Pension Fund Report and Accounts 2009-2010 ­­­Contents

Section 1: Introduction & Overview 3 Chairman’s Foreword 6 Statement from the Director for Finance 8 Financial Summary 9 Management Structure 11 Business Plan Section 2: Investments 16 Asset Allocation Benchmark as at 31 March 2010 17 Investment Strategy and Performance 22 Equity and Direct Property Holdings Section 3: Pensions Services 24 Statement from the Pension Services Manager 25 Membership Summary 25 Key Service Standards for Scheme Members 26 Scheme Details 28 Participating Employers of the Fund Section 4: Scheme Actuary 34 Statement by Consulting Actuary Section 5: Annual Statement of Accounts 39 Responsibilities for Statement of Accounts 40 Fund Account 41 Net Asset Statement 42 Notes to the Accounts 52 Statement by External Auditor Section 6: Additional Information 54 Statement of Investment Principles 80 Funding Strategy Statement 104 Governance Compliance Statement 114 Communications Policy Statement 120 Glossary Contact points

2 Essex Pension Fund Annual Report and Accounts 2009–2010 Introduction & Overview 3

% for the 12 5 the world’s world’s the 09 of the Report. Report. the of billion, its highest ever recorded level. level. recorded ever highest its billion, 1 Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension . m was received during the year. 47m was received 3 The Essex Pension Fund Board, established established Board, Fund Pension Essex The oversee to body overarching an as in 2008 as Council County the of functions the includes Fund, the of Authority Administering and employers Fund both of representatives isThe composition of the Board members. under the Management Structure shown of terms Its publication. this of section out set are ISC the of those and reference in Arrangements Governance the in full in 6 Section its during occasions five on met Board The programme full a undertook and year full first of work. newly the of responsibilities first the of One Karen of appointment the was Board formed Governance Independent the as McWilliam Fund. the to Adviser Administration and a for arrangements approved also Board The Fund. bank account for the Pension separate all for requirement statutory a now is There pension schemes to have local government The increase in the market value of assets assets of value market the in increase The of income investment and held was £779m £ / to 2008 In sharp contrast a welcome markets experienced investment upturn in fortune I am pleased and as a result much very has Fund the that announce to year in terms of benefited, with an improved recorded Fund The performance. investment of 35. return an investment 2010, equalling itsmonths to 31 March year the By benchmark. bespoke challenging to increased had Fund the of value the end £ 10.

It is my pleasure, as Chairman of the EssexIt is my pleasure, the and Board) (the Board Fund Pension to (ISC) Committee Steering Investment Report and Fund the Essex Pension introduce Accounts for 2009/

Cllr Rodney Bass becameIn May 2010 Cllr Rodney The Chairman of Essex County Council. andCounty Councillor for Heybridge since 1997, he first served on Tollesbury in Committee Steering the Investment 1999 and was elected Chairman in 2001 an office he has continued to hold since that time. In June 2010 on his re-election Steering as Chairman of the Investment virtueCommittee, by of that office, he Chairman of thewas also re-elected a position he Board, Fund Essex Pension has held since its formation in 2008. Chairman’s Chairman’s Foreword separate banking arrangements in place by Hardy (independent adviser) and Hymans April 2011. I am pleased to announce that Robertson (Investment Consultants) are the Essex Fund’s separate bank account external advisers to the Fund. arrangements went live on 1 April 2010. The The ISC has undertaken a full and active Board also approved a joint business plan programme of work during the year. It for Investments and Pension Services for the revisited its Core Investment Beliefs and year and during the course of the year has confirmed that they were still applicable as received regular updates regarding progress. a guide to setting appropriate investment It has also received quarterly updates strategy. With this in mind, they were on the Investment Steering Committee’s then used in the annual review of asset activities and has agreed policies in respect allocation and investment management of Administering Authority Discretions, arrangements to fine tune the fund structure Abatement, Admissions and Bulk Transfers. and asset allocation. In particular, the review A full programme of training was approved concentrated on the non equity asset classes. and arranged for the Board in order to Much of the work of the ISC through the allow its members to acquire the detailed remainder of the year has been around the knowledge necessary to exercise their implementation of the revised structure. responsibilities effectively. This involved terminating one active global In particular, training sessions included an equity mandate, awarding a new mandate overview of the LGPS and related pension for a unconstrained global equity manager, matters, the role and operations of Pensions removing the allocation to UK Corporate Services, outsourcing, admissions and bulk bonds from the income portfolio of the transfers and a session on the funding review. swing mandate, revising the active global bond mandate to a 100% UK corporate bond The ISC’s terms of reference remain mandate. The decision was also made to unchanged and it continues with its delegated realign the actual allocation of property responsibility for overseeing the management back to its strategic 12% benchmark and to of the Fund’s investments. The composition dis-invest from the remaining Shareholder of the ISC is shown under the Management Activism vehicles. Structure section of this publication. Its composition reflects the political balance Details of the Fund structure and mandates of Essex County Council. Independent are shown on pages 9 to 10 and fund manager observers representing the employers and the performance is shown on page 19. membership also attend and fully participate The ISC also dealt with a number of other in discussions. The ISC is supported by issues including examining the Fund’s Margaret Lee, Director for Finance and proposed treasury management arrangement her staff. Keith Neale (the former County for the newly formed separate bank Treasurer now independent adviser), Tony

4 Essex Pension Fund Annual Report and Accounts 2009–2010 Introduction & Overview 5 Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension

Chairman of Essex County Council, Investment and Board Fund Pension Essex Committee Steering Cllr. Rodney L. Bass Rodney Cllr. I hope that you find that this report provides provides report this that find you that hope I activities the on information clear with you effective the demonstrates and Fund the of financial affairs. management of the Fund’s I would like to take this opportunity to thank Board Fund the members of the Essex Pension the Committee, Steering Investment the and team, the for Finance, the Investment Director all and advisers Fund team, Services Pensions the of management the in participated who for their work during the year. Fund, account as well as reviewing its other cash as reviewing account as well monitoring arrangements, management beginning performance, manager investment for of market testing the contract the process and Consultant its Institutional Investment revising and Advisers Investment Independent Principles. Investment of Statement its Statement from the Director for Finance

delegated either to the Essex Pension Fund Board (the Board), the Investment Steering Committee (ISC) or to its officers. Investments and contributions monitoring along with the Fund’s accounting, is carried out by Martin Quinn, Head of Investments and his staff on the Investments Team. Membership and benefit administration and related functions are carried out by Jody Evans, the Pensions Services manager and her staff in Pensions Services. A report by the Pensions Services Manager on their activities appears later in this report on Pages 24 –25. The foreword by the Chairman of the Board and the ISC provides detail on their roles and the work Margaret Lee, was appointed Director they have carried out during the year. The for Finance in June 2010. She joined purpose of this statement is to highlight the manner in which the Fund has fulfilled its Essex County Council in 1990 and remaining responsibilities during the year. has been involved with the Fund Interim Review of the Fund – A triennial since 2007. review of the Fund as at the 31 March 2010 has commenced, although results will not be Overview available until late 2010. The Fund’s Actuary, Under the Local Government Pension Scheme however, was commissioned to carry out an (Administration) Regulations 2008, the Interim Review as at 31 March 2009. The review County Council is required to maintain a did not constitute a full actuarial valuation pension fund (the Fund) for its employees but was intended to give an estimate of the and those of other Scheduled Bodies within financial position of the Fund at that date. The its area. The Fund is also empowered to review showed that the overall funding level admit the employees of certain other bodies, has fallen to 51% from 66% as at 31 March town and councils, educational 2008, which compares to 80% at the 31 March establishments, contractors providing 2007 Valuation. services transferred from scheduled bodies The fall in funding level over this period was and community interest bodies. As a result very much due, like the previous year, to the Fund now contains around 420 separate significantly poor market conditions. Index employing bodies. linked gilt yields fell sharply, as did market The majority of the County Council’s functions investments around the world. However, on a as administering authority of the Fund are more positive note, markets from 1 April 2009

6 Essex Pension Fund Annual Report and Accounts 2009–2010 Introduction & Overview

experienced a sharp resurgence in fortune. In Policy Statements (GCPS) setting out the October 2009 the funding level of the Fund was governance and communication arrangements once again measured and was found to be in of their pension funds. In 2007, the the region of 55% to 60%. An improvement Regulations were further amended to require from the March 2009 position. In addition, it LGPS administering authorities to produce and is pleasing to report to you that the net assets publish a statement of their compliance with of the Fund have increased by 38.6% as at 31 a set of best practice governance principles. March 2010, to their highest recorded level of In 2008 those best practice principles were £3.1billion. produced in draft and the Fund’s governance arrangements were reviewed and revised to Funding Strategy Statement (FSS) – Under achieve compliance. The GCPS was revised in the LGPS (Amendment) Regulations 2004 June 2009 and can be found in section 6 page administering authorities are required to 104. prepare, maintain and publish a written statement setting out their funding strategy, General which the Fund’s actuary is required to For the first time the number of contributors consider in issuing the rates and adjustment to the Fund has dipped slightly. However the certificate following triennial valuations Fund has seen an increase in the numbers of of the Fund. The main aim of the FSS is to employers in the Fund and it is pleasing that establish a clear and transparent fund-specific high standards of administration continue to strategy, which will identify how employers’ be delivered at low cost, despite the growing pension liabilities are best met going forward complexity of the activities required. You will whilst aiming to maintain as nearly constant find elsewhere within this publication the employer rates as possible. The FSS must be statutory statement on the responsibilities revised and republished whenever there is a for the Statement of Accounts, which deals material change in the policy on the matters with the formality of the arrangements that set out in either the FSS or the Authority’s have been put in place to ensure that proper Statement of Investment Principles (SIP). A practices have been observed. I would like to revised FSS is currently being consulted on record here my appreciation for all the staff and will be available from February 2011. The involved in the financial administration of the current FSS, which remains in force until the Fund, for all the work that they have carried new FSS is approved by the Board, can be out, the care that they have taken and the high found in Section 6 page 80. standard that has been achieved. Governance and Communications Policy Statement – Under the LGPS (Amendment) (No 2) Regulations, LGPS administering authorities were required to produce and Margaret Lee publish Governance and Communication Director for Finance

Copies of the Interim Actuarial Valuation 2009 can be obtained by contacting the Investment Team or by downloading a copy from the Essex County Council website.

Essex Pension Fund Annual Report & Accounts 2009-2010 7 Financial Summary

2005/06 2006/07 2007/08 2008/09 2009/10 £’000 £’000 £’000 £’000 £’000

Value of fund at start of year 2,179,678 2,796,760 3,042,879 2,927,368 2,224,807

Revenue Account for year: Contributions 156,144 170,203 190,220 211,227 204,046

Investment and other income 78,929 75,626 88,876 92,506 72,464

Benefits and other expenses (151,531 ) (155,526 ) (173,993 ) (183,754 ) (195,364 )

83,542 90,303 105,103 119,979 81,146 Increase (decrease) in market value of investments in year 533,540 155,816 (220,614 ) (822,540 ) 778,921

Increase (decrease) in fund during year 617,082 246,119 (115,511 ) (702,561 ) 860,067

Value of fund at end of year 2,796,760 3,042,879 2,927,368 2,224,807 3,084,874

8 Essex Pension Fund Annual Report and Accounts 2009–2010 Introduction & Overview

Management Structure

Administering Authority Investment Steering Committee 2009/10 Essex County Council Councillors Essex Pension Fund Board 2009/2010 R. L. Bass B.A., F.C.I.B. (Chairman) Mrs. T.M. Chapman (Vice Chairman) R. L. Bass B.A., F.C.I.B. (Chairman) (Essex W. Archibald D.L. (to May 2009) County Council) S. Candy (from June 2009) Mrs. T.M. Chapman (Deputy Chairman) (Essex D. M. Finch County Council) A. Jackson (substitute to May 2009, full member from June 2009) W. Archibald D.L. (to May 2009) (Essex County P. J. Martin F.C.A. (to May 2009) Council) T. C. Smith-Hughes B.A., A.C.I.B. Mrs. S. Candy (from June 2009) (Essex County M. C. Lager (substitute from June 2009) Council) Observers D. M. Finch (Essex County Council) J.P.F. Archer (representing Employers) A. Jackson (to May 2009 Authority) A.Meyrick (representing Employees/ and (from June 2009 Essex County Council) Beneficiaries) P. J. Martin F.C.A. (to 4 June 2009) (Essex Independent Governance and Administration County Council) Adviser to the Essex Pension Fund Board K. McWilliam T. C. Smith-Hughes B.A., A.C.I.B. (Essex County Council) Independent Advisers to the Investment Steering Committee J. P. F. Archer (District/Borough Councils in Essex) K.D. Neale C.P.F.A. A. Hardy A. Meyrick (UNISION) Investment Consultant P. A. Challis (District/Borough Councils Hymans Robertson LLP in Essex) Director for Finance S. M. Walsh from September 2009 (Essex Police Authority) Margaret Lee CIPFA E. C. Johnson (Essex Fire Authority) Property Solicitors Essex County Council – Legal Services A. Moring (Unitary Councils in Essex) Nabarro Nathanson AVC Provider The Equitable Life Assurance Society The Standard Life Assurance Company

Essex Pension Fund Annual Report & Accounts 2009-2010 9 Actuaries FIL Pensions Management Mercer Mandate: Global Equities (commenced August 2009) Auditors Audit Commission First State Investment Management (UK) Ltd Mandate: Global Emerging Markets Equities Bankers Lloyds TSB Bank plc Goldman Sachs Asset Management Mandate: Bonds Custodian The Bank of New York Mellon Hamilton Lane (UK) Ltd Mandate: Private Equity Partnership Investments in Shareholder Activism Legal and General Investment Management Governance for Owners LLP Mandate: Passive Balanced Hermes Focus Asset Management Ltd Mandate: Passive Currency (commenced July Relational Investors LLC 2009) Performance Monitoring Marathon Asset Management Ltd BNY Mellon Performance & Risk Analytics Mandate: Global Equities Europe Limited Mellon Capital Management Corporation Mandate: Active Currency Fund Managers M&G Investments Mandate: Infrastructure Alliance Bernstein Mandate: Global Equities Mandate: Libor + Aviva Investors Global Services Ltd Record Currency Management Mandate: Property Mandate: Currency Active Mandate: Currency Passive (terminated July Baillie Gifford & Co. 2009) Mandate: Long Term Global Growth Capital International Mandate: Global Equities (terminated in August 2009)

10 Essex Pension Fund Annual Report and Accounts 2009–2010 Introduction & Overview Report on progress against the targets set in the Essex Pension Fund Business Plan 2009/10

Target 2009/10 Progress to date 1. A forward-looking business plan will be Completed. Approved by Board put in place 1/4/09. 2. Arrangements will be put in place to Induction session held 1/4/09. To be ensure that suitable training is available repeated for new members. for members of the Board, the ISC and Ongoing officers 3. With the assistance of the Governance Ongoing Team, programmes of meetings will be arranged for the Board and the ISC together with a programme of business developed by officers for each meeting 4. Support staff arrangements will be A reassessment of the Investment Team monitored to ensure that appropriate structure was completed in 2009/10. support can be provided to the Board

and the ISC

5. We will continue with the market The latest tender timetable for the testing of services provided to the Essex institutional investment consultant Pension Fund. procurement indicates that the new contract will commence in October 2010. The market testing of the independent adviser positions has been deferred by the ISC for a further 2 years. 6. An interim review of the Fund will be The review was undertaken and the findings undertaken as at 31 March 2009. presented to the Board in December 2009 and an employer forum in February 2010. 7. The FSS will be reviewed. Following the review, no changes were required. The Funding Strategy will be reviewed, and a new Statement produced, in 2010/11 as part of the triennial valuation process.

Essex Pension Fund Annual Report & Accounts 2009-2010 11 Target 2009/10 Progress to date 8. The Pension Fund’s investment strategy The review took place at the ISC meeting on will be reviewed and any required 30 July 2009. The actions agreed are being changes implemented. implemented. 10. To proactively research new and Ongoing emerging Pension Fund issues. 11. All mandates for the management of Ongoing investments, including benchmarks, will be kept under review. 12. The Pension Fund’s Asset allocation and Reviewed at ISC meeting 30 July 2009. fund benchmark will be reviewed. Agreed actions being implemented. 13. The investments of the Essex Pension Ongoing Fund will be monitored and reported upon to Members of the ISC 14. Ensure the Fund’s accounting The report and accounts were prepared and arrangements comply with proper published in accordance with the agreed practices timetable and statutory requirements. Completed for 2008/9, ongoing for 2009/10. 15. The income due to the Pension Fund will Ongoing be collected. 16. The Annual Accounts will be approved Approved by the Audit Committee on 29 June by the statutory date 2009. 17. Establish a separate bank account for Separate banking arrangements for the the Pension Fund as recommended by Pension Fund went live in April 2010. external audit. A Treasury Management Policy and Strategy for the Fund was approved by the Board in March 2010. 18. To determine whether value for money We will endeavour to build this in to the is being obtained from the investment investment consultancy contract as part of management fees being paid and to the upcoming procurement process. identify any areas where efficiencies can

be achieved.

