Hertfordshire County Council Pension Fund Annual Report and Statement of Accounts 2018/19 Contents Page Introduction 1. Foreword 2 2. Financial Summary 2 Scheme Administration 1. Background to the Scheme 3 2. Funding 3 3. Benefits 4 Administering Authority Report 1. Management 6 2. Governance and Compliance Statement 7 3. Risk Management 13 4. Administration 13 5. Communication 16 6. Actuarial Valuation Report 18 7. Membership 20 Financial Statements 1. Statement of Responsibilities 21 2. Independent Auditor’s Report 22 3. Fund Account 24 4. Net Assets Statement 25 5. Statement of Accounting Policies 26 6. Notes to the Accounts 30 Investment Report 1. Investment Management 53 2. Investment Strategy Statement 54 3. Investment Policy 62 4. Review of World Markets 64 5. Investment Performance 65 Appendices 1. List of Employing Bodies 68 2. Funding Strategy Statement 73 3. ACCESS Annual Report 102 Glossary to the Annual Report and Accounts 106 Hertfordshire Pension Fund Annual Report and Accounts 2018/19 1 Introduction 1. Foreword This report provides information for employers and other interested parties on how the Hertfordshire Pension Fund (“Pension Fund”) has been managed during the year 1 April 2018 to 31 March 2019. This report summarises the main features of the Pension Fund, providing: a brief outline of the Local Government Pension Scheme (“Scheme”) the Administering Authority Report which outlines the management and administrative arrangements for the Pension Fund the financial statements comprising of the Fund Account and Net Assets Statement for the year 2018/19 with comparative information for the previous year. The Fund Account shows the change in net assets available for benefits during the year. The Net Assets Statement discloses the net assets of the Pension Fund at 31 March 2018 an Investment Report which sets out the Pension Fund’s Investment Policy and the level of performance achieved. Over the year, the value of the Pension Fund increased from £4,499m at 31 March 2018 to £4,835m at 31 March 2018. The return achieved on the Pension Fund’s investments during 2018/19 net of fees was 6.9% which reflected general market conditions over the year and above the benchmark return of 5.1%. A review of world markets is provided as part of the Investment report on page 63. Over 2018/19 membership of the Pension Fund has continued to increase both in terms of the number of scheme employers and contributing members. The number of contributing members has increased from 34,425 at 31 March 2018 to 36,419 at 31 March 2019. The number of scheme employers also increased from 320 at 31 March 2018 to 336 at 31 March 2019 as a result of schools converting to academy status and new employers seeking admission to the Pension Fund following the outsourcing of service contracts from scheme employers. 2. Financial Summary The table below provides a five year summary of the Pension Fund accounts and a graph showing the movement in the value of the Pension Fund over this period. This shows the net assets available to fund benefits at 31 March each year. 2014/15 2015/16 2016/17 2017/18 2018/19 £000s £000s £000s £000s £000s 3,175,783 3,581,039 3,584,250 4,243,371 Value of the Pension Fund at 1 April 4,499,017 Net additions / (withdrawals) from dealing with (18,538) 13,430 23,978 27,532 30,474 those directly involved in the scheme (16,164) (15,927) (14,786) (14,629) Management expenses (12,882) 439,958 5,708 649,930 242,744 Net returns on investments 318,394 Increase / (Decrease) in the Pension Fund 405,256 3,211 659,121 255,646 335,987 during the year 3,581,039 3,584,250 4,243,371 4,499,017 Value of the Pension Fund at 31 March 4,835,004 Value of Fund (£m) 6000 5000 4000 3000 2000 1000 0 31.03.15 31.03.16 31.03.17 31.03.18 31.03.19 Hertfordshire Pension Fund Annual Report and Accounts 2018/19 2 Scheme Administration 1. Background to the Scheme Legal Framework The Scheme is a statutory scheme, established by Act of Parliament, the Superannuation Act 1972. The Scheme is governed by the Public Services Pensions Act 2013 and is administered in accordance with the following secondary legislation: Local Government Pension Scheme Regulations 2013 (as amended) Local Government Pension Scheme (Transitional Provisions, Savings & Amendment) Regulations 2014 (as amended) Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 The Scheme is run by administering authorities in accordance with these regulations. In Hertfordshire the Administering Authority is Hertfordshire County Council. Eligibility The Scheme is available to all employees of local authorities other than teachers, fire personnel and a number of Public Health staff for whom separate pension arrangements apply. Employees are