarks related to the indices of the assets in last year the Fund has increased in value by an which they invest or an absolute return benchmark average of 2.4% per annum over the last five years. where this is more appropriate. Manager performance compared to their benchmark for the Performancedatausedinthisreportisprovidedby yearisshownintheonthelefthandpage. Northern Trust who supply independent confirmation of the investment performance of The chart below shows total fund investment returns individual managers on the Fund’s behalf. compared with the benchmark. The stock markets that make up the benchmark showed negative returns in 2008/09 (-13.2%). Overall the Fund underperformed this benchmark falling in value by
Whole Fund Performance
31 Iwantmypensionto: help me enjoy my passion for classic motorbikes Brian Youle, an active member from Shrewsbury Town Council
32 corporate governance and socially responsible engagement
The Shropshire County Pension Fund takes advice from Pensions Investment Research corporate governance and social responsibility Consultants Ltd (PIRC). seriously. Whilst the Pensions Committee has an The Fund believes that good governance is an overriding duty to consider its financial important element in reducing the risk of responsibilities above any other considerations it corporate failures in the future. It also believes that remains committed to these important issues. over the long term, commitment to corporate best Through actively voting at shareholder meetings and practice will enhance investment returns. As sustained shareholder engagement it is felt the Fund shareholders, we have a fiduciary interest and a is best to able change company behaviour. responsibility in ensuring the highest standards of The Shropshire Fund does not restrict its investment governance and accountability within the companies managers in the companies in which they can invest. inwhichweinvest. To do so would be contrary to the overriding Through PIRC the Fund has adopted a corporate financial responsibility of the Pension Committee. governance policy based on codes of best practice Furthermore, it is difficult to define a company for and governance reports. The Fund has exclusion. For example, companies such as Boeing incorporated the recommendations of the Combined and Rolls Royce are often defined as arms Code on internal controls and the Higgs report on companies but have highly profitable non-arms roles and responsibilities of directors. related aspects to their businesses. The Pensions Committee believe it is more effective to influence During the last year the Fund’s voting activity has company behaviour from the inside as a shareholder. focussed on encouraging the boards of listed companies to be transparent and accountable, maintain effective systems of internal control and Shareholder voting adopt fair remuneration structures. For example, The Shropshire County Pension Fund has been PIRC,onbehalfoftheShropshireFund,has actively voting at the Annual General Meetings and consistently voted against the executive Extraordinary General Meetings of the companies in remuneration packages at Royal Bank of Scotland in which it invests for over ten years. During the last 12 recent years. In the last year it has become evident months the Fund has voted at 147 UK and 138 US that the remuneration policy at RBS served to company meetings using independent best practice incentivise inappropriate risk taking.
33 Socially responsible engagement these companies have all either joined the soy roundtable or a new biofuels roundtable, in order to The Shropshire Fund is addressing its social promote industry-wide sustainability standards on responsibility through a strategy of responsible deforestation. engagement with companies. As a shareholder, the Shropshire Fund is a part owner in the large number of UK companies and by entering into dialogue with Local authority pension fund forum these companies it is felt that there is potential to Shropshire remains a committed and active member achieve change from the inside. However, it is also of the Local Authority Pension Fund Forum (LAPFF). recognised that there are certain industries and The LAPFF brings together 49 public sector pension sectors where engagement is less effective. funds representing more than 75% of local government pension funds when measured by Given that the Fund does not have the resources to assets. LAPFF exists to promote the investment regularly visit the companies itself, an external advisor interests of local authority pension funds, and to has been employed to develop an engagement maximise their influence as shareholders in programme. F&C Asset Management provide this promoting corporate social responsibility and high responsible engagement overlay on the Fund’s UK standards in corporate governance amongst the Equities portfolios. F&C enter into dialogue with companies in which they invest. companies on the Fund’s behalf to put to them the case for improved financial performance through As a member of the Forum the Shropshire Fund has better management of the negative impacts they a stronger voice in influencing the companies in might have on the environment and society in general. which it invests. Over the last 12 months our work with the Forum has included the following areas:- For example, F&C have been actively engaging with Marks & Spencer, Tesco, Shell and BP to encourage Banking Crisis them to ensure their supplies of soy for food or Thebankingsectorhasbeenthecentreofthe transportation are from sustainable sources with the financial crisis. During the last year LAPFF has given aim of addressing illegal and unsustainable logging consideration to how remuneration policy at the in the Amazon. As a result of F&C’s engagement,
34 banks worked to incentivise inappropriate behaviour and also the role of the auditors and audit committees in contributing to the crisis. The Forum has been engaging with the banks and Government to push for governance improvements.