12 Essex Pension Fund Annual Report and Accounts 2009–2010 Introduction & Overview

Target 2009/10 Progress to date 19. The Fund’s SIP will be reviewed and A revised SIP was agreed by the ISC in consultation will take place with all April 2010 and has been published on the interested parties prior to it being website. approved and published. 20. The Annual Report and Accounts will The report and accounts were prepared and be published and made available to all published in accordance with the agreed interested parties. timetable. 21. The FSS will be reviewed annually. Following the review, no changes were required. The Funding Strategy will be reviewed, and a new Statement produced, in 2010/11 as part of the triennial valuation process.

Essex Pension Fund Annual Report & Accounts 2009-2010 13 Pension Services Action Plan 2009/10

Key Priority 2009/10 Progress to date 1 Calculating Retirement Benefits All Key Performance Indicators are to be Ill Health reviewed Redundancy KPI workshop organised for 17 June 09 to Efficiency identify key processes and way in which we can Normal record the data Late Follow up meeting to agree method of recording Deferred into payment A number of KPIs’ are currently being tested, to Early payment be implemented mid October 2009 A number of KPI’s have been implemented 2 Processing all Transfers In and Out As Above IFA in (actual) IFA in (estimate) IFA in (request) Other TV in (actual) Other TV in (estimate) Other TV in (request) IFA out (actual) IFA out (estimate) IFA out (request) Other TV out (actual) Other TV out (estimate) Other TV out (request) 12 Dedicated helpdesk, telephone As Above number and email address

13 Monitor all processes and procedures As Above 1 Forward looking Pension Services Business plan approved by the Board 1/4/2009 Business, Communication and Communication plan for 09/10 completed and Strategic Objectives Plans Approved by the Board 24/6/2009 2 Exercise Pension Fund discretions Report on review of abatement policy presented to Board on 24/6/2009 Consultation letter sent to all scheme employers July 2009 Board approved new policy on abatement WEF 1 10 2009.

14 Essex Pension Fund Annual Report and Accounts 2009–2010 Introduction & Overview

Key Priority 2009/10 Progress to date 3 Provide regular reviews of performance Accuracy measure are in place and KPIs’ within agreed strategy 4 Consultation on regulation Currently awaiting consultation papers, were amendments expected July 2009, may be available November 2009 Consultation deferred 5 Draft proposals for review of Pension Transferee Admission Agreement reviewed in Services Admission Agreements line with Mercers and Legal Services Pensions Board item on agenda for March 2010 1 Annual Benefits Statements Documentation for the Production of ABS in process of being agreed with CDS 22267 ABS sent in July and September. Rest will be issued October 2009 Completed 2 Newsletters to Active, Deferred and Actives newsletter being drafted Pensioner members Actives newsletter issued with ABS Completed Pensioner Newsletter prepared and issued to sample of Pensioners via email addresses for feedback Positive feedback received 3 Newsletters to Employers Newsletter to all Employers sent August 2009, and February 2010 4 Pension Services Web Site Service request for purchasing Web design software pending approval Still awaiting approval, however, also investigating other options Website purchased via Hymans Robertson go live 01/04/2010 5 Employing Authorities Web Site See above 6 Attend induction and pre retirement On going courses, arrange and attend Employer Communications sent to all Employers offering to seminars attend seminars they may be holding July 2009 Attendance at courses/seminars as requested.

Essex Pension Fund Annual Report & Accounts 2009-2010 15 Strategic Asset Allocation Benchmark as at 31 March 2010

Private Equity 2.6 100.0 100.0 100.0 100.0 Financing Fund 1.0 100.0 100.0 100.0 Infrastructure 2.0 100.0 100.0 100.0

Currency 3.0 50.0 50.0 Alternatives 100.0 100.0 Activism 2.0 100.0 100.0 100.0 Property 12.0 100.0 100.0 100.0 Libor+ 5.0 100.0 100.0 100.0

Bonds Corporate Bonds 5.5 100.0 100.0 100.0 Emerging Market Equities 4.0 100.0 100.0 100.0

Global Equities 7.0 100.0 100.0 100.0

Global Equities 7.0 100.0 100.0 100.0 Equities

Global Equities 7.0 100.0 100.0 100.0

Global Equities 7.0 100.0 100.0 100.0 Passive Balanced 4.5

Bonds 75.0 25.0 100.0 100.0

Swing Passive Balanced 8.0 30.4 30.0 23.0 23.0 Equity 16.0 100.0 100.0

7.2 3.9 7.2 3.4 1.1 5.5 2.0 2.0 2.6 1.0 5.0 13.2 20.9 13.0 65.4 15.0 12.0 19.6 100.0 100.0

Pacific ex-Japan Equities Pacific Fund Benchmark Fund UK Equities Global Equities North America Equities Equities Europe Japan Equities markets Equities Emerging Equities Total UK index linked Gilts UK Interest Fixed non-Government Sterling Libor+ Bonds Total Infrastructure Activism Shareholder Equity Private Financing Fund Property Alternatives Total The passive balanced manager monitors the fund assets against its benchmark and is required to rebalance the overall overall the rebalance to required is and benchmark its against assets fund the monitors manager balanced passive The balance mandate. adjusting assets within the passive asset allocation by

16 Essex Pension Fund Annual Report and Accounts 2009–2010 Investments 17

%.

2

35.5 35.5

2010

-21.0 -19.9

2009

-3.8 -2.7

2008

7.2 & Accounts 2009-2010 Annual Report Fund Essex Pension 7.6

2007

26.6 26.1

2006 12.7

% compared to the customised benchmark of 35.5% in to the customised benchmark % compared

5 12.3

2005

24.3

Essex Fund % Essex Fund 24.3

2004

-18.4 -18.5

2003 -1.1

the Fund implemented a customised benchmark. 2002 the Fund -2.6

2002

-8.2 -7.2

the Fund Manager’s performance was measured against a benchmark of the the of benchmark a against measured was performance Manager’s Fund the 2001

2001 12.0

Benchmark %*

13.0 35. was for the year fund return Authorities average WM Local comparison the 10. For 2000

5 0 -5 35 30 25 20 15 10 40 was the CAPS median. From 2002 a customised benchmark has been used. until 2001 was the CAPSThe benchmark median. From * -10 -15 -20 -25 Annual Investment Returns Annual Investment The graph below shows the relative performance of the Essex Pension Fund compared to its benchmark. compared Fund Pension performance of the Essex the relative shows below The graph was 35. on the Fund return The overall 2009/ Combined Actuarial Performance ServiceCombined Actuarial Performance comparisons with other (CAPS) median, which provides funds. During 2001/ Up to 2000/ Fund Managers are required to provide performance information to BNY Mellon Performance & Risk Risk & Performance Mellon BNY to information performance provide to required are Managers Fund performance reports that and provide achieved of return Ltd, who assess the rate Analytics Europe the ISC. by for consideration The investment strategy and performance of the Fund Managers is reported on a quarterly basis basis quarterly a on reported is Managers Fund the of performance and strategy investment The for valuations and reports submit Managers Fund The (ISC). Committee Steering Investment the to answer and presentations oral make to officers its and Committee the with meet and purpose this questions. Performance Investment Investment Strategy and Returns by Asset Class for 2009/10 The analysis set out below shows the returns by asset class:

60

50 52.3 40 52.3 47.7 46.6 30

20

10 15.9 12.9 12.4 11.2 10.4 0 10.2 Variation -4.6 5.7 -0.5 -0.2 -4.7 UK Overseas UK UK Index Property Equities Equities Bonds Linked Manager

Benchmark %* Essex Fund %

Performance Comparisons The table below shows the long term performance of the Fund and the variation against the benchmark.

8 7 7.5

6 6.9 5 4 4.0

3 3.7 2 0.9

1 1.8 0 Variation –0.9 -0.6 -0.3 3 years 5 years 10 years

Benchmark %* Essex Fund %

18 Essex Pension Fund Annual Report and Accounts 2009–2010 Investments

Manager Performance The table below shows the value and proportion of all investment managers’ portfolios together with those of the shareholder activism partnerships as at 31 March 2010. The performance of each portfolio 40 compared to benchmark during 2009/10 is also shown. 10 20 30 50 60 70 80 0 £m % 0 10 20 30 40 50 60 70 80 46.9 834 27.2 Legal & General Investment Management – Growth Portfolio** 47.5 9.5 231 7.5 Legal & General Investment Management – Income Portfolio** 9.5 -14 -0.4 Legal & General Investment Management – Passive Currency*** 14.7 357 11.6 Aviva Investors Global Services Ltd 9.7 46.9 224 7.3 Alliance Bernstein 53.0 47.7 Baille Gifford 248 8.1 54.5 1 0.0 Capital International****

224 7.3 FIL Pensions Management***** 71.1 First State Investment Management (UK) Ltd 154 5.0 56.7 48.1 Marathon Asset Management Ltd – Segregated 186 5.6 67.7 44.0 59 2.4 Marathon Asset Management Ltd – Pooled 66.7 14.1 Goldman Sachs Asset Management 161 5.2 22.8 0.6 M&G Investments – Alpha Opportunities 137 4.5 23.7 50.4 Mellon Capital Management Corporation 24 0.8 66.0 41.5 33 1.1 Record Currency Management 36.9 48.6 22 0.7 GO – European Focus Fund 71.9 68.7 11 0.4 Hermes Specialist UK Focus Fund 18.6 41.5 16 0.5 Relational RH Fund 1 41.9 35.5 3,067 100.0 Fund 35.5 Benchmark % Essex Fund %

* In addition to the investments shown above, the Fund also invested £113m (3.7%) in private equity partnerships, and £46m (1.5%) in infrastructure. ** From 1 October the Legal and General mandate for reporting purposes was split between a growth and income portfolio. *** The Legal and General Passive Currency mandate commenced in July 2009. The performance of this mandate is not reported separately but is incorporated in the total performance of the Fund. **** Capital International’s mandate was terminated in August 2009. ***** Fidelity’s global equity mandate commenced in August 2009.

Essex Pension Fund Annual Report & Accounts 2009-2010 19 Portfolio Distribution at 31 March

Equities 60 57.4

50 56.8

tfolio 40

44.6 UK Equities 41.5 41.1 39.8 39.0 37.5 30 36.7

34.9 Overseas Equities otal Por otal 32.0 T 29.9 27.9 27.4

20 26.5 25.2 % of 10 12.2 11.1 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Bonds 12 11.7 11.5 10 11.4 11.1 10.6 9.8 9.6 9.2 tfolio 8 UK Fixed Interest 8.0 7.9 7.4 7.1 6 6.9 Overseas Fixed Interest otal Por otal 6.0 T 5.3 5.2 5.2 Index-Linked/Other

4 4.8 % of 3.8 2 2.5 2.4 2.0 0.6 0.2 0.2 1.6 0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Other 15

12 12.7 11.9 11.8 tfolio 11.6

11.0 Property 9 10.7 9.7 10.0 9.3 Cash otal Por otal

T 6

% of 3 3.7 3.3 0.4 2.2 1.9 1.7 1.5 1.7 0 1.4 2002 2003 2004 2005 2006 2007 2008 2009 2010

20 Essex Pension Fund Annual Report and Accounts 2009–2010 Investments

History of the Fund

2005/06 2006/07 2007/08 2008/09 2009/10 Value at 31 March (£000) 2,796,760 3,042,879 2,927,368 2,224,807 3,084,874 Number of Contributors 40,211 41,994 43,152 46,857 43,728 Contributions (£000) 156,144 170,203 190,220 211,227 204,046 Number of Pensioners 23,830 25,942 27,118 27,992 29,165 Benefits Paid (£000) 111,590 127,429 139,884 151,202 161,196

Historic Changes to the Fund

Common contribution rate Historic changes in funding level (ongoing rate) of the scheme 100 Year Rate As % of pensionable

pay 97.0

80 90.5 1998/99 152% 8.82% 88.6 84.0

1999/00 165% 9.57% 79.6 71.4 2000/01 165% 9.57% el % 60 2001/02 165% 9.57% 2002/03 171% 10.09% 40 2003/04 171% 10.09% v unding Le F 2004/05 171% 10.09% 2005/06 172% 10.15% 20 2006/07 172% 10.15% 2007/08 172% 10.15% 0 2008/09 12.70% * 12.70% 1992 1995 1998 2001 2007 2004 Valuation

* With effect from 1 April 2008 Valuation, rates were expressed as a percentage of pensionable pay.

Essex Pension Fund Annual Report & Accounts 2009-2010 21 Equity and Direct Property Holdings

Largest 10 Equity Holdings of the Fund as at 31 March 2010

Market Value at Proportion of 31 March 2010 the net assets of the fund £m (%) Amazon.com Inc 24.65 0.80 Petrolea Brasileiro Sa 18.43 0.60 Vale Sa 13.44 0.44 Atlas Copco AB Ser A NPV 12.29 0.40 Baidu Inc/China 11.69 0.38 Banco Santander SA Eur0.50 9.99 0.32 Taiwan Semiconductor Mfg Tw$10 9.93 0.32 Hong Kong & China Gas Hkd0.25 9.64 0.31 Google Inc 9.62 0.31 Apple Inc 9.06 0.29 Total 128.74 4.17

Property Holdings as at 31 March 2010

Market Value at 31 March 2010 £m • Retail 58.0 • Offices 28.8 • Industrial/Development 30.9 • Property Unit Trusts 186.3 Total 304.0

22 Essex Pension Fund Annual Report and Accounts 2009–2010 Investments 23 £m 7.50 7.35 6.50 13.15 14.50 March 2010 31 March Market Value at Value Market Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension Victoria Road Retail Park, Wellingborough Park, Retail Road Victoria Stortford Bishops Stortford Hall Industrial Park, London 55 -57 Dean Street, Guildford 32-36 High Street, Redditch Park, Abbey Retail Wellingborough Park, Retail Road Victoria

Industrial Office Retail Retail Retail

Dean Street, London Dean Street, Largest Direct Property Holdings: Direct Largest Statement from the Pensions Services Manager

It has been another year of change and us electronically. An added advantage to this is uncertainty over the future of the Local that the amount of paper generated has been Government Pension Scheme. The anticipated greatly reduced. The results of the valuation review of the scheme promised for last year will be eagerly awaited, not least by employers failed to materialise although concern at costs keen to know the impact on their future and the need for reform were a constant theme pension costs in these difficult economic times. in the run up to the General Election. Indeed, It has been another extremely busy year for the new coalition Government immediately put TUPE transfers and the admissions to the fund in place a Commission to report later this year with thirteen new bodies being admitted this with proposals for the reform of public sector year, including seven contractors. This work pensions. shows no sign of abating any time soon. In fact, In the meantime and on a more positive note, with the budgetary constraints being faced by we have continued to make improvements with authorities we are anticipating a substantial the aim of providing an even higher level of increase in outsourcing activity in the years service to scheme members and employers. ahead. Although this is not a core area of our This can be seen with the new website, which work, it is taking up an ever increasing amount I mentioned last year, successfully developed of our resources and we must consider how we and launched giving members greater access are going to resource this work going forward. to scheme information and making it easier We are continually looking at how we can for them to contact us. We have also been evolve so that we are best placed to meet able to accept an increasing number of both our statutory obligations and the invitations to take part in events arranged by expectations of members, employers and other Pension Fund employers for their employees stakeholders. Pensions Services has recently such as wellbeing/market stall days, scheme been through the first stage of a restructuring overview presentations, and resettlement and this will be finalised during September courses. Onsite visits have also been made 2010. to employers to assist them with general administration issues. In 2010/11 we will be working towards the introduction of the member self service and With the 2010 Valuation of the Pension Fund employer on line modules of our administration in mind, we have been actively liaising with system. When implemented, these modules employers in an effort to ensure prompt will allow members to view their own pension receipt of member information and reduce record and obtain on line voluntary retirement the number of year end queries, which will illustrations, while employers will be able to allow us to meet the Actuary’s deadline for the update their employee’s records and obtain on submission of data. This has been achieved line early retirement illustrations. by the introduction of monthly spreadsheets which are completed by employers and sent to

24 Essex Pension Fund Annual Report and Accounts 2009–2010 Pensions Services

Membership Summary 2008/09 2009/10 County Council 20,882 18,171 District/Unitary Councils 10,863 10,669 Other Employing Bodies 15,112 14,888 Total Contributors 46,857 43,728 Retired Employees 22,852 24,541 Dependants 5,140 4,624 * Deferred pensioners are former employees Total Pensioners 27,992 29,165 who have chosen not to transfer their Deferred Pensioners* 26,272 32,173 pension rights.

Key Service Standards for Scheme Members

Type of Work Maximum Actual % Actual % Turnaround Achieved Achieved Time 2008/09 2009/10 Letters answered or acknowledged (including electronic) 5 working days 94 95 Lump sum retirement payments 5 working days 95 94 Notifications to new pensioners 5 working days 95 94 Death grant benefits/payments 3 working days 91 96 Transfers In – quotation of service credit 10 working days 91 93 Transfers Out – issue of quotation 10 working days 85 95 Transfers Out – payment made 10 working days 100 100 Refunds of contributions 10 working days 95 93 Additional contributions – quotation 10 working days 95 96 Re employed Pensioners 15 working days 98 97

Note: Pensions Services always seek to better the maximum times quoted. Turnaround times operate from the date all necessary information is received. The key areas quoted are taken from a comprehensive list of service standards. *All the above figures continue to be affected by legislation changes to the current scheme, resulting in manual calculations pending amendments to the computerised administration system.