able to join the Scheme if they have a contract of employment of three months or more duration. Other specified bodies providing public services are included by statute or may apply for admission. Employers At 31 March 2019 there were 336 employers in the Pension Fund. Participating employers can be scheduled bodies or admitted bodies, as defined below: Scheduled bodies. Employers such as the County Council (including maintained schools), Academies and District and Borough Councils, whose employees are automatically entitled to be members of the Fund. Designated bodies. Organisations such as Parish and Town Councils whose employees are able to join the Scheme if the employer designates that they can. Admitted bodies. These are voluntary, charitable and, in certain circumstances, private sector organisations carrying out scheduled bodies’ contracts, where staff can become members of the Scheme by virtue of an Admission Agreement between the Pension Fund and the relevant body. At 31 March 2019 there were 131 admitted bodies participating in the Pension Fund. A full list of employing bodies in the Pension Fund is shown in Appendix 1 at page 67. The table below provides an analysis of scheduled and admitted bodies at 31 March 2018 and an analysis of active employers and employers that have ceased (these are employers with no active members but with outstanding liabilities). Admitted bodies may have more than one Admission Agreement in the Pension Fund relative to the service contracts they hold with scheduled bodies. Type of Body Active Ceased Total Admitted bodies 48 83 131 Designated bodies 39 3 42 Scheduled bodies 158 5 163 Total 245 91 336 2. Funding The Scheme is a funded scheme, financed by contributions from employees and employers and by earnings from investments. The Pension Fund has published a Funding Strategy Statement (shown in Appendix 2 at page 72, which sets out the Pension Fund’s strategy for meeting employers’ pension liabilities. The aim of the funding strategy is to ensure the long-term solvency of the Pension Fund and to ensure that sufficient funds are available to meet all benefits as they fall due for payment. Hertfordshire Pension Fund Annual Report and Accounts 2018/19 3 Scheme Administration Employees’ Contributions During 2018/19, employees paid contributions at a rate based on their earnings, including contractual and non- contractual overtime and additional hours. From 1 April 2014, the Scheme moved from a final salary scheme to a career average revalued earnings (CARE) scheme. As part of the CARE scheme, employees can elect to move to the 50/50 option which allows employees to pay half the normal contributions in return for half the normal pension benefits. The rates and salary bandings applicable during 2018/19 are shown in the table below. Band Range Contribution Rate 1 £0 - £14,100.99 5.50% 2 More than £14,101 up to £22,000.99 5.80% 3 More than £22,001 up to £35,700.99 6.50% 4 More than £35,701 up to £45,200.99 6.80% 5 More than £45,201 up to £63,100.99 8.50% 6 More than £63,101 up to £89,400.99 9.90% 7 More than £89,401 up to £105,200.99 10.50% 8 More than £105,201 up to £157,800.99 11.40% 9 More than £157,800 12.50% Employers’ Contributions Employers’ contributions are payable at rates specified by the Pension Fund Actuary and are reviewed each triennial valuation. Rates are adjusted to reflect changes in the employer’s membership profile and funding level in the Pension Fund (see page 20 for further details). Investment Income The cash, which is not immediately required to pay pensions and other benefits, is invested and provides an additional source of income for the Pension Fund. Fund investments during 18/19 were governed by the 2017 Investment Strategy Statement (ISS) which details investment strategy, asset allocation, risk analysis, and the fund’s approach to Environmental, Social and corporate Governance (ESG) considerations. The ISS is included from page 53. 3. Benefits The Scheme is a salary-related defined benefit scheme which guarantees to provide benefits which are a specified fraction of a Scheme member’s pay. Benefits are not affected by variations in investment performance. Full details of benefits payable are explained in the Scheme booklet which is available from the Pension Fund website at https://www.yourpension.org.uk/Hertfordshire/Information-for-members/Introduction.aspx. The following provides the main provisions of the benefit package for the Scheme. Age of Retirement The normal pension age in the Scheme is linked to State Pension Age, with a minimum of age 65. The Scheme also makes provisions for the early payment of benefits and members can choose to retire and draw their pension at any time from age 55.