Climate Changes and Greenhouse Gas Emissions Climate change is now recognised by government, business and investors as a major risk for companies in the medium to long term. During the last year the Forum has continued to actively engage with companies from the oil and gas, food and drinks, and transport sectors on sector-specific climate change risks and their mitigation. The Shropshire Fund as shareholder and member of LAPFFisactivelyencouragingcompaniesto reduce emissions.
My pension: wasnotapriorityfor me, but my family advised me to join Alastair Cathcart, an active member from Shropshire Council
35 Statement by the consulting actuary ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2009
(1) An actuarial valuation of the Fund was carried out at 31 March 2007 to determine the contribution rates with effect from 1 April 2008 to 31 March 2011. The results are contained in our report and certificate dated 28 March 2008.
(2) The market value of the Fund’s assets at the valuation date was £906.5 million and represented 85 per cent of the Fund’s accrued liabilities, allowing for future pay increases for members in service.
(3) The contribution rates comprise a common rate of 12.5 per cent of pensionable pay per annum, together with an adjustment to the common rate having regard to the individual circumstances of each employer.
(4) The common rate of contributions is the rate, which, in addition to contributions paid by members, is sufficient to meet 100 per cent of the liabilities arising in respect of service after the valuation assuming that the assumptions made at the valuation are borne out in practice. The additions or reductions to the common rate reflecttheparticularcharacteristicsofeachemployer.Also,therateshavebeen adjusted to allow for the surplus or deficit of the value of each employer’s notional share of the Fund’s assets above or below 100 per cent of its accrued liabilities, allowing for future pay increases for members in service. The difference is spread over a maximum deficit recovery period of 22 years with shorter periods applying for certain employers.
(5) The funding plan adopted in assessing the contributions for each individual employer is in accordance with the Funding Strategy Statement (FSS). Different approaches may be adopted for different employers in implementing contribution increases and deficit recovery periods, as determined through the FSS consultation process.
36 (6) In addition to the contribution rates shown, payments to cover additional liabilities arising from early retirements (other than ill-health retirements) will be made to the Fund by the employer.
(7) The contribution rates were calculated using the projected unit actuarial method and the main actuarial assumptions were as follows:
For past service liabilities For future service liabilities
Rate of return on investments: - pre retirement 7.4 per cent per annum 6.5 per cent per annum - post retirement 5.4 per cent per annum 6.5 per cent per annum Rate of pay increases 4.85 per cent per annum 4.5 per cent per annum Rate of increase in prices 3.1 per cent per annum 2.75 per cent per annum
(7) The next full acturial valuation of the Fund will be carried out with an effective date of 31 March 2010. Revised employer contributions will then be implemented on the basis of that valuation with effect from 1 April 2011.