Essex Pension Fund Annual Report & Accounts 2009-2010 25 Scheme Details

Essex County Council administers the Essex Final Pay x 1/60 x Membership from County Council Pension Fund for its own 1st April 2008 employees, those of the 14 District/Borough/ Unitary Councils and numerous other bodies. In payment, the pension will rise each April The Fund excludes provision for teachers, in line with the increase in the Retail Prices fire-fighters and police officers, for whom Index. separate arrangements exist. Benefits are ii) Lump Sum prescribed by, and the Fund is invested in There may be an entitlement to a tax-free accordance with, the provisions of the Local lump sum, calculated using the following Government Pension Scheme (Benefits, formula: Membership and Contributions) Regulations 2007, the Local Government Pension Scheme Final Pay x 3/80 x Membership up to (Administration) Regulations 2008 and Local 31st March 2008 Government Pension Scheme (Management and Investment) of Funds Regulations 2009. (There is no automatic lump sum for The rate of employee contributions is between Membership from 1st April 2008) 5.25% and 7.5% of pensionable pay. iii) Conversion of Benefits 1. Benefits All members can exchange pension for a lump sum subject to HM Revenue and Customs limits. The Local Government Pension Scheme provides significant benefits to members 2. Ill Health Retirement and compares favourably with many private sector pension schemes. Listed below are If the membership period is 3 months or more brief details of some of the principal benefits and the member’s employment is terminated: available to members. (1) on the grounds that his/her ill-health or Benefits will normally be based on two infirmity of mind or body renders him/her factors: length of service during which permanently incapable of performing the contributions have been paid to the scheme, duties of their job, and known as “Membership”, and the salary (2) that they have a reduced likelihood of on which those contributions were paid obtaining any gainful employment before their (normally the last 12 months of service). This normal retirement age of 65. is commonly known as “Final Pay”. A pension and, where applicable, a lump i) Annual Pension sum are paid immediately. If it is considered The calculation of the annual pension is based that the member will be capable of obtaining on the following formula:- any gainful employment within 3 years, the Final Pay x 1/80 x Membership up to pension is reviewable after 18 months and, in 31st March 2008 any case, will cease after 3 years.

26 Essex Pension Fund Annual Report and Accounts 2009–2010 Pensions Services 27

for Member Member for times deferred

Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension . Death in Deferment Flitch Way, Great Notley Great Way, Flitch 747 39028 69475 If you have any queries regarding benefits benefits regarding queries any have you If Government Local the under payable Services Pensions the Scheme, Pension toManager and her staff will be pleased them. answer 01245 431912 (Telephone helpline) No: Reference Tax Pension Scheme Tax Reference: Tax Scheme Pension the as known Formerly No. Fund Registered PSTR 00328636RV PSTR 6 of 5 grant A lump sum death spouse’s/civil addition, In payable. is pension and partner’s cohabiting partner’s/nominated payable are pensions children’s dependant member’s former the on based but above, as pension. deferred times Final Final times or more months membership membership months more or . Death after Retirement . Death in Service . Deferred Benefits . Deferred Spouse’s/civil partner’s/nominated cohabiting cohabiting partner’s/nominated Spouse’s/civil pensions children’s and dependant partner’s former the on based but above, as payable are before pension. If death occurred member’s the years, ten for paid been had pension that balance will be paid as a lump sum. 5 Pay is payable, regardless of the length is payable, regardless Pay In addition, pensions are of membership. payable to surviving spouses/civil partners/ nominated cohabiting partners for life, and while under the age of 23 dependant children the on based education, full-time in still Membership and Final Pay. former employee’s A lump sum death grant of 3 A lump sum death grant 4 3 with 3 Leavers are awarded benefits calculated in the the in calculated benefits awarded are retirements, normal for as way same until deferred, being payment with but payment (Early Date Retirement Normal circumstances). certain in possible be may thepossible to transfer it may be Alternatively, another to benefits those of value equivalent are benefits Deferred scheme. pension in the each April in line with the rise increased Index. Prices Retail The benefits are calculated in the same way way same the in calculated are benefits The certain in that, except retirement normal for as increased is membership the circumstances, retirement. to compensate for premature Participating Employers of the Fund

Scheme Employers Schools (Former Grant Maintained) County, Unitary, Borough & Districts Essex County Council , The District Council Ashingdon Primary School Council Beauchamps School Brentwood Borough Council Belfairs Community College (formerly Belfairs Borough Council High School) Borough Council School Borough Council Boswells School, The Council Brentwood County High School District Council Brinkley Grove Primary School District Council Bromfords School, The District Council Broomfield Primary School Southend-on-Sea Borough Council (Unitary) Buttsbury Infants School Council Buttsbury Junior School Borough Council (Unitary) District Council Cathedral Primary School Cecil Jones High School Scheduled Chase Lane Primary School Chelmer Valley High School Anglia Ruskin University Chelmsford High School for Girls Colchester Borough Homes Chetwood Primary School Essex Fire Authority Clacton County High School Essex Police Authority for Girls Essex Probation Committee Colchester Royal Grammar School The Gateway Academy Collingwood Primary School Colne Community School, The Incorporated Colleges Coppins Green Primary School Cornelius Vermuyden School, The Davenant Foundation School, The Colchester Sixth Form College Deanes School, The Epping Forest College Dunmow St Mary’s Primary School Earls Colne Primary School Palmers Sixth Form College Eastwood High School South East Essex Sixth Form College Eastwood Primary School South Essex College (formerly South East Elmstead Market Primary School Essex College of Arts & Technology and Elmwood Primary School Thurock & Basildon College) Endeavour School, The Writtle Agricultural College Engaines Primary School

28 Essex Pension Fund Annual Report and Accounts 2009–2010 Pensions Services 29 Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension (formerly The Hedley Walter High School) Walter The Hedley (formerly Milton Hall Primary School Primary School Newlands Spring School Grammar Newport Free North Primary School Crescent Northlands Junior School Northwick Primary Nursery and School Park Our Lady Immaculate Primary School The School and College, Philip Morant Primary School Plumberow The , Primary School Avenue Prince R A Butler Infants School R A Butler Junior School Primary School Robert Drake Primary School Rochford Primary School Rodings Primary School Rolph High School Walden Saffron Sandon School Technology & Science of College Hall Sawyers School Sir Charles Lucas PrimarySouth Benfleet School Southend High School (Boys) Southend High School (Girls) Catholic Primary School Albans St Peverel) Junior School (Hatfield Andrews St Primary School (NorthWeald) Andrews St Primary School (Weeley) Andrews St Benedicts College St High School Bernards St The Christopher School, St Primary School Clare’s St School Clere’s St Infant School Helen’s St Junior School Helen’s St Helena School St John Fisher Primary School St Primary School Katherine’s St Dunmow Infants School) Dunmow Great Totham School Totham Great Primary Wood Grove Hadleigh Infants School Hadleigh Junior School School School Hassenbrook School Helena Romanes Heybridge Primary School School Hockerill Anglo-European Hockley Primary School Primary School Holland Haven Primary School Holland Park Primary School Holy Cross Horndon-on-the-Hill Primary School Infants School Howbridge Saints CofE Primary School Hutton All School Hylands Jotmans Hall Primary School Primary School Katherines Primary School Kenningtons The , School Grammar VI King Edward School King Harold King John School Kingswood Infants School Kingswood Junior School Primary School Lawford Infants School Leverton Junior School Leverton High School Mersea Island Primary School PrimaryMillfield School Fitzwimarc School, The School, Fitzwimarc The School, Furtherwick Park Gable School Hall School Gilberd The School, Grays Clacton Junior School Great (previously School Primary Dunmow Great St Marks West Essex Catholic Schools Academy Schools St Martin’s School Basildon Lower Academy (previously St Mary’s C of E Primary School ) St Peters College (previously Rainsford High Basildon Upper Academy (previously School) ) St Thomas More High School St Thomas More RC Primary School (previously Greensward School) Takeley Primary School (previously The John Tendring Technology College & VI Form Bramston School) Primary School (previously The Thomas Willingale Primary School Rickstones School) Ormistion Park Academy Upshire Primary School Ursuline Convent School Town & Parish Councils Waltham Holy Cross Infants School Walton Primary School Ashingdon Parish Council Barnston Parish Council Westcliff High School for Boys Billericay Town Council Westcliff High School for Girls Blackmore Parish Council Westerings Primary School Town Council William De Ferrers School Broomfield Parish Council William Edwards School Parish Council Woodville Primary School Burnham On Crounch Town Council Wyburns Primary School Town Council Parish Council Essex LBA Schools Parish Council Danbury Parish Council Earls Colne Parish Council & Humanities College Epping Town Council Powers Hall Junior School Feering Parish Council St John Payne Catholic Comprehensive School Frinton & Walton Town Council Galleywood Parish Council Thurrock Schools (LEA – external Great Baddow Parish Council payroll provider) Great Burstead & South Green Parish Council Chafford Hundred Campus School Town Council East Junior School Great Notley Parish Council The Ockendon School Great Wakering Parish Council Town Council Harwich Town Council

30 Essex Pension Fund Annual Report and Accounts 2009–2010 Pensions Services 31 Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension Advice Bureau Corporation Commission for Social Care Inspection Inspection Care Social for Commission Chelmsford Community Transport Ltd Transport Community Chelmsford Services Voluntary Council for Chelmsford Aid Womans Tendring Colchester and Board Tourist East of Company Water Essex & Suffolk Councils Essex Association of Local Essex County Scout Council Tribunal Valuation Essex Local Ltd Trust Hamilton Lodge Trust & District SportsHarlow Rights & Advice Welfare Harlow Aid Womens & Broxbourne Harlow Co-op Ltd Transport Harwich Connexions Day Nursery Peverel Hatfield Impulse Leisure Ltd Technology Itec Learning Open College Network Eastern Region Homes Phoenix Group Equality Foundation Race Services, Harlow Rainbow Southend Ltd Renaissance Community Council of Essex Rural Services Voluntary Southend Association of Guild of Help & CitizensSouthend on Sea Aid Women’s Southend Trust The Inclusion Thames Gateway South Essex Partnership Development Gateway Thames Thurrock Institute Standards Trading Ltd Management Park Alphaprint (Colchester) Limited) Alphaprint Aid Womans Braintree Chelmer Housing Partnership (previously Commission Quality Care Admitted Bodies Ardleigh Reservoir Committee Reservoir Ardleigh Refuge Women’s Basildon Trust Leisure Brentwood The Agency, Validating Cambridge Access Advice Bureau Citizen’s Castle Point Volunteering Agency for Chelmsford Advice Bureau Citizens Chelmsford Small Admitted Bodies Hawkwell Parish Council Parish Hawkwell Council Heybridge Parish Council Hullbridge Parish Council Parish Ingatestone and Fryerning Council Town on Sea Leigh Council Parish Yeldham Little Council Town Council Town Maldon Council Parish Tey Marks Council Parish Myland Council (Bassett) Parish NorthWeald Council Ongar Parish Council Town Rayleigh Council Parish Runwell Council Town Walden Saffron Council Sandon Parish Council Sible Hedingham Parish Parish Council South Hanningfield Council Town Ferrers Woodham South Parish Council Springfield Council Osyth Parish St Parish Council Mountfitchet Stansted Council Parish Stanway Council Parish Stebbing Council Thaxted Parish Council Parish Tiptree Council Town Abbey Waltham Council Parish Horndon West Council Town Mersea West Council Town Council Parish Writtle Essex Joint Branch Board of the Police Greenfields Community Housing Ltd Federation of England and Wales Greenways Healthcare Ltd ExDRA Head Office Cleaning Services Ltd General Social Care Council HQ Theatres Ltd Harlow Renaissance Ltd Kier Harlow Ltd Home Ltd (formerly Warden Housing Longfield Healthcare Ltd Association Ltd) May Gurney (Construction) Ltd Mid Essex Primary Care Trust (previously MCCH Society Limited Witham, Braintree & Halstead Care Trust) Okeley Healthcare Ltd Moat Housing group Ltd (previously Plume P H Jones Ltd Housing) Pinnacle PSG (previously Wates Facilities Orchestras Live Management Ltd) Rochford Housing Association Ltd Rushcliffe Care Social Care Institute for Excellence Saffron Healthcare Ltd SLM Serco Solutions Thurrock Community Leisure Ltd Sherrell Healthcare University of Essex South Essex Homes University of Essex Student Union St Georges Community Housing Ltd Worthing Homes Ltd Sweyne Healthcare Ltd Vehicle Lease & Service Ltd Admission Bodies Vertex Ashlyn Healthcare Ltd Westminster Drug Project Ltd Braintree District Leisure Community Winifred Healthcare Ltd Association Ltd (formerly DC Leisure Women’s Royal Voluntary Service (Essex CC) Management Ltd) WRVS Food Services Ltd Central Parking System of UK Ltd Veolia Enviromental Services (UK) PLC Bodies with no current contributors (previously Cleanaway Ltd) Age Concern Essex Colchester Borough Homes Alfred McAlpine Contruction Ltd Connaught Partnership Ltd Anglian Water Authority Corporate Document Services Ltd Association of Public Service Finance Officers Healthcare Ltd Basildon College Elmy Landscapes Ltd Basildon Community Housing Association Essex Cares Limited Basildon DVC (Commission for New Town) Essex Community Support Limited Blackwater Housing Association Essex Employment & Inclusion Limited Essex Equipment Services Limited Braintree, Dunmow & Witham Joint Sanitary Europa Support Services (formerly United Committee Utilities) Bramston Sports Centre Goldenley Healthcare Ltd Brentwood High House Hostel

32 Essex Pension Fund Annual Report and Accounts 2009–2010 Pensions Services 33 Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension Health Visitors, Scotland Visitors, Health Zone Company Water Hundred Visitors Health Harlow Theatre Trust Theatre Harlow Harwich Port Health Authority Ltd Co-operative Transport Harwich Connexions HBS Business Services Ltd Group Walden House, Saffron VI Alms King Edward Council Lambourne Parish Primary School (finished June 08) Thurrock Little & Midwifery , Nursing of Board National Work National Institute for Social Northwick Infants School Park Northwick Junior School Park Nursing & Midwifery Council Trust Theatre Palace Council Services Social Personal Almshouses Walden Saffron Museum Society Walden Saffron College Training Walden Saffron South East Essex College of ArtsTechnology & Panel Valuation South Essex Local Centre Technology South East Essex VirtualAction Education South East England Services Voluntary Southend Association of Southend Education Action Zone Ltd Transport Southend Utilities Ltd Water Thames Ltd Windows Thameside and Basildon College Thurrock College Thurrock Council Parish Tollesbury GM School Torrells Theatre Towngate Vol Trans Tendring (previously Ltd East Water Veolia & Midwifery Nursing, of Board National Welsh & ArtTheatre Centre Westcliff Management Committee Windyridge Council Town Wivenhoe Social Work Social Homes Employees Chappel Parish Council Chappel Parish Partnership Environment Chelmsford Zone Clacton & Harwich Education Action Colchester MIND Ltd Transport Colchester Arts Partnership Youth Colchester Harbour Authority Crouch Examination Board East Anglian Regional Zone East Basildon Education Action Board Eastern Orchestral Eastwood Infants School Eastwood Junior School Ltd (Ardleigh) Elm Park Midwifery of Nursing & English National Board & Business PartnershipEssex Careers Blind Essex County Association for the Essex Economic Partnerships Women’s Congregational of Federation Essex Committee Essex Joint Crematorium CourtsEssex Magistrates Committee Essex Physically Handicapped Association Authority Essex River Company Water Essex Exwaste Ltd Service Units Family Transport Passenger of Public Federation Infants School Grove Junior School Grove Social Club Council Employees Harlow Services Voluntary Council for Harlow Agency Co-op Development Harlow Corporation Development Harlow ITEC Harlow Union Centre Trade Harlow Brightlingsea Harbour Committee Brightlingsea Harbour Ltd Business Link (Essex) Visitors Health Training & for Education Centre in Training Council for Education & Central Statement by Consulting Actuary 2007 Actuarial Valuation

An actuarial valuation of the Essex Pension In practice, each individual employer’s position Fund was carried out as at 31 March 2007 to is assessed separately and the contributions determine the contribution rates with effect required are set out in our report dated 31 from 1 April 2008 to 31 March 2011. The March 2008. For those employers in deficit results of the valuation are contained in our at the valuation date, the deficit recovery report dated 31 March 2008. The valuation contributions were certified as additional annual allowed for the new look LGPS benefit structure payments (increasing in line with the assumed which was introduced from 1 April 2008. rate of pay increase) and not as an additional percentage of pay contribution. In addition On the basis of the assumptions adopted, to the contribution rates shown, payments to the valuation revealed that the value of the cover additional liabilities arising from early Fund’s assets represented 79.6% of the retirements (other than ill-health retirements) Funding Target at the valuation date. The will be made to the Fund by the employers. valuation also showed that a common rate of contribution of 12.7% of pensionable pay per The funding plan adopted in assessing the annum was required from employers. The contributions for each individual employer common rate is calculated as being sufficient, is in accordance with the Funding Strategy together with contributions paid by members, Statement (FSS). Different approaches to meet all liabilities arising in respect of adopted in implementing contribution service after the valuation date. increases and deficit recovery periods are as determined through the FSS consultation Adopting the same method and assumptions process. as used for assessing the Funding Target the deficit would be eliminated by an average The valuation was carried out using the additional contribution rate of 7.0% of projected unit actuarial method and the main pensionable pay for 20 years. This would actuarial assumptions used for assessing the imply an average employer contribution rate funding target and the common contribution of 19.7% of pensionable pay in total. rate were as follows:

For past service liabilities For future service liabilities Rate of return on investments: - pre retirement 6.9% per annum 6.5% per annum -post retirement 5.4% per annum 6.5% per annum Rate of pay increases: 4.6% per annum 4.25% per annum Rate of increases in pensions in payment (in excess of Guaranteed Minimum Pension): 3.1% per annum 2.75% per annum

34 Essex Pension Fund Annual Report and Accounts 2009–2010 Scheme Actuary

The assets were assessed at market value and the value at 31 March 2007 was £3,043 million. Full details of the assumptions adopted for the valuation are set out in the actuarial valuation report. The valuation results as summarised above are based on the financial position and market levels at the valuation date, 31 March 2007. As such the results do not make allowance for the significant market falls which have occurred during the financial year to 31 March 2008. The implications of this and the current volatility in the markets will continue to be monitored. The next triennial actuarial valuation of the Fund is due as at 31 March 2010. Based on the results of this valuation, the contribution rates payable by the individual employers will be revised with effect from 1 April 2011.

C R Hull Fellow of the Institute of Actuaries Mercer Limited August 2008

Marks Hall Estate

Essex Pension Fund Annual Report & Accounts 2009-2010 35 Total Contribution Total Contribution Total Contribution Rate 2008/09 Rate 2009/10 Rate 2010/11 % % %

Essex County Council (excluding schools)12 .9 plus £17,352,29912 .9 plus £18,150,505 12.9 plus £18,985,428 Schools - Essex CC Area 19.9 19.9 19.9 Basildon District Council 12.7 plus £2,384,290 12.7 plus £2,493,967 12.7 plus £2,608,690 Braintree District Council 13.0 plus £1,475,379 13.0 plus £1,543,246 13.0 plus £1,614,236 Brentwood Borough Council 11.2 plus £1,271,106 12.0 plus £1,280,512 12.8 plus £1,289,917 Castle Point Borough Council 13.1 plus £705,699 13.1 plus £738,161 13.1 plus £772,117 Chelmsford Borough Council 11.0 plus £1,842,933 11.8 plus £1,697,834 12.6 plus £1,552,736 Colchester Borough Council 11.9 plus £2,074,462 11.9 plus £2,169,887 11.9 plus £2,269,702 Epping Forest District Council 11.1 plus £1,795,590 12.1 plus £1,769,416 13.1 plus £1,743,241 Harlow District Council 12.5 plus £2,587,266 12.5 plus £2,706,280 12.5 plus £2,830,769 Council 10.0 plus £656,972 10.8 plus £677,193 11.5 plus £697,414 Council 12.4 plus £688,713 12.4 plus £720,394 12.4 plus £753,532 Southend on Sea Borough Council (excluding schools) 12.9 plus £3,465,225 12.9 plus £3,624,625 12.9 plus £3,791,358 Schools - Southend BC Area 20.6 20.6 20.6 Tendring District Council 13.7 plus £1,416,276 13.7 plus £1,481,425 13.7 plus £1,549,570 Thurrock Borough Council (excluding schools) 11.0 plus £3,765,833 11.8 plus £3,892,339 12.6 plus £4,018,846 Schools - Thurrock BC Area 19.2 20.1 21.0 Uttlesford District Council 10.8 plus £421,897 11.7 plus £421,045 12.5 plus £420,192 Essex Police Authority 11.1 plus £1,514,631 11.1 plus £1,584,304 11.1 plus £1,657,182 Essex Probation Committee 11.7 plus £586,076 11.7 plus £613,035 11.7 plus £641,235 University of Essex 15.2 plus £1,036,250 16.3 plus £1,246,986 17.4 plus £1,457,723 Essex Fire Authority 11.0 plus £415,263 11.6 plus £447,931 12.2 plus £480,598 Anglia Ruskin University 10.0 plus £1,019,014 10.8 plus £1,083,500 11.5 plus £1,147,986 Colchester Borough Homes Ltd 13.7 plus £2,709 13.7 plus £2,834 13.7 plus £2,964 Colchester Institute 9.5 plus £307,347 10.1 plus £309,106 10.8 plus £310,866 Chelmsford College 12.1 plus £78,058 13.2 plus £70,040 14.2 plus £62,021 Braintree College 9.7 plus £64,083 10.5 plus £77,004 11.3 plus £89,924 Epping Forest College 12.7 plus £99,531 12.7 plus £104,109 12.7 plus £108,898 Colchester Sixth Form College 12.0 plus £34,724 13.1 plus £35,900 14.1 plus £37,075 Palmers Sixth Form College 10.8 plus £51,696 12.1 plus £54,811 13.4 plus £57,926

36 Essex Pension Fund Annual Report and Accounts 2009–2010 Scheme Actuary

Total Contribution Total Contribution Total Contribution Rate 2008/09 Rate 2009/10 Rate 2010/11 % % %

SEEVIC College 11.4 plus £38,307 11.4 plus £40,069 11.4 plus £41,912 South East Essex College of Arts & Technology 8.5 plus £78,506 9.6 plus £89,848 10.7 plus £101,189 Writtle College 11.6 plus £152,103 11.6 plus £159,100 11.6 plus £166,418 Harlow College 11.6 plus £106,031 12.5 plus £107,698 13.5 plus £109,366 Basildon & Thurrock College 13.3 plus £163,522 13.3 plus £171,044 13.3 plus £178,912 Worthing Homes Ltd 12.7 plus £95,203 12.7 plus £99,582 12.7 plus £104,163 Thurrock Community Leisure Ltd 11.6 plus £30,205 11.6 plus £31,594 11.6 plus £33,047 May Gurney (Construction) Ltd 15.0 15.0 15.0 Central Parking System of the UK Ltd (Southend) 0.0 0.0 0.0 General Social Care Council 10.7 plus £202,371 10.7 plus £211,680 10.7 plus £221,417 Social Care Institute for Excellence 10.6 plus £25,433 10.6 plus £26,603 10.6 plus £27,827 Serco Solutions 9.1 9.1 9.1 Chelmer Housing Partnership 12.7 plus £239,029 12.7 plus £250,025 12.7 plus £261,526 Commission for Social Care Inspection 18.4 plus £51,217 18.4 plus £53,573 18.4 plus £56,037 Elmy Landscapes Ltd 13.3 13.3 13.3 Women’s Royal Voluntary Service 17.2 plus £11,236 17.2 plus £11,752 17.2 plus £12,293 DC Leisure Management Ltd 10.7 plus £61,416 10.7 plus £64,242 10.7 plus £67,197 Mid Essex Primary Care Trust 7.2 7.2 7.2 Cleanaway Ltd 10.0 10.0 10.0 WRVS Food Services Ltd 0.0 0.0 0.0 Warden Housing Association Ltd 20.0 20.0 20.0 Wates Group Ltd 11.2 11.2 11.2 ExDRA 10.3 10.3 10.3 Thurrock Thames Gateway Development Corporation 12.6 plus £95,507 12.6 plus £99,900 12.6 plus £104,495 Vertex 11.1 11.1 11.1 United Utilities 12.1 12.1 12.1 Ashlyn Healthcare Ltd 15.0 15.0 15.0 Goldenley Healthcare Ltd 15.0 15.0 15.0 Greenways Healthcare Ltd 15.0 15.0 15.0 Dovercourt Healthcare Ltd 15.0 15.0 15.0

Essex Pension Fund Annual Report & Accounts 2009-2010 37 Total Contribution Total Contribution Total Contribution Rate 2008/09 Rate 2009/10 Rate 2010/11 % % %

Longfield Healthcare Ltd 15.0 15.0 15.0 Okeley Healthcare Ltd 15.0 15.0 15.0 Sherrell Healthcare Ltd 15.0 15.0 15.0 Saffron Healthcare Ltd 15.0 15.0 15.0 Sweyne Healthcare Ltd 15.0 15.0 15.0 Winifred Healthcare Ltd 15.0 15.0 15.0 South Essex Homes Ltd 13.6 13.6 13.6 SLM 9.2 9.2 9.2 Rushcliffe Care 14.3 14.3 14.3 Alphaprint Ltd 14.9 14.9 14.9 Braintree Womens Aid 16.6 16.6 16.6 H Q Theatres Ltd 10.4 10.4 10.4 The Gateway Academy 12.9 12.9 12.9 Kier Harlow Ltd 14.5 14.5 14.5 Moat Housing Group 15.5 plus £25,438 15.5 plus £26,608 15.5 plus £27,832 St Georges Community Housing 13.7 13.7 13.7 Small Admitted Bodies 11.2 plus £533,523 11.7 plus £561,350 12.3 plus £589,178 Town and Parish councils 12.9 plus £123,858 14.1 plus £125,156 15.4 plus £126,455 Greenfields Community Housing 12.7 12.7 12.7 Rochford Housing Association Ltd 17.4 plus £125,512 17.4 plus £131,286 17.4 plus £137,325 Orchestras Live 9.0 9.0 9.0 Connaught Partnership Ltd tbc tbc tbc Westminster Drugs Project tbc tbc tbc CCETSW tbc tbc tbc

38 Essex Pension Fund Annual Report and Accounts 2009–2010 Mersea Island Beach Huts Annual Statement of Accounts 39

Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension Director for Finance’s Certificate for Finance’s Director I certify of Accounts that the Statement in has been prepared on pages 40 to 51 presents and practices proper with accordance Essex the of transactions financial the fairly March ended 31 during the year Fund Pension that at Fund the of position financial and 2010 other thandate of its assets and liabilities, after benefits and pensions pay to liabilities end. the year Lee Margaret for Finance Director

Selected suitable accounting policies andSelected then applied them consistently; were that estimates and judgements Made and prudent; reasonable Local on Practice of Code the with Complied Authority Accounting; which were records accounting proper Kept up to date; steps for the prevention reasonable Taken other and fraud of detection and irregularities. To make arrangements for the proper proper the for arrangements make To and affairs financial its of administration the has officers its of one that secure to of for the administration responsibility is officer that authority this In affairs. those for Finance; the Director economic, to secure manage its affairs To andresources use of efficient and effective its assets; safeguard the statement of accounts. approve To

• • • • • In preparing this statement of accounts, the the accounts, of statement this preparing In for Finance has: Director • • Responsibilities for Finance’s The Director for for Finance is responsible The Director of statement Fund’s the of preparation the practices proper with accordance in accounts Public of Institute Chartered the in out set of Code (CIPFA) Accountancy and Finance in Accounting Authority Local on Practice the UK. Statement Statement of Accounts • The Authority’s Responsibilities The Authority’s required: The authority is Responsibilities Responsibilities for the Fund Account

2008/09 2009/10 £000 £000 Notes

Contributions and Benefits Contributions receivable 3 Employees’ contributions (47,271) (49,558) Employers’ contributions (163,956) (211,227) (154,488) (204,046) Transfers from other schemes 4 (22,358) (25,264) Other income (192) (201) (233,777) (229,511) Benefits payable 5 Pensions 115,672 125,384 Commutation of pensions & lump sums 32,020 31,826 Lump sum death benefits 3,510 151,202 3,986 161,196 Payments to and on account of leavers Refunds of contributions 6 14 State Scheme Premiums 6 5 Transfers to other schemes 6 13,701 13,713 16,141 16,160 Administration expenses 7 1,812 1,869 166,727 179,225 Net additions from dealings with members (67,050) (50,286)

Investments Returns on Investments Investment income 8 (69,956) (46,999) Change in market value of investments 9 822,540 (778,921) Taxation 3,340 2,512 Investment management expenses 11 13,687 13,627 Net returns on investments 769,611 (809,781)

Net (increase) decrease in the fund during the year 702,561 (860,067)

Net assets of the scheme at 1 April (2,927,368) (2,224,807 )

Net assets as at 31 March (2,224,807) (3,084,874)

40 Essex Pension Fund Annual Report and Accounts 2009–2010 Annual Statement of Accounts

Net Asset Statement

31 March 31 March 2009 2010 Notes Restated £000 £000

Investments 9 Investment assets Fixed interest securities 149,665 217,771 Equities 1,348,654 1,905,749 Index-linked securities 72,068 172,895 Unit trusts 120,822 186,281 Managed funds 325,981 381,123 Derivative Contracts 4,996 1,631 Property 83,165 117,700 Cash/deposits 103,882 92,716 Other investments 15,479 2,224,712 24,408 3,100,274

Investment liabilities Derivative Contracts (38,908) (28,896) Other Investments (4,003) (42,911) (4,787) (33,683)

2,181,801 3,066,591

Current assets 12 Cash 14,413 5,065 Debtors and payments in advance 32,151 19,337

Current liabilities Creditors and receipts in advance (3,558) (6,119)

Net assets of the scheme as at 31 March 2,224,807 3,084,874

Figures as at 1 April 2009 for Derivative Contracts pending foreign (fx) debtors and creditors have been restated. These now exclude the economic exposure of the fx trades and disclose solely the market value of the unrealised profit or loss.

Essex Pension Fund Annual Report & Accounts 2009-2010 41 Notes to the Accounts

1. Basis of Preparation Investments • In the majority of cases, equity investments The financial statements have been prepared are valued at the last traded price recorded in accordance with the requirements of on the Stock Exchange Electronic Trading the Local Government Pension Scheme Service or bid market price at 31 March (Administration) Regulations 2008, the Code of 2010. Practice on Local Authority Accounting issued by CIPFA and with the guidelines set out in the • For unquoted equity and private equity Statement of Recommended Practice (SORP): limited partnerships, there is usually a ‘Financial Reports of Pension Schemes’ time delay in receiving information from (revised May 2007). the private equity fund managers. The valuations shown in the net asset statement The financial statements summarise the for these investments are the latest transactions of the scheme and the net assets valuations provided to the County Council. of the Fund. They do not take account of In general these are valuations at 31 March obligations to pay pensions and benefits which 2010 and are compiled in accordance with fall due after the financial year. The actuarial the guidelines issued by the British Venture position of the scheme is dealt with in the Capital Association or an equivalent body. report of the consulting actuary on pages 34 In a few cases an estimate of the valuation to 38 and these statements should be read in at 31 March 2010 has been made. The Fund conjunction with them. amends the 31 December 2009 valuation for Independent investment managers have been payments made to and payments received appointed to manage the investments of the from, the private equity managers in the Pension Fund. The Fund also invests in private period 1 January 2010 to 31 March 2010. equity, infrastructure and shareholder activism • Unit trusts and managed funds are valued through the use of limited partnerships. The at bid prices provided by the relevant fund Investment Steering Committee (ISC) oversees managers, which reflect the market value of the management of these investments and the underlying investments. meets regularly with the investment managers to monitor their performance against agreed • The value of fixed interest investments in benchmarks. The ISC in turn reports to the the Fund’s investment portfolio excludes Essex Pension Fund Board. interest earned but not paid over at the Fund year-end, which is included separately 2. Accounting Policies within accrued investment income and Accounting Convention disclosed within note 9. • The financial statements have been • Futures are valued at the closing market prepared on an accruals basis except for price published by the relevant futures transfers to and from the scheme which are exchange e.g.: LIFFE – London International accounted for on a cash basis. Financial Futures Exchange.