Stephen Jacquest Fellow of the Institute of Actuaries Mercer Limited May 2009
37 Independent auditor’s report to the Members of Shropshire Council in respect of the Shropshire County Pension Fund
Opinion on the financial statements accounts,theDirectorofResources&Scheme Administrator is responsible for: I have audited the pension fund accounts for the year ended 31 March 2009. The pension fund selecting suitable accounting policies and accounts comprise the Pension Fund Account, then applying them consistently; the Net Asset Statement and the related notes. The pension fund accounts have been prepared making judgments and estimates that were under the accounting policies set out in the reasonable and prudent; Statement of Accounting Policies. keeping proper accounting records which were up to date; and, This report is made solely to the members of Shropshire Council in accordance with Part II of taking reasonable steps for the prevention and the Audit Commission Act 1998 and for no other detection of fraud and other irregularities. purpose, as set out in paragraph 49 of the Statement of Responsibilities of Auditors and of My responsibility is to audit the pension fund Audited Bodies prepared by the Audit Commission. accounts and related notes in accordance with relevant legal and regulatory requirements Respective responsibilities of the and International Standards on Auditing (UK Director of Resources & Scheme and Ireland). Administrator and auditor TheDirectorofResources & Scheme Administrator Ireporttoyoumyopinionastowhetherthe is responsible for preparing the pension fund pension fund accounts present fairly, in accounts, in accordance with relevant legal and accordance with relevant legal and regulatory regulatory requirements and the Code of Practice requirements and the Code of Practice on Local on Local Authority Accounting in the United Authority Accounting in the United Kingdom Kingdom 2008. In preparing the pension fund 2008, the financial transactions of the pension
38 fund during the year and the amount and published with the pension fund accounts and disposition of the fund’s assets and liabilities, related notes and consider whether it is consistent other than liabilities to pay pensions and other with the audited pension fund accounts. This benefits after the end of the scheme year. I also other information comprises the remaining report to you whether, in my opinion, the elementsofthePensionFundAnnualReport.I information which comprises the commentary on consider the implications for my report if I become the financial performance, included within the aware of any apparent misstatements or material Investment Performance section of the Pension inconsistencies with the pension fund accounts Fund Annual Report, is consistent with the and related notes. My responsibilities do not pension fund accounts. extend to any other information.
I review whether the governance compliance Basis of audit opinion statement published in the Pension Fund Annual I conducted my audit in accordance with the Report reflects compliance with the requirements Audit Commission Act 1998, the Code of Audit of Regulation 34(1)(e) of the Local Government Practice issued by the Audit Commission and Pension Scheme (Administration) Regulations International Standards on Auditing (UK and 2008 and related guidance. I report if it does not Ireland) issued by the Auditing Practices Board. meet the requirements specified by the An audit includes examination, on a test basis, of Department of Communities and Local evidence relevant to the amounts and disclosures Government or if the statement is misleading or in the pension fund accounts and related notes. It inconsistent with other information I am aware of alsoincludesanassessmentofthesignificant from my audit of the financial statements. I am not estimates and judgments made by the Authority in required to consider, nor have I considered, the preparation of the pension fund accounts and whether the governance statement covers all risks related notes, and of whether the accounting and controls. Neither am I required to form an policies are appropriate to the Authority’s opinion on the effectiveness of the Authority’s circumstances, consistently applied and corporate governance procedures or its risk and adequately disclosed. control procedures. I read other information
39 I planned and performed my audit so as to obtain Opinion all the information and explanations which I In my opinion the pension fund accounts and considered necessary in order to provide me with related notes present fairly, in accordance with the sufficient evidence to give reasonable assurance Code of Practice on Local Authority Accounting in that the pension fund accounts and related notes the United Kingdom 2008, the financial are free from material misstatement, whether transactions of the Pension Fund during the year caused by fraud or other irregularity or error. In ended31March2009,andtheamountand forming my opinion I also evaluated the overall disposition of the fund’s assets and liabilities as at adequacy of the presentation of information in the 31 March 2009, other than liabilities to pay pension fund accounts and related notes. pensions and other benefits after the end of the scheme year.