42 Essex Pension Fund Annual Report and Accounts 2009–2010 Annual Statement of Accounts 4343 this totalled totalled this 10 m). 491m). . 09 £1 Annual Report & Accounts 2009-2010 Annual Report 540m (2008/ . 1 Normal contributions, both from employees both from Normal contributions, for in the accounted are employers, and from rates at relate they which to month payroll adjustments and rates the in specified as certificate. contributions from Additional accounted for when received. are employers receive retirees Fund, the of rules the Under to addition in grant retirement sum lump a retirement sum Lump pension. annual their of date the from for accounted are grants choose can member a Where retirement. grant retirement greater a take to whether pension these lump for reduced in return basis accounted for on an accruals sums are the date that the option is exercised. from date the on for accounted are benefits Other or on death. the Fund the member leaves for accounted normally are values Transfer only not since basis payment/receipts a on past apply to several do they frequently values transfer of case the in but, years, at the year- due, information is not available accrual. an base to which on end investment and Administration onfor accounted are expenses management recognised are Expenses basis. accruals an of proportion A VAT. recoverable any of net salaries has been charged officers’ relevant on spent time of basis the on Fund the to pension and matters related investment In 2009/ administration. £ Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension

Contributions • Benefits payable • • other schemes to/from Transfers • and other expenses Administrative •

Forward foreign exchange contracts contracts exchange foreign Forward fair at stated are end year at outstanding as the loss or which is determined value, outstanding the if arise would that gain to be settled on 31 was required contract March. valued, been have investments property Direct by 2010, at 31 March at open market value, Jones Lang LaSalle, Chartered Surveyors. the in included are costs Acquisition cost of investments. purchase where income is taken into account Investment of end the at declared been have dividends also income Investment year. financial the cannot this where tax withholding includes irrecoverable of amount The recovered. be separate a as disclosed is tax withholding account. line item on the face of the fund linked index and interest fixed from Income securities, cash and short-term deposits is accounted for on an accruals basis. accounted is investments other from Income for on an accruals basis. of investments The change in market value held and comprises all increases during the year investments of value market in decreases profits including year, the during time any at on sales of investments and losses realised changes in market value. and unrealised taken are currencies in foreign Transactions of exchange into account at the ruling rate the In transaction. the of time the at recorded are balances statements financial 2010. ruling on 31 March at rates

• • • income Investment • • • • Currencies Foreign • 3. Contributions Receivable Employer’s Contributions 2008/09 2009/10 £000 £000 Normal 88,097 94,680 Augmentation 145 105 Deficit 69,731 55,390 Other 5,983 4,313 Total 163,956 154,488 Other employers’ contributions relate to payments for the cost of early retirements.

Analysis of 2008/09 2009/10 Contributions Employees Employers Employees Employers £000 £000 £000 £000 County Council 16,315 51,634 17,167 53,130 District/Unitary Authorities 14,588 52,860 15,020 54,742 Other Scheduled Bodies 12,272 31,131 12,886 33,969 Other Admitted Bodies 4,096 28,331 4,485 12,647 Total 47,271 163,956 49,558 154,488

During 2009/10 no lump sum contributions were received in respect of Actuarial deficit. During 2008/09 lump sum contributions in respect of the Actuarial deficit were received from Chelmsford Borough Council (£1.419m), CCETSW (£16.235m) and SCIE (£0.265m). These amounts were paid following the 31st March 2007 Actuarial Valuation and, in accordance with the Pension SORP, have been recognised on receipt.

4. Transfers in from other schemes There was no amounts receivable in respect of group transfers from other schemes during 2009/10 (none 2008/09).

44 Essex Pension Fund Annual Report and Accounts 2009–2010 Annual Statement of Accounts 45

175 209 £000 £000 1,869 1,485 £000 2,325 3,677 5,295 1,306 7,904 55,122 11,588 47,629 11,045 46,999 26,492 125,384 2009/10 2009/10 m was paid to Tayside Tayside 436m was paid to 2009/10 . Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension 128 193 416 £000 £000 £000 1,812 5,021 7,396 1,359 9,638 1,491 9,944 69,956 12,892 51,539 42,872 44,551 115,672 2008/09 2008/09 2008/09 09. 249m was paid out to HPSS further and a £0 . 10 £1 . Investment Income . Investment . Administration Expenses Expenses Administration . . Transfers to other schemes Transfers . . Benefits Payable . Benefits

and Processing Administration Actuarial Fees Fees and other Professional Legal Total Total paid to employees Pensions County Council securities interest fixed Income from equities Dividends from index-linked securities Income from properties from Net rent cash deposits from Interest Other District/Unitary Authorities Bodies Other Scheduled Bodies Other Admitted Total Council as a result of the termination of fund membership of the Central Council for the Educationof fund membership of the Central of the termination Council as a result to other transfers of group payable in respect were No amounts Workers. of Social Training and schemes during 2008/ 8 The administration and processing expenses represent a proportion of relevant officers’ salaries salaries officers’ relevant of proportion a represent expenses processing and administration The matters. and investment on the basis of time spent on pensions administration 7 During 2009/ 6 5 9. Investments The value of investments held by each manager together with investments in private equity, infrastructure and shareholder activism funds on 31 March was as follows:

31 March 2009 31 March 2010 Restated £000 % £000 % Alliance Bernstein 146,265 6.7 223,634 7.3 Aviva Investors 269,596 12.4 356,528 11.6 Baillie Gifford and Co 291 0.0 10 0.0 Baillie Gifford - LTGG 160,342 7.3 247,900 8.1 Capital International 217,646 10.0 702 0.0 FIL Pensions Management 0 0.0 223,824 7.3 First State Investments (UK) Ltd 97,252 4.5 154,121 5.0 Goldman Sachs Asset Management International 132,851 6.1 160,735 5.2 Legal and General Investment Management 711,413 32.6 1,064,760 34.7 Marathon Asset Management Ltd 146,375 6.7 245,042 8.0 Martin Currie Investment Management Ltd 12 0.0 0 0.0 Mirabaud Investment Management Ltd 49 0.0 0 0.0 Nomura Asset Management UK Ltd 150 0.0 22 0.0 M&G Investments 0 0.0 0 0.0 M&G Investments Alpha Opportunities 111,081 5.1 137,435 4.5 M&G Investments Infracapital 48,186 2.2 46,048 1.5 Nissay Hermes Japanese Stewardship Fund 11,930 0.5 0 0.0 Hermes European Focus Fund 22,370 1.0 0 0.0 Hermes UK Focus Fund 1,562 0.1 0 0.0 Hermes UK Smaller Companies Focus Fund 10,008 0.5 11,236 0.4 Relational Hermes US Fund 11,585 0.5 16,417 0.5 Governance for Owners European Focus Fund 12,659 0.6 21,599 0.7 Record Currency Management (9,079 ) -0.4 33,359 1.1 Mellon Capital Management 14,453 0.6 23,998 0.8 Legal and General Investment Management (currency) 0 0.0 (13,518 ) -0.4 Private Equity 64,804 3.0 112,739 3.7 Total 2,181,801 100.0 3,066,591 100.0

46 Essex Pension Fund Annual Report and Accounts 2009–2010 Annual Statement of Accounts 47

)

)

) 21 159 (178 2010 £000 5,721 1,610 (4,609 92,557 18,687 Value at Value April 2009. (28,896 217,771 329,583 172,895 186,281 381,123 117,700 31 March 1,576,166 3,074,256 3,066,591 ) ) )

0 0 0 0 0 0 0 0 Cash ment £000 Move- (2,123 (115,182 (117,305 ) )

£000 Value 2,717 1,926 m). (2,123 12,388 73,752 12,170 28,044 Change (13,139 9 117,394 545,792 778,921 . in Market

) ) ) ) ) ) ) )

09 £1 0 Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension Sale £000 2,123 (2,650 13,140 (88,350 (88,239 (16,617 (24,515 (52,415 Proceeds (630,681 (888,204 m (in 2008/

0 0 0 . £000 63,077 87,257 33,805 25,015 plus net 105,056 128,412 549,752 106,138 transfers Purchases 1,098,512 ) ) ) ) (165 £000 2,282 7,978 7,501 1,804 (1,905 (3,838 72,068 83,165 Value at Value (33,811 237,351 149,665 120,822 325,981 101,600 Re-stated 1,111,303 2,202,332 2,181,801 1 April 2009

UK for Derivative Contracts pending foreign (fx) debtors and creditors have been been have creditors and debtors (fx) foreign pending Contracts Derivative for April 2009

PUTS Other the total transaction costs were £2 costs were 10 the total transaction Overseas

For 2009/ For of the unrealised profit or loss. profit of the unrealised Figures as at 1 Figures value market the solely disclose and trades (fx) the of exposure economic the exclude now These restated.

any time during the year, including profits and losses realised on sales of investments since 1 realised on sales of investments losses and including profits any time during the year, The change in market value includes all increases and decreases in the market value of investments held at at held investments of value market the in decreases and increases all includes value market in change The

interest Fixed

Equities

Index linked

Managed & Unitised

Contracts Derivative

Properties

Cash Deposits

Margin Account Margin Total

Outstanding sales

Outstanding purchases Investment income debtors Investment

income creditors Investment Derivative Contracts Derivative - pending FX debtors

Contracts Derivative - pending FX creditors Total 31 March 2009 31 March 2010 £000 £000 Re-stated Fixed interest securities UK public sector quoted 63,278 57,037 UK quoted 42,409 160,734 Overseas public sector 267 – Overseas quoted 43,711 –

Equities UK quoted 57,807 78,128 Overseas quoted 684,967 993,734 UK Unit trusts 179,544 251,455 Overseas Unit trusts 426,336 582,432

Index-linked securities UK public sector quoted 72,068 172,895

Managed funds UK unquoted 171,542 195,008 Overseas unquoted 115,616 128,758 Active Currency 38,823 57,357

Derivative Contracts Derivative Assets 4,996 1,631 Derivative Liabilities (38,908) (28,896)

Property UK properties leasehold 21,950 27,650 UK properties freehold 61,215 90,050 Property unit trusts 120,822 186,281

Cash Deposits Sterling 84,484 80,875 Foreign currency 17,116 11,682 Margin account sterling 1,522 79 Margin account foreign currency 760 80 2,170,325 3,046,970 Debtors - outstanding sales 7,978 18,687 Creditors - outstanding purchases (3,838) (4,609) Debtors - investment income 7,501 5,721 Creditors - investment income (165) (178) Total 2,181,801 3,066,591

Figures as at 1 April 2009 for Derivative Contracts pending foreign (fx) debtors and creditors have been restated. These now exclude the economic exposure of the (fx) trades and disclose solely the market value of the unrealised profit or loss.

48 Essex Pension Fund Annual Report and Accounts 2009–2010 Annual Statement of Accounts

The Fund holds the following investments in unit trusts/pooled vehicles, which are in excess of 5% of the value of the Fund:

31 March Investment Unit Trust/ 31 March 2009 Manager Pooled Vehicle 2010 £000 % £000 % 179,544 8.1 Legal & General UK Equity Index 251,456 8.2 139,221 6.3 Legal & General North America Index 192,169 6.2 139,490 6.3 Legal & General Europe (ex UK) Equity Index 188,021 6.1 0 0.0 Goldman Sachs UK Sterling Credit Portfolio 160,734 5.2

Commitments: As at 31 March 2010, the Fund had a commitment to contribute a further £133m to existing partnership investments, including private equity (31 March 2009 £113m). It is anticipated that payments against these commitments will be made over the next 1 – 5 financial years. A breakdown of derivatives contracts is as follows:

Economic Market Economic Market Exposure Value Exposure Value 31/03/2009 31/03/2009 31/03/2010 31/03/2010 restated restated £000 £000 £000 £000 Future Contract Type – Exchange Traded UK Govt Fixed Interest Future Contracts 32,899 523 O/S Govt Fixed Interest Future Contracts (40,182) (132) UK Equities Future Contracts 125,291 2,669 O/S Equities Future Contracts (123,327) (4,965) 1,229 21 Cash Backing Open Futures 5,319 (1,229) Pending Foreign Exchange Sterling 652,455 830,955 Overseas Currency (684,462) (858,241) Pending Foreign Exchange Assets 1,804 1,610 Pending Foreign Exchange Liabilities (33,811) (28,896) Total Derivative Contracts held at Year End (32,007) (33,912) (27,286) (27,265)

Future contracts are used to gain exposure to investment markets without the need to purchase underlying stocks and shares. Forward foreign exchange contracts are used to hedge against the currency risk of the Fund’s overseas investments. Figures as at 1 April 2009 for Derivative Contracts pending foreign (fx) debtors and creditors have been restated. These now exclude the economic exposure of the (fx) trades and disclose solely the market value of the unrealised profit or loss.

Essex Pension Fund Annual Report & Accounts 2009-2010 49 10. Additional Voluntary Contributions (AVC) Investments 2008/09 2009/10 £000 £000 Value of AVC Fund at beginning of year 6,355 5,446 Employees contributions 646 365 Investment income and change in market value (768) 1,098 Benefits paid and transfers out (787) (859) Value of AVC Fund at end of year 5,446 6,050

In accordance with the Local Government Pension Scheme (Administration) Regulation 2008, additional voluntary contributions (AVCs) are not included within the transactions recorded within the Fund Account. The AVC providers to the Fund are The Equitable Life Assurance Society and Standard Life. The assets of these investments are held separately from the Fund. The AVC providers secure additional benefits on a money purchase basis for those members electing to pay additional voluntary contributions. Members participating in these arrangements each receive an annual statement confirming the amounts held in their account and the movements in the year. The Fund relies on individual contributors to check that deductions made on their behalf are accurately reflected in the statements provided by the AVC providers. A summary of the information provided by Equitable Life and Standard Life to the Fund is shown in the table above.

11. Investment Management Expenses

2008/09 2009/10 £000 £000 Administration, Management and Custody 13,266 13,228 Performance Measurement Services 89 55 Other Advisory Fees 332 344 Total 13,687 13,627

50 Essex Pension Fund Annual Report and Accounts 2009–2010 Annual Statement of Accounts 51

) )

2010 £000 5,065 (2,596 (3,523 18,283 19,337 31 March ) ) 2009 £000 (1,590 (1,968 43,006 32,151 14,413 31 March Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension

‘Related Party Disclosures’ it is a requirement that material transactions with related related with transactions material that requirement a is it Disclosures’ Party ‘Related Investment management expenses Investment Benefits due Contributions due Creditors and receipts in advance and receipts Creditors Cash Debtors and payments in advance Total

Liabilities Current

Currents Assets Currents

. Related Party Transactions Transactions Party 14. Related Under FRS 8 parties, should be included in a note to the financial statements. During not disclosed elsewhere, Members Committee Steering Investment Members, Board Pension Essex the of none year, the were There Fund. Pension Essex the with transactions material any undertook Officers Senior or remained that bodies at the end of the year the employer no material contributions due from outstanding after the due date for payment. As Essex County Council is the administering authority for the Fund, VAT input tax is recoverable on on recoverable is tax input VAT Fund, the for authority administering the is Council County Essex As and property on investment expenses. including expenditure activities all Fund The Fund is exempt from UK income tax on interest and from capital gains tax on the profits profits the on tax gains capital from and interest on tax income UK from exempt is Fund The tax withholding States United from exempt also is Fund The investments. of sale the from resulting withholding tax deducted in some other countries. and recovers on dividends on investments . Taxation 13. . Current Assets and Liabilities Liabilities and Assets Current 12. Independent auditor’s report to the Members of Essex County Council

I have audited the pension fund accounting accordance with relevant legal and regulatory statements for the year ended 31 March 2010. requirements and International Standards on The pension fund accounting statements Auditing (UK and Ireland). comprise the Fund Account, the Net Assets I report to you my opinion as to whether the Statement and the related notes. The pension pension fund accounting statements give a fund accounting statements have been true and fair view, in accordance with relevant prepared under the accounting policies set out legal and regulatory requirements and the in the Statement of Accounting Policies. Code of Practice on Local Authority Accounting This report is made solely to the members of in the 2009: A Statement Essex County Council in accordance with Part of Recommended Practice, the financial II of the Audit Commission Act 1998 and for no transactions of the pension fund during other purpose, as set out in paragraph 49 of the year and the amount and disposition of the Statement of Responsibilities of Auditors the fund’s assets and liabilities, other than and of Audited Bodies published by the Audit liabilities to pay pensions and other benefits Commission in April 2008. after the end of the scheme year. I also report Respective responsibilities of the to you whether, in my opinion, the information which comprises the commentary on the Director for Finance and auditor financial performance included within the The Director for Finance is responsible for Pension Fund Annual Report, is consistent preparing the pension fund accounting with the pension fund accounting statements. statements, in accordance with relevant legal That information comprises the: and regulatory requirements and the Code • Financial Summary (including the fund of Practice on Local Authority Accounting in account, net assets statement and the United Kingdom 2009: A Statement of supporting notes). Recommended Practice. In preparing this pension fund accounting statements, the I review whether the governance compliance Director for Finance is responsible for: statement published in the Pension Fund Annual Report reflects compliance with the • selecting suitable accounting policies and requirements of the Local Government Pension then applying them consistently; Scheme (Administration) Regulations 2008 and • making judgments and estimates that were related guidance. I report if it does not meet reasonable and prudent; the requirements specified by the Department • keeping proper accounting records which of Communities and Local Government or if the were up to date; statement is misleading or inconsistent with • taking reasonable steps for the prevention other information I am aware of from my audit and detection of fraud and other of the accounting statements. I am not required irregularities. to consider, nor have I considered, whether the governance statement covers all risks My responsibility is to audit the pension fund and controls. Neither am I required to form an accounting statements and related notes in

52 Essex Pension Fund Annual Report and Accounts 2009–2010 Annual Statement of Accounts 53

and related notes give a true and fair view, view, fair and true a give notes related and Practice of Code the with accordance in Authority Accounting in the on Local of Statement A United Kingdom 2009: financial the of Practice, Recommended during Fund Pension the of transactions the and 2010, ended 31 March the year assets amount and disposition of the fund’s other 2010, and liabilities as at 31 March other and pensions pay to liabilities than year; scheme the of end the after benefits and financial performance included within the Report Annual is consistent Fund Pension accounting fund pension the with statements. Essex Pension Fund Annual Report & Accounts 2009-2010 Annual Report Fund Essex Pension reasonable assurance that the pension fund fund pension the that assurance reasonable notes are and related accounting statements whether material misstatement, from free error. or irregularity other or fraud by caused the evaluated also I opinion my forming In of presentation the of adequacy overall accounting fund pension the in information notes. statements and related Opinion In my opinion: • the pension fund accounting statements on commentary the in given information the • Murray Rob Officer of the Audit Commission Road, Broomfield 64 Atlantic Business Centre, Essex, CM1 1SW Chelmsford, 2010 30 September Basis of audit opinion opinion audit of Basis the with I conducted my audit in accordance Audit of Code the Audit Commission Act 1998, Commission Audit the by issued Practice on Auditing (UKand International Standards Practices Auditing the by issued Ireland) and An audit includes examination, onBoard. the to relevant evidence of basis, test a pension the in disclosures and amounts related and statements accounting fund the of assessment an includes also It notes. made judgments and estimates significant the of preparation the in Authority the by and statements accounting fund pension accounting the whether of and notes, related to the Authority’s appropriate policies are and applied consistently circumstances, adequately disclosed. to as so audit my performed and planned I obtain all the information and explanations to necessary in order which I considered give to evidence sufficient with me provide opinion on the effectiveness of the Authority’s Authority’s the of effectiveness the on opinion and risk its or procedures governance corporate procedures. control the other information published with I read and statements accounting fund pension is notes and consider whether it related fundconsistent with the audited pension information other This statements. accounting the of elements remaining the comprises the consider I Report. Annual Fund Pension aware become I if report my for implications material or misstatements apparent any of fund pension the with inconsistencies My notes. accounting statements and related other do not extend to any responsibilities information. Statement of Investment Principles 2010 as at 31 March 2010

The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2009 “the Regulations” require local authority pension funds to prepare a Statement of Investment Principles “SIP” and to review it annually. They are also required to publish each year a Statement of Compliance with the 6 Principles of Investment Management issued by the Government. The Essex Pension Fund “the Fund” first adopted a SIP on 12 May 1999 and has since reviewed it at least once each year.

Page 55 Background 56 Objectives 58 Strategic Asset Allocation 59 Investment Management Strategy 60 Responsibilities 62 Investment Limits 63 General Fund Investment Restrictions 65 Partnership Investments 66 Socially Responsible Investments 67 Corporate Governance 68 Stock Lending 69 Appendix A: Investment Steering Committee Core Investment Beliefs 73 Appendix B: Fund Target Structure 74 Appendix C: Mandate Performance Objectives 75 Myners Investment Principles – Statement of Compliance

54 Statement of Investment Principles Additional Information: Statement of Investment Principles

Background

Essex County Council is the administering authority “the Authority” for the Fund under the Regulations. Responsibilities for its investment functions have been delegated to the Investment Steering Committee “ISC” and the Chief Financial Officer “the CFO”. The ISC is composed of 6 county councillors and 2 non-voting observers, one appointed annually by the Essex Local Government Association and representing all Fund Employers and the other by UNISON and representing all Fund Members. The ISC is provided with investment advice by Hymans Robertson, two independent investment advisers, the Executive Director for Finance & Deputy Chief Executive and the CFO. The Regulations specify that, in investing the Fund’s money, regard must be given to the need for diversification and to proper advice obtained at reasonable intervals. External investment managers have been appointed to make the day-to-day investment decisions.

Set out below are the key investment principles that have been adopted by the Fund.

Statement of Investment Principles 55 Objectives

1. The underlying aim of the Fund is to ensure Given the Fund’s long term strategic that employers’ contribution rates are set at allocation of assets at that time a level to attain 100% funding, as certified (re-weighting for Private equity) of: by the Fund’s Actuary, whilst keeping the employers’ contribution rates as stable as % possible. With regard to the investments 26.5 UK Equity of the Fund the objective is to maximise 37.2 Overseas Equity returns within an acceptable risk profile. 6.0 Fixed Interest Gilts 2. In 2001 the Fund adopted a customised 6.0 Index-Linked Gilts benchmark, which sets out the strategic 12.0 Property asset allocation for the Fund. This was 6.0 Corporates agreed following the consideration 6.3 Private Equity (assume inclusion of a detailed asset liability modelling of shareholder activism) exercise, taking account of the specific characteristics of the Fund. Such a this would imply a long term strategic study requires assumptions to be made expected return of 7.06% p.a. on an regarding returns on the Fund’s assets arithmetic weighted average of these and in this connection, in preparation for individual returns. This does not take the 2007 Valuation, Hymans Robertson account of any expected return from were asked to update the investment active management (including currency) expectations for the Fund. The following is or the benefit we might expect from a summary of their findings: diversification (which we expect to come Expected strategic return on assets through as ‘bonuses’). Using Hymans At 31 March 2007, Hymans Robertson’s Robertson’s internal structure model assumptions with regard to the long term (which, in this case, also does not take returns on asset classes were: account of active management, but does UK Equity: 7.9% allow for the benefits of diversification) Overseas Equity: 7.6% some analysis was performed with respect Fixed Interest Gilts: 4.6% to various expected returns and the Index-linked Gilts: 4.3% probability of achieving that return. The Property: 5.8% model (based on the current structure) Corporate Bonds: 5.4% calculates a central expected return of Private Equity: 9.3% 7.93% p.a. The overall expected return on a portfolio of assets does not solely reflect the arithmetic weighted average of the returns on the individual asset classes. This is due to diversification i.e. when

56 Statement of Investment Principles you combine a portfolio of assets which set consistent with the liabilities in the Fund, are not fully correlated to each other, the taking full account of the risks involved expected portfolio return is greater than following the detailed consideration of the arithmetic combination of the individual the asset liability modelling exercise. This returns. This reflects the lower volatility was formulated to take account of the of the portfolio compared to the volatility ISC’s attitude to risk. The strategic asset of the sum of the parts. This is sometimes allocation, the customised benchmark and referred to as ‘volatility drag’. the tolerances set on investment managers’ The probability of achieving particular levels performance are the means by which the ISC of out-performance relative to the liabilities aims to achieve the overall fund objective. is as follows: 5. Risk associated with investments will Probability of achieving liabilities be controlled by the diversification of + 1.0% p.a.= 57% investments over asset classes and the use of a number of investment managers. Probability of achieving liabilities Regular reports will be made to the ISC. + 2.5% p.a.= 53% Probability of achieving liabilities 6. The majority of the Fund’s investments are + 3.5% p.a.= 50% quoted on major stock markets and are in readily realisable form. The Fund’s strategic 3. In September 2008 the ISC, as part of allocation to property and partnership a comprehensive review of investment investments, which are relatively illiquid, is strategy and structure, reviewed its currently 21.5% of the Fund’s assets. The approach to investment and set down Fund is relatively immature with almost its core investments beliefs. These are as many contributors as pensioners, reproduced in full at Appendix A. As part dependants and deferred pensioners. of that same review exercise they then In consequence the Fund has a positive re-examined the asset allocation and cash flow and is able to pay benefits from investment management structure of the contributions received. As the Fund is not in Fund and adopted a revised target structure the position of a forced seller, i.e. it does not that was in line with their core investment need to sell assets in order to pay benefits, beliefs. This is set out below with more it is considered appropriate to hold such detail provided in Appendix B. investments to increase diversification, 4. The risks in terms of volatility of funding minimise risk and improve long-term levels and employers’ contribution rates investment performance. have been considered in depth by the ISC and the strategic asset allocation has been

Statement of Investment Principles 57 Strategic Asset Allocation

The Fund’s strategic asset allocation with effect from 30 July 2009 is as follows:

% UK Equities 10.0 Global Equities 28.0 Overseas Equities 25.0 Shareholder Activism 2.0 Private Equity 4.0 UK index-linked 3.8 Fixed interest – UK gilts 1.2 Fixed interest – Sterling non-government 5.5 LIBOR+ 5.0 Infrastructure 2.5 Property 12.0 Company Loans 1.0 Total 100.0

More detail is provided at Appendix B.

58 Statement of Investment Principles Investment Management Strategy

The investment management strategy is to quarter. In addition a detailed review of their appoint expert investment managers with performance will be carried out on an annual a clear performance benchmark and place basis. maximum accountability for performance 1. Managers are required to submit quarterly against that benchmark on the investment reports on their performance, their asset manager. The Fund has recently adopted a holding and their future intentions together growth/income structure, allocating 69% of with any changes they are planning to its assets to asset classes (equities, private make to their portfolios. A statement of equity, activism) that are expected to grow their compliance with the SIP is also to be at levels significantly in excess of bonds in included. the long term and therefore reduce the cost of providing pension provision and 31% of 2. Managers are required to attend assets to income sectors (bonds, property, meetings as requested with officers and infrastructure and company loans) to control advisers and/or the ISC to discuss their overall volatility and provide cash income and performance and future intentions. liquidity to the Fund. 3. Managers must comply with all legitimate Investment Managers instructions given to them by the Authority. The Fund’s investment management In the event of any perceived conflict arrangements now consist of one passive with the law, rules, regulations or the balanced “swing” manager (who also agreement between the manager and manages a passive currency hedge), four the Authority, the manager must consult active global equity managers, one active with the Authority in order to resolve the emerging market equity manager, two active conflict. bond managers, one private equity manager, 4. Managers must not enter into soft one property manager, two active currency commission arrangements in respect of the managers and holdings in shareholder funds they manage on behalf of the Fund activism funds, infrastructure and company unless those arrangements have been loans. (See Appendix B for asset allocation approved by the Authority. and Appendix C for details of individual 5. The Authority must be able to terminate investment managers’ mandates). the appointment of any manager by giving Managers’ performance against their agreed not more than one months notice. targets will be monitored and reviewed each

Statement of Investment Principles 59 Responsibilities

ISC Responsibilities Custodian Responsibilities 1. To approve and annually review the content 1. To safeguard all segregated assets of the SIP. (excluding direct property holdings, unitised holdings and cash held separately 2. To appoint and review investment with either the Authority or investment managers, custodian and advisors. managers) within the Fund and ensure 3. To assess the quality and performance that all associated income is collected, of each investment manager annually in including dividends and tax reclaims. conjunction with investment advisers and Also to ensure that corporate actions the Chief Financial Officer. affecting the securities are dealt with, including rights issues, bonus issues and 4. To set the investment parameters within acquisitions. which the investment managers can operate and review these annually. 2. To provide regular statements of transactions, corporate actions, income 5. To monitor compliance of the investment and asset valuations as required by the arrangements with the SIP. Authority. 6. To assess the risks assumed by the Fund at 3. To report to the ISC in person on the assets a global level as well as on a manager by of the Fund if required. manager basis. 4. To inform the Fund of any areas of concern 7. To approve and review the asset allocation which arise in its dealings with investment benchmark for the Fund. managers. 8. To submit quarterly reports on its activities to the Essex Pension Fund Board.

60 Statement of Investment Principles Audit Responsibilities annual report as a whole and the accounts 1. The Fund is subject to review by both contained in it and then report: the County Council’s External Auditors • whether the accounts contained in the (The Audit Commission) and internally by annual report are consistent with the Internal Audit. financial statements on which the audit opinion was given; and 2. The Pension Fund financial statements • that other information in the annual contained in the Council’s Annual report is not inconsistent with the Statement of Accounts present fairly: financial statements on which the audit • the financial transactions of its Pension opinion was given. Fund during the year; and • the amount and disposition of the Fund’s 3. Internal Audit carry out a programme of assets and liabilities, other than liabilities work designed to reassure the Section to pay pensions and other benefits after 151 Officer that Fund investment systems the end of the scheme year. and records are properly controlled to safeguard the Fund’s assets The External Auditor audits the Pension Fund financial statements and gives their 4. Investment Managers and Custodians opinion, including: are subject to regulation by the Financial • whether they present fairly the financial Services Authority and are required to position of the Pension Fund and its provide their customers with Internal expenditure and income for the year in Financial Controls reports which have been question; and prepared by their auditors. These reports form part of the overall assurance and • whether they have been prepared control mechanism for the Fund. properly in accordance with relevant legislation and applicable accounting standards; In carrying out their audit of the financial statements, auditors will have regard to the concept of materiality. Additionally the Council must prepare a Pension Fund annual report which should contain the Pension Fund account and net asset statement with supporting notes and disclosures. External Audit will review the

Statement of Investment Principles 61 Investment Limits

The overriding limits that apply for the investments and types of investments); different types of pension fund investments and are set out in the Regulations. These • the decision must specify certain matters regulations allow an administering and those matters must be published in a authority to increase some of those limits revised statement of investment principles up to specified amounts. When deciding to before they can take effect. increase or review limits, the administering Having taken proper advice, from both authority must: external investment advisers and its own • take account of proper advice and officers, and having taken account of the of the factors in Regulation 9 (3) of factors in Regulation 11(2) of the Regulations, the Regulations (the advisability of the ISC has decided to increase the following investing fund money in a wide variety of investment limits as set out below: investments and the suitability of particular

a. the description all contributions all contributions to investment in any of the investment to any single partnerships single insurance partnership contract

b. the limit on limit increased from limit increased from 5% from 25% of the total the amount of the 2% of total fund to of total fund to 15% of fund to 35% of the investment 3% of total fund total fund total fund c. the reason for to permit up to 3% to permit additional to permit additional the decision of the total fund investment in private investment in the to be invested in a equity, infrastructure, pooled funds of the single infrastructure shareholder activism Fund’s passive index fund organised as a and property tracking manager partnership partnerships

d. the period for for a period of for a period of 10 years for a period of 10 years which the decision 10 years from from 31 March 2008. from 27 July 2005 will apply; 31 March 2008.

The above decisions comply with the Regulations.

62 Statement of Investment Principles General Fund Investment Restrictions

The Fund is subject to the overall restrictions 3. The use of derivatives is restricted specified in the Regulations, modified in to efficient portfolio management in certain instances by the Administering circumstances where the impact on any Authority as set out above. In addition the mandate or on the fund overall is tightly controlled by explicit limits on risk that Council has determined that the following have been explicitly agreed by the ISC. restrictions should be applied:- A cap of 10% of the total value of each A. For the Fund as a whole investment manager’s portfolio on the total 1. Asset allocation benchmarks will be set by economic exposure to derivatives must not the ISC to ensure that the Fund’s assets are be exceeded without the prior consent of adequately diversified. the CFO. 2. Cash held in house by the Authority on 4. Hedging of the overseas currency exposure behalf of the Fund shall not normally of the Fund is permitted for the purpose exceed £5 million unless in line with of protecting against possible adverse investment policy. fluctuations in the pounds sterling values of investments or cash in the Fund 3. The cash holdings of individual investment denominated otherwise than in pounds managers will be monitored and reported sterling. Managers will be allowed some upon. latitude to use forward currency contracts B. For each individual Investment Manager to implement active currency views, 1. Approval must be sought by each provided that the aggregate risks across individual investment manager for any the portfolio remain within the limits new investments in the unlisted securities explicitly agreed by the ISC under the of companies, in-house unit trusts, open- terms of the mandate. ended investment companies or insurance 5. Underwriting of shares can only be contracts, including sub-underwriting undertaken for investment purposes and contracts. must not be entered into for short term 2. Individual investment managers must not trading. hold more than 5% of equity capital of an 6. Investments of cash by investment individual company on behalf of the Fund. managers must be in line with their However, in exceptional circumstances, individual management agreements which the CFO may increase this limit to 10%, limit the amount that can be invested in but details of these must be reported any single institution. to the next ISC meeting. Managers are responsible for reporting any possible 7. Controls have been agreed on the extent of exceptions before they occur. the positive positions which a manager can take on individual UK equities relative to

Statement of Investment Principles 63 the proportion which that stock represents in the Index. Where the market weighting of an individual stock exceeds 10% of the Index, exposure to that stock is limited to 2% more than the market weighting as a proportion of the overall UK equities in the mandate. The monitoring of holdings is the responsibility of the individual investment managers.

64 Statement of Investment Principles Partnership Investments

The ISC will scrutinise proposed partnership agreements and only enter into them if the terms of the agreements are appropriate and the purpose of the partnership supports the asset allocation strategy. The amount invested in any single partnership at the time of commitment must not exceed 3% of the Fund. Total investment in all partnerships at the time of commitment must not exceed 15% of the Fund.

Statement of Investment Principles 65 Socially Responsible Investments

1. The ISC does not place restrictions on investment managers in choosing investments in quoted companies except in limiting the size of single investments. We expect the companies in which we invest to adopt and pursue socially responsible business practices. 2. The ISC will intervene if investments are made in companies whose behaviour is seen as unacceptable because of environmental considerations and other social implications. Intervention is likely to be extremely rare as companies are aware of the increasing sensitivity of investors.