Grant Patterson (Officer of the Audit Commission) Audit Commission Opus House Priestly Court Staffordshire Technology Park Beaconside Staffordshire ST18 0LQ
9 September 2009
40 glossary of terms
Actuary - An independent consultant who advises Custody - Safe-keeping of securities by a financial the Fund and every three years formally reviews the institution. The custodian keeps a record of a client’s assets and liabilities of the Fund and produces a investments and may also collect income, process tax report on the Fund’s financial position, known as the reclaims and provide other services according to the Actuarial Valuation. client’s instructions. Additional Voluntary Contributions (AVC) - Deferred Pension - Theinflationlinkedretirement An option available to individuals to secure additional benefits payable from normal retirement age to a member pension benefits by making regular payments in addition of the Fund who has ceased to contribute as a result of to the basic employee contribution payable. leaving employment or opting out of the pension scheme before the normal retirement age. Admission Bodies - Bodies whose staff can become membersofthePensionFundbyvirtueofanadmission Designation Bodies - An organisation which must make agreement made between the Fund and relevant body. a statutory resolution covering some or all of its employees, stating that they may be scheme members. Benchmark - A yardstick against which the investment policy or performance of a fund manager can be Emerging Markets - Developing economies in Latin compared, usually the index relating to the particular America, Africa, Asia and the Middle East as well as areas assets held. of Europe and the Far East. Investment returns within these markets tend to be more volatile than those in more Cash Equitisation - A technique using financial futures established markets. to minimise the drag on investment performance by holding cash. Equities - Ordinary shares in UK and overseas companies traded on a stock exchange. Shareholders Corporate Bonds - Investments in certificates of debt have an interest in the profits of the company and are issued by a company. These certificates represent loans entitled to vote at shareholders’ meetings. which are repayable at a future date with interest. Fixed Interest Securities - Investments in mainly Currency Hedging - A technique using forward currency government but also company stocks, which guarantee a contracts to off set the risks associated with the changing fixed rate of interest. The securities represent loans which valueofcurrencyontheFundsoverseasinvestments. are repayable at a future date but which can be traded on a recognised stock exchange before the repayment date.
41 Fund of Funds - Funds whose principle activity is Private Equity - Investments into new and developing investing in other investment funds. Investors in funds of companies and enterprises which are not publicly traded funds can increase their level of diversification and take on a recognised stock exchange. advantage of the experience and research capability of Return - The total gain from holding an investment over a the fund of funds manager. given period, including income and increase (decrease) Futures - A contract made to purchase or sell an asset at in market value. an agreed price on a specified date. Scheme Employers - County, District and Unitary Index Linked Securities - Investments in government Councils and other similar bodies whose staff stock that guarantee a rate of interest linked to the rate of automatically qualify to become members of the inflation. These securities represent loans to government Pension Scheme. which can be traded on recognised stock exchanges. Stakeholders - Members who have a financial interest in Hedge Funds – An investment fund that uses the Fund’s investments. sophisticated investment strategies to profit from Transfer Values - These are sums which represent the opportunities on financial markets around the world. capital value of past pension rights which a member may These strategies include borrowing money to make transfer on changing pension schemes. investment, borrowing shares in order to sell them and profiting from company mergers. Unit Trust (Managed Funds) - A pooled Fund in which small investors can buy and sell units. Market Value - Thepriceatwhichaninvestmentcanbe The pooled Fund then purchases investments, the returns bought or sold at a given date. on which are passed on to the unit holders. It enables a Myners Principles - A set of 10 principles which Pension broader spread of investments than investors could Schemes are required to consider and publish their achieve individually. degree of compliance. The principles require Pension Schemes to disclose, for example, the effectiveness of decision making, performance management reporting and approach to shareholder voting.
42 43 annual report 2008/09
If you can read this but know someone who can't, please contact the Pensions Helpline on: 01743 252130 so we can provide this information in a more suitable format.
Administered by: Pension Services, Resources Directorate, Shropshire Council, Shirehall, My pension, your pension, Abbey Foregate, Shrewsbury SY2 6ND their pension –ourpension, for all our futures Pensions Helpline: 01743 252130 e-mail: [email protected] Photograph, Sheila Durrant, an active member from Shropshire Council © designteam, Shropshire Council. September 2009. DT7030.