66 Statement of Investment Principles Corporate Governance

1. The Fund fully supports the principles of 3. Overseas Shares responsible share ownership and requires The Organisation for Economic Co- investment managers who hold shares operation and Development (OECD) has on its behalf to act as responsible share produced a set of Corporate Governance owners. Principles and the International Corporate Governance Network (ICGN) a set of Global 2. UK Shares Corporate Governance Principles which The National Association of Pension provide widely accepted standards for Funds “NAPF” has produced a Corporate corporate governance in many countries Governance Policy that the Fund believes and which the Fund believes are suitable encapsulates the principles of responsible principles to apply to achieve responsible share ownership. The Fund recommends share ownership. that its investment managers should follow NAPF Corporate Governance Policy The Fund recommends that its investment in managing the UK shares they hold on managers should follow OECD Corporate the Fund’s behalf. However where for Governance Principles and ICGN Global whatever reason they do not deem this to Corporate Governance Principles in be appropriate they are required to report managing the overseas shares they hold back to the ISC to obtain agreement to on the Fund’s behalf. However where for alternative arrangements. whatever reason they do not deem this to be appropriate they are required to report back to the ISC to obtain agreement to alternative arrangements.

Statement of Investment Principles 67 Stock Lending

1. Segregated Investments 2. Pooled Investments The Fund does not participate in stock In regard to the Fund’s pooled investments, lending schemes nor allow its stock to be where the Fund is buying units in a pooled lent. vehicle, stock lending is outside the control of the Fund and undertaken at the discretion of the pooled fund manager.

68 Statement of Investment Principles Appendix A

Essex Pension Fund Investment Steering Committee Core Investment Beliefs

1. Long term approach classes (including property) is also a. Local authority funds take a long term expected to reduce overall volatility of view of investment strategy the Fund’s funding level This is largely based on covenant. Given that the returns from different Unlike the private sector, the covenant asset classes are expected to be underlying the Fund is effectively gilt- delivered in different cycles (i.e. not be edged. This means that short term directly correlated with equity returns), volatility of returns can be acceptable the use of alternative assets can reduce in the pursuit of long term gain. Whilst overall volatility in the delivery of Fund there is a need to consider stability of returns without leading to a significant contributions, at current maturity levels reduction in overall expected return, and with deficits spread over 20 years, therefore increasing efficiency. it is largely the future service rate which b. In the context of LA funds (open, long is expected to drive instability. One of duration, not maturing quickly and the best ways to avoid this is to build in with high equity content), an allocation margins over the long term. to bonds does not offer a match to b. Over the long term, equities are liabilities, but additional diversification. expected to outperform other liquid Where bonds are not used for liability asset classes, particularly bonds matching purposes, an allocation to Given 1. a. above, there is a preference these assets can be beneficial from an for a significant allocation to equities in overall risk/return perspective improving the Fund as over the long-term as they the overall efficiency of the Fund. The are expected (but not guaranteed) to corollary to this is that bond benchmarks outperform other asset classes. do not necessarily have to reflect the nature and duration of the liabilities (see c. Allocations to asset classes other than benchmark section below), but should equities and bonds expose the Fund to be set to provide managers with the other forms of risk premium sufficient scope to add value. Investors with a long term investment c. The overweight to UK equities in most horizon and little need for immediate UK pension funds is historic and loosely liquidity can use this to their benefit as it based on currency exposures, rather offers the ability to capture the illiquidity than a preference for the UK market premium on many asset classes, such as private equity and infrastructure. Although historically the UK may have benefited from better corporate 2. Diversification governance, and therefore a higher a. Diversification into alternative asset return, increasingly the rest of the world

Statement of Investment Principles 69 is catching up and UK equities are therefore preferred in order to maintain not expected to outperform overseas an appropriate level of diversification equities over the long term. Given the across markets. This is particularly concerns over market concentration the case when the allocations are in the UK market and an increased maintained by a passive “swing” opportunity set overseas a move manager. towards increased overseas allocation f. Emerging market economies may be relative to the UK seems appropriate. expected to outperform over the long Concerns about currency risk can be term as the economy develops and the addressed by a separate currency risk premium falls hedging programme. As emerging markets develop both d. Benchmarks politically and economically, become Where appropriate, benchmarks should more robust and less dependent on the represent the full opportunity set. fortunes of a small number of developed economies (such as the US), the risk For example, for a global equity of investing in these countries should mandate, a market capitalisation decrease. The return demanded by (“market cap”) weighted benchmark investors for investing in these ‘riskier’ reflects a passive allocation to the countries will therefore fall reflecting market (analogous to investing in a the increased security. This reduction in passive equity mandate and investing required return would tend to lead to a in each stock according to its size). It systematic increase in stock prices. As a therefore reflects the investable universe result, a strategic allocation to emerging of stocks available and represents the markets of at least the market cap starting point for an equity benchmark. weight if not slightly above is favoured. e. To some extent market cap weighted g. Bond benchmarks do not need to reflect indices reflect past winners, so should the nature and duration of the liabilities be treated with caution As discussed in the diversification The regional exposures in the World section above, if bonds are not held for Index are a function of the relative liability matching purposes, benchmarks market cap of the regional stockmarkets. should be set in order to maximise the In turn, these are a function of the scope for adding value. size of the economy as a whole and how well companies have performed 3. Active versus passive management in that economy. One measure of the a. Passive management is appropriate size of the economy could be its overall for obtaining a low cost allocation to contribution to global GDP. However, efficient markets as has been seen in the UK, many Where markets offer little scope companies in the market have little for adding value through active exposure to the domestic economy management (such as individual and, again, this should not be adhered allocations to UK equities, US equities to too slavishly. At the total fund level and gilts) passive management a fixed weights regional benchmark is is preferred as a low cost way of

70 Statement of Investment Principles accessing the market. This does not e. A rigorous approach to active manager include emerging markets where the selection improves the chance of risk inherent in the market (although appointing an active manager who will improving as stated above) and add value over the long-term inefficiency of the market lends itself to An active manager must outperform active management. their benchmark after fees to add value. b. Active management is appropriate The selection of an active manager must where a market is relatively inefficient assess more than just past performance offering opportunities for active and look into the infrastructure managers to add value supporting the performance including; business and ownership, philosophy Where markets offer substantial scope and process, people, risk controls and for added value active management fees. would seem appropriate as a way of increasing overall expected return (after f. The Fund does not have the governance fees) without significantly increasing the structure in place to take tactical views overall level of volatility in the funding and market timing is very difficult level. Both timing investments into the market c. Constraints on active managers reduce and taking tactical views are very their ability to add value difficult given the governance structure in place and the time taken to agree and Active managers should not be implement decisions. Where possible unnecessarily constrained (within these decisions are left to professional appropriate risk limits) and should be investment managers who are closer given the maximum scope to implement to the market and can implement their active views. There is therefore a tactical views in a more timely fashion. preference for unconstrained mandates This highlights the importance of not e.g. unconstrained global equity unnecessarily constraining active mandates and unconstrained bond managers and providing them with mandates such as M & G’s LIBOR plus appropriate scope. approach. This also suggests that, within reason, managers’ requests for g. The assessment of active management additional scope should be acceded to. performance should be taken with a long-term view and take account of the d. A degree of diversification of managers market environment in which returns are improves the efficiency of the overall delivered structure (i.e. improves the expected return per unit of risk) Active management is cyclical and periods of underperformance from Active manager performance is investment managers should be expected to be cyclical and therefore expected so the structure should be by appointing a number of managers such that when the market cycle is the delivery of returns is expected to unfavourable for some managers it is be less volatile. However, too much favourable for others and vice versa. diversification can lead to expensive This is expected to deliver added value index tracking.

Statement of Investment Principles 71 over the long-term whilst smoothing the overall performance at the total Fund level. Churning of managers leads to additional costs; however, where the ISC no longer views an investment manager’s prospects as positive over the long-term, action should be implemented as soon as possible due to the potential downside risk.

72 Statement of Investment Principles Appendix B 0 0 0 0

Company . Loans 1 100 . 100 . 100 .

0 0 0 0

.

Private Equity 4 100 . 100 . 100 .

5 0 0 0

.

Infra– structure 2 100 . 100 . 100 .

0 0 0 0 0

.

Currency 3 Alternatives 50 . 50 . 100 . 100 .

0 0 0 0

.

Activism 2 100 . 100 . 100 .

0 0 0 0

Property 12 . 100 . 100 . 100 .

0 0 0 0

.

M&G 5 100 . 100 . 100 .

Bonds 5 0 0 0

.

GSAM 5 100 . 100 . 100 .

0 0 0 0

.

First State 4 100 . 100 . 100 .

0 0 0 0

.

Alliance Bernstein 7 100 . 100 . 100 .

0 0 0 0

.

Baillie Gifford 7 100 . 100 . 100 . Equities

0 0 0 0

.

Marathon 7 100 . 100 . 100 .

0 0 0 0

.

Fidelity 7 100 . 100 . 100 .

8 0 4 2 8 8 5 5 6 5 0 0

.

.

.

3 6 L&G 0 11 . 84 . 33 . 15 . 19 . 25 . 13 . 19 . (swing) Passive Balanced 100 .

% % 0 0 8 5 2 5 0 0 2 9 0 5 5 4 0 0 0 5 0 0 0 0 0 ...... Effective . 3 1 5 5 2 7 2 6 2 1 4 4 4 63 . 15 . 10 . 28 . 12 . 21 . Benchmark 69 . 31 . 100 . 100 . UK index linked UK Gilts UK Corps Libor+ Emerging markets Total Equities Pacific ex-Japan Fund Weighting Total bonds North America UK equities Infrastructure Japan Europe Global equities Shareholder activism Private equity Company loans Property Total alternatives Total Growth Income Essex Pension Fund – Target Structure as at 30 July 2009 Structure Target – Fund Essex Pension

Statement of Investment Principles 73 Appendix C

% % or 0 % % or

0 . 9 12 . % p.a. 9 % or less p.a. 25 % p.a. 0 % to . . Target tracking tracking Target error* Note 1 Ex-post less p.a.* Note 4 4 Ex-post less p.a.* Note 4 2 3

year year 5 - year periods year periods year periods year periods year periods year periods year periods year periods

3 3 5 5 3 3 3 3 3 3 year periods 3 - 5 years. Period for measurement Ongoing Ongoing Rolling periods Rolling Rolling Rolling cycle* market Full Note 5 Rolling Investment cycle* Note 6 Rolling Rolling Rolling Rolling % % % % % 0 0 0 0 25 % 0 . . . . 3 4 1 1 ex-post – projected possible range of future returns Full market cycle – A rising and a falling market taken together. An average market cycle is Investment cycle – Rolling After fees Benchmark + To exceed the the exceed To benchmark Benchmark + Benchmark + Benchmark + Benchmark + 18 . Benchmark + 20 . 4 : 5 : 6 : % % % % 0 0 0 0 . . . . *Note *Note *Note 2 3 3 1 Performance Target Before fees To track the index* Note 3 To track the index* Note 3 Benchmark + Benchmark + Benchmark + Benchmark +

Note 2

500 Index 100 Index FTSE S & P Benchmark World All FTSE Index MSCI World Index World AC MSCI Index MSCI World Index Emerging MSCI Index Free Markets UK (in Unhedged Sterling) Sterling iBoxx nonGilts index sterling One-month LIBOR Multi-index* Indices Multi-index* Note 2 * Multi-index MSCI World Index Note 2

Mandate Type Equities Passive Swing Bonds Passive Swing Global Equities – Equities Global segregated – Equities Global pooled Global Equities Global Equities Markets Emerging Equities Bonds Bonds Property Active Currency Active Currency

Target tracking error - the range of returns likely in the portfolio relative to its benchmark/index Multi-index - a separate index is applied to each sub-asset class To track the index - Seeks to attain performance equal to the specified index returns. Invest in the same shares and in the same proportions as those in the index being tracked.

1 : 2 : 3 : Mandates: Performance Objectives Mandates: Performance First State Manager GSAM Explanatory Notes *Note Legal & General Legal & General Fidelity Marathon Marathon Baillie Gifford Alliance Bernstein M & G Aviva Mellon Record *Note *Note

74 Statement of Investment Principles Investment Decision Making and Disclosure in the LGPS Statement of Compliance

The position of the Essex Pension Fund “the Fund” in relation to the statutory guidance issued by CIPFA is set out below.

Principle Extent of compliance Full Partial Not 1. Effective Decision Making 3 Areas of non compliance and explanation While the roles of some officers are set down clearly in the Constitution this needs to be extended to all officers. While the Essex County Council appointments to the committee have been based on consideration of relevant skills, experience and continuity it needs to be confirmed with other nominating authorities if the same is true of their appointments. The SIP needs to be amended to provide a complete differentiation and specification for members, officers, external advisors and managers. The training arrangements which are well developed need to be reviewed in the light of the issuance of the CIPFA knowledge and skills framework. Consideration needs to be given to including standing orders in the Member handbook. Provision of the training plan for members is currently a shared responsibility. While the allowances paid to Essex County Council elected members are set out in a published allowances scheme, regularly reviewed in the way described and have regard to the types of matters mentioned, it needs to be confirmed with other nominating authorities if the same is true of their allowances. No additional allowances are paid by Essex County Council for attendance at the meetings of the Essex Pension Board or ISC. The issue of whether the single UNISON representative is allowed adequate time off from their normal duties to attend meetings and to read the papers has to be referred to UNISON as he is not an Essex County Council employee. While the business plan arrangements are in place some aspects of performance measurement and financial estimating are still under development and it does not currently detail external resources used. The Fund does not currently have an administration strategy. Action to be taken The regulations and guidance have been issued at such short notice and are so voluminous that it has not proved possible in the time allowed to carry out the actions necessary to achieve full compliance. However the following actions are planned to be

StatementFunding of Investment Strategy PrinciplesStatement 75 carried out in 2010/11 and are expected to bring the Fund into full compliance with the guidance: • The rules of conduct for the Pension Board and ISC and the standing orders will be included in the Member Handbook. • The basis of nominations to the Pension Board and ISC and the approach to member allowances will be clarified with nominating bodies. • It will be clarified with UNISON whether their nominee is allowed adequate time for preparation for meetings. • A section will be added to the SIP on the role of external advisers. • Provision of the training plan for members will be added to the CFO’s responsibilities (this work has already been commissioned from the Independent Governance and Administration Adviser). A training statement describing actions taken and progress made will be included in the annual report. • The business plan will be further developed to include a medium term perspective and the use of external resources. • A comprehensive administration strategy will be drawn up and put out to consultation.

Principle Extent of compliance Full Partial Not 2. Clear Objectives 3 Comment/Justification The range of asset classes considered at the annual review of investment strategy is very broad but may not include all asset classes available to investors. Although value for money and efficiency are important priorities for the Fund, its business plan does not currently highlight that aim in its objectives and all aspects of its operations. The Fund does not have in place clear performance objectives and a performance measurement framework for its advisers. Fully compliant in regard to transaction related costs in transition management contracts and in monitoring normal investment management contracts but not compliant in regard to letting contracts for normal investment management. Action to be taken The regulations and guidance have been issued at such short notice and are so voluminous that it has not proved possible in the time allowed to carry out the actions necessary to achieve full compliance. However the following actions are planned to be carried out in 2010/11 and are expected to bring the Fund into full compliance with the guidance: • The process used to determine the Fund’s asset allocation will be reviewed to ensure that the decision making process is transparent. • The inclusion of appropriate performance objectives and a performance measurement framework in contracts will be discussed with investment advisers and built into the next contract with investment consultants. • We will consider with investment advisers and consultants the extent to which transaction-related costs should be a consideration in letting and monitoring investment management contracts.

76 Statement of Investment Principles Principle Extent of compliance Full Partial Not 3. Risk and Liabilities 3 Comment/Justification Investment management agreements generally show the range of returns likely rather than acceptable. A description of the risk assessment framework used for potential and existing investments does not appear in the Fund’s SIP. The Fund has adopted a customised (scheme specific) benchmark. Although it is formulated having regard to the level of risk, both active and market, considered acceptable the actual level of risk being taken is not clearly quantified. Although some aspects of the risk assessment undertaken by the Fund appear in the annual report under the Funding Strategy Statement, no overall risk assessment is included. Action to be taken The regulations and guidance have been issued at such short notice and are so voluminous that it has not proved possible in the time allowed to carry out the actions necessary to achieve full compliance. However the following actions are planned to be carried out in 2010/11 and are expected to bring the Fund into full compliance with the guidance: • The SIP will be revised to show a formal risk assessment framework which makes clear the actual level of risk being taken. • The business plan now includes a requirement for a report on risk management to be brought to each meeting of the Pension Board. • A risk assessment will be included in the Fund’s annual report.

Principle Extent of compliance Full Partial Not 4. Performance Assessment 3 Comment/Justification The Fund does not have in place a formal performance framework against which to measure the cost, quality and consistency of advice received from its actuaries. The Fund does not have in place a formal performance framework against which to measure its consultants on issues such as the appropriateness of asset allocation recommendations (bearing in mind the nature of the liabilities), the quality of advice in choosing benchmarks and any related performance targets and risk profiles, the quality and appropriateness of the investment managers that are recommended, and the extent to which advisors are proactive and consistent in recommending subsequent changes. The business plan is constructed to show expected progress and performance standards against a number of detailed areas but not the specific matters highlighted in the guidance. Action to be taken The regulations and guidance have been issued at such short notice and are so voluminous that it has not proved possible in the time allowed to carry out the actions

StatementFunding of Investment Strategy Statement Principles­­­­­­­ 77 77 necessary to achieve full compliance. However the following actions are planned to be carried out in 2010/11 and are expected to bring the Fund into full compliance with the guidance: • An appropriate performance measurement framework will be discussed with advisers and built into the next contracts for investment consultancy, investment advice and actuarial services. • The business plan provides for an annual assessment of the effectiveness of the Pension Board and the services supplied to it. The exercise will be extended to include the areas recommended and the assessment included in the annual report.

Principle Extent of compliance Full Partial Not 5. Responsible Ownership 3 Comment/Justification ESG issues have not been a prominent feature of the investment manager selection process to date. The Fund has not ensured that its investment managers have an explicit strategy on intervention in place. The Fund has not ensured that its investment consultants have adopted the Institutional Shareholders’ Committee statement of practice in regard to consultants. It is not known if the Fund’s Investment managers comply with the Institutional Shareholders’ Committee Statement of Principles on the responsibilities of shareholders and agents. Action to be taken The regulations and guidance have been issued at such short notice and are so voluminous that it has not proved possible in the time allowed to carry out the actions necessary to achieve full compliance. However the following actions are planned to be carried out in 2010/11 and are expected to bring the Fund into full compliance with the guidance: • The ISC will discuss ESG and responsible ownership issues and consider if further action is appropriate. • Adoption by investment consultants of the Institutional Shareholders’ Committee statement of practice will be considered in the current investment consultancy tendering exercise.

78 Statement of Investment Principles Principle Extent of compliance Full Partial Not 6. Transparency and Reporting 3 Comment/Justification The Fund does not have a single clear policy statement on the matters on which stakeholders will be consulted or informed. The Fund does not currently publish information on fee structures in the SIP Action to be taken The regulations and guidance have been issued at such short notice and are so voluminous that it has not proved possible in the time allowed to carry out the actions necessary to achieve full compliance. However the following actions are planned to be carried out in 2010/11 and are expected to bring the Fund into full compliance with the guidance: • The Fund’s Communication Policy Statement will be revised to provide a single clear policy statement on the matters on which stakeholders will be consulted or informed. • The information published in regard to investment management fee structures will be reconsidered when the SIP is next reviewed.

Statement of Investment Principles 79 Funding Strategy Statement 2008 as at 31 March 2008

This Statement has been prepared by Essex County Council (the Administering Authority) to set out the funding strategy for the Essex Pension Fund (the Fund), in accordance with Regulation 76A of the Local Government Pension Scheme Regulations 1997 (as amended) and the guidance paper issued in March 2004 by the Chartered Institute of Public Finance and Accountancy (CIPFA) Pensions Panel.

80 Funding Strategy Statement Additional Information: Funding Strategy Statement

­­­Contents

Page 82 Introduction 83 Purpose of the FSS in policy terms 84 Aims and purpose of the Fund 85 Responsibilities of the key parties 86 Solvency issues and target funding levels 90 Link to investment policy set out in the SIP 94 Identification of risks and countermeasures 96 Monitoring and Review 97 Schedule A - Employers who will be given the opportunity to phase in the increase in their deficit recovery contributions over the 3 year period 2005/06 to 2007/08 98 Schedule B - Funding strategy risk assessment 101 Appendix

Funding Strategy Statement 81 Introduction

The Local Government Pension Scheme Government Pension Scheme (the Scheme) (England and Wales) (Amendment) are guaranteed by statute and therefore Regulations 2004 provide the statutory the pensions promise is secure. The FSS framework from which the Administering addresses the issue of managing the need Authority is required to prepare a Funding to fund those benefits over the long term, Strategy Statement (FSS). The key whilst at the same time, facilitating scrutiny requirements for preparing the FSS can be and accountability through improved summarised as follows: transparency and disclosure. • After consultation with all relevant The Scheme is a defined benefit final interested parties involved with the Fund salary scheme under which the benefits the Administering Authority will prepare are specified in the governing legislation and publish their funding strategy; (the Local Government Pension Scheme Regulations 1997 (as amended))(“the • In preparing the FSS, the Administering Regulations”). The required levels of Authority must have regard to:- employee contributions are also specified in • the guidance issued by CIPFA for this the Regulations. purpose; and Employer contributions are determined in • the Statement of Investment Principles accordance with the Regulations (principally (SIP) for the Fund published under Regulation 77) which require that an Regulation 9A of the Local Government actuarial valuation is completed every three Pension Scheme (Management and years by the Actuary appointed by the Fund, Investment of Funds) Regulations 1998 including a rates and adjustments certificate. (as amended); Contributions to the Fund should be set so as • The FSS must be revised and published to “secure its solvency”, whilst the Actuary whenever there is a material change in the must also have regard to the desirability policy on the matters set out in either the of maintaining as nearly constant a rate of FSS or the SIP. contribution as possible. The Actuary must have regard to the FSS in carrying out the valuation.

Benefits payable under the Local

82 Funding Strategy Statement Additional Information: Funding Strategy Statement

Purpose of the FSS in policy terms

Funding is defined as the making of advance The intention is for this strategy to be both provision to meet the cost of accruing benefit cohesive and comprehensive for the Fund promises. Decisions taken regarding the as a whole, recognising that there will approach to funding will therefore determine be conflicting objectives that need to be the rate or pace at which this advance balanced and reconciled. Whilst the position provision is made. Although the Regulations of individual employers must be reflected specify the fundamental principles on which in the statement, it must remain a single funding contributions should be assessed, strategy for the Administering Authority to implementation of the funding strategy is the implement and maintain. responsibility of the Administering Authority, acting on the professional advice provided by the Actuary. The purpose of this FSS is: • to establish a clear and transparent fund- specific strategy which will identify how employers’ pension liabilities are best met going forward; • to support the regulatory requirement to maintain as nearly constant employer contribution rates as possible; and • to take a prudent longer-term view of funding those liabilities.

Funding Strategy Statement 83 Aims and purpose of the Fund

The aims of the Fund are to: • enable employer contribution rates to be kept as nearly constant as possible; • manage employers’ liabilities effectively; • ensure that sufficient resources are available to meet all liabilities as they fall due; and • maximise the returns from investments within reasonable risk parameters.

The purpose of the Fund is to: • receive monies in respect of contributions, transfer values and investment income; and • pay out monies in respect of scheme benefits, transfer values, costs, charges and expenses, as defined in the Local Government Pension Scheme Regulations 1997 (as amended) and in the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 (as amended).

84 Funding Strategy Statement Additional Information: Funding Strategy Statement

Responsibilities of the key parties

Although a number of parties, including • make additional contributions in investment fund managers, investment accordance with agreed arrangements advisers and external auditors, have in respect of, for example, augmentation responsibilities to the Fund, the key parties of scheme benefits and early retirement for the strategy are seen as the Administering strain; and Authority, each individual employer and the Fund Actuary. • notify the Administering Authority promptly of all changes to membership or, other changes proposed, which affect future funding. The Administering Authority should: • collect employer and employee contributions; The Fund Actuary should: • invest surplus monies in accordance with • prepare valuations, including the the Regulations; setting of employers’ contribution rates, after agreeing assumptions with the • ensure that cash is available to meet Administering Authority and having regard liabilities as and when they fall due; to the FSS; • manage the valuation process in • prepare advice and calculations in consultation with the Fund Actuary; connection with bulk transfers and • prepare and maintain an FSS and a SIP, individual benefit-related matters; and both after due consultation with interested • advise on funding strategy, the preparation parties; and of the FSS, and the inter-relationship • monitor all aspects of the Fund’s between the FSS and the SIP. performance and funding and amend the FSS/SIP when necessary.

The Individual Employer should: • deduct contributions from employees’ pay correctly; • pay over all contributions, including their own as determined by the Fund Actuary, promptly by the due date; • exercise discretions within the regulatory framework;

Funding Strategy Statement 85 Solvency issues and target funding levels

To meet the requirements of the Regulations • we have a large number of employing the Administering Authority’s long-term bodies with different characteristics funding objective is to achieve and then including size and strength of covenant. maintain assets equal to 100% of projected As part of each valuation separate employer accrued liabilities (the “funding target”), contribution rates are assessed by the assessed on an ongoing basis including actuary for each participating employer allowance for projected final pay. or group of employers. These rates are The principal method and assumptions to be assessed taking into account the experience used in the calculation of the funding target and circumstances of each employer (or and determining employer contributions are employer grouping), following a principle set out in the Appendix. of no cross-subsidy between the various employers in the Scheme. In attributing the The method and assumptions making up the overall investment performance obtained on funding strategy and as adopted for the 2007 the assets of the Scheme to each employer a actuarial valuation have been determined in pro-rata principle is adopted. This approach accordance with the following principles: is effectively one of applying a notional • our long-term aim is to achieve 100% individual employer investment strategy funding of pension liabilities; identical to that adopted for the Scheme as a whole. • the Scheme is expected to continue for the foreseeable future; The effective date of the current actuarial valuation of the Fund is 31 March 2007. • favourable investment performance can The preliminary results of the valuation play a valuable role in achieving adequate indicate that overall the assets of the Fund funding over the longer term; represented 80% of projected accrued • we wish to minimise fluctuations in liabilities at the valuation date. employers’ contributions in order to assist The Administering Authority after due them with their financial planning and to meet consideration of all of the information their financial responsibilities to the Fund; available to it including consultation with • the Fund is relatively immature in terms the Fund Actuary and other interested of its membership profile with a high parties, has adopted the following objectives proportion of contributors and we can for setting employer contribution rates to therefore take advantage of that fact in achieve the funding target: setting our investment strategy;

86 Funding Strategy Statement Additional Information: Funding Strategy Statement

• we will set employers’ contribution rates • safeguard the interests of the Fund by having to achieve 100% funding of liabilities in regard to the strength of covenant and the the long term; financial stability of the grouped employers. • employer contribution rates will be made • Schools, including former grant up of two separate rates: maintained schools, will be treated as • an ongoing rate to recover the costs of part of the local education authority future service; and within whose area of responsibility they • a deficit recovery rate to recover the fall for the purpose of setting contribution shortfall revealed by the actuarial rates and deficit recovery periods. Any valuation; discretions in respect of these matters will fall to the local education authority. • we will for the purpose of our administration, the calculation of • we will set maximum deficit recovery contribution rates and for the setting of periods for the remaining employers but maximum deficit recovery periods, deal with will leave them the freedom to decide certain employers and types of employers to repay their share of the deficit over a in discrete groups as set out below: shorter period should they so choose. The • town and parish councils; and maximum deficit recovery periods will be • those small admission bodies that set at levels that: were members of the small admission • are likely to reduce the level of deficit bodies group as at 1 April 2007; during the inter-valuation period if all of the Actuary’s assumptions prove correct; • we will set deficit recovery periods for the and above groups of employers. Those deficit • safeguard the interests of the Fund by recovery periods will be set at levels that: having regard to the strength of • are likely to reduce the level of deficit covenant and the financial stability of during the inter-valuation period if all of individual employers. the Actuary’s assumptions prove correct; and

Funding Strategy Statement 87 The deficit recovery periods for the grouped emplo­yers will be as follows:

Employer Category Deficit Recovery Period Town and parish councils 20 years Small admission bodies The average remaining working life of small admission bodies’ work-forces as at 1 April 2007

The maximum deficit recovery periods for other employers will be as follows:

Employer Category Maximum Deficit Recovery Period Scheme employers 20 years Arms length management 20 years organisations of scheme employers Care trusts 20 years Admission bodies working Either the period that the contract still has to run or on contracts for scheme 20 years whichever is the shorter period. employers Other admission bodies The average remaining working life of the employer’s work-force as at 1 April 2007

88 Funding Strategy Statement Additional Information: Funding Strategy Statement

• that certain individual employers, In determining the above objectives the detailed in Schedule A, will be given the Administering Authority has had regard to: opportunity to phase in the increase in their ongoing rate contributions in • the responses made to the consultation combination with their changed deficit with employers on the FSS principles; recovery contributions in steps over the 3 year period 2008/09 to 2010/11. • the need to balance a desire to attain the target as soon as possible against the • that for the grouped employing bodies major increases in the level of employers’ (small admission bodies and town & parish contributions which a shorter period councils) deficit recovery contributions and would require; and ongoing rate contributions will be phased in, in steps over the 3 year period 2008/09 • The Administering Authority’s views on the to 2010/11 strength of the participating employers’ covenants in achieving the objective. • on the cessation of an employer’s participation in the Scheme, the actuary will be asked to make a termination assessment. Any deficit in the Scheme in respect of the employer will be due to the Scheme as a termination contribution, unless it is agreed by the Administering Authority and the other parties involved that the assets and liabilities relating to the employer will transfer within the Scheme to another participating employer.

Funding Strategy Statement 89 Link to investment policy set out in the SIP

The preliminary results of the 2007 valuation declared funding level would have been show the liabilities to be 80% covered by the correspondingly reduced, to approximately 62%. current assets, with the funding deficit of 20% Departure from a least risk investment being covered by future deficit contributions. strategy, in particular to include equity In assessing the value of the Fund’s investments, gives the prospect that out- liabilities in the valuation, allowance has performance by the assets will, over time, been made for asset out-performance as reduce the contribution requirements or described in the Appendix, taking into at the minimum contribute to offsetting account the investment strategy adopted by increases in contributions arising from the Fund, as set out in the SIP. issues such as increased longevity. The funding target might in practice therefore It is not possible to construct a portfolio be achieved by a range of combinations of investments that produces a stream of funding plan, investment strategy and of income exactly matching the expected investment performance. liability payment stream. However, it is possible to construct a portfolio that closely The current benchmark investment strategy, matches the liabilities and represents the as set out in the SIP, is: least risk investment position. Such a With regard to the investments of the Fund portfolio would consist of a mixture of long- the objective is to maximise returns within term index-linked and fixed interest gilts. an acceptable risk profile. In 2001 the Fund Investment of the Fund’s assets in line with adopted a customised benchmark, which the least risk portfolio would minimise set out the strategic asset allocation for fluctuations in the Fund’s ongoing funding the Fund. This was agreed following the level between successive actuarial valuations. consideration of a detailed asset liability modelling exercise, taking account of If, at the valuation date, the Fund had the specific characteristics of the Fund. been invested in this portfolio, then in (That original customised benchmark has carrying out the valuation it would not be subsequently been updated to reflect appropriate to make any allowance for current thinking.) Such a study requires out-performance of the investments. On assumptions to be made regarding returns this basis of assessment, the assessed on the Fund’s assets and in this connection, value of the Fund’s liabilities at the 2007 in preparation for the 2007 Valuation, valuation would have been significantly Hymans Robertson were asked to update the higher, by approximately 29%, and the

90 Funding Strategy Statement Additional Information: Funding Strategy Statement

investment expectations for the Fund. The this would imply a long term strategic following is a summary of their findings: expected return of 7.06% p.a. on an arithmetic weighted average of these Expected strategic return on assets individual returns. This does not take At 31 March 2007, Hymans Robertson’s account of any expected return from active assumptions with regard to the long term management (including currency) or the returns on asset classes were: benefit we might expect from diversification (which we expect to come through as UK Equity: 7.9% ‘bonuses’). Using Hymans Robertson’s Overseas Equity: 7.6% internal structure model (which, in this case, also does not take account of active Fixed Interest Gilts: 4.6% management, but does allow for the Index-linked Gilts: 4.3% benefits of diversification) some analysis was performed with respect to various Property: 5.8% expected returns and the probability of Corporate Bonds: 5.4% achieving that return. The model (based on the current structure) calculates a central Private Equity: 9.3% expected return of 7.93% p.a. The overall Given the Fund’s long term strategic allocation expected return on a portfolio of assets does of assets at that time (re-weighting for Private not solely reflect the arithmetic weighted equity) of: average of the returns on the individual asset classes. This is due to diversification % i.e. when you combine a portfolio of assets 26.5 UK Equity which are not fully correlated to each other, 37.2 Overseas Equity the expected portfolio return is greater than the arithmetic combination of the individual 6.0 Fixed Interest Gilts returns. This reflects the lower volatility of 6.0 Index-Linked Gilts the portfolio compared to the volatility of the sum of the parts. This is sometimes referred 12.0 Property to as ‘volatility drag’. 6.0 Corporates 6.3 Private Equity (assume inclusion of shareholder activism)

Funding Strategy Statement 91 The probability of achieving particular levels consistent with the liabilities in the Fund, of out-performance relative to the liabilities taking full account of the risks involved is as follows: following the detailed consideration of the asset liability modelling exercise. This Probability of achieving was formulated to take account of the liabilities + 1.0% p.a.= 57% ISC’s attitude to risk. The strategic asset Probability of achieving allocation, the customised benchmark and liabilities + 2.5% p.a.= 53% the tolerances set on investment managers’ performance are the means by which the ISC Probability of achieving aims to achieve the overall fund objective. liabilities + 3.5% p.a.= 50% Risk associated with investments will The risks in terms of volatility of funding be controlled via the diversification of levels and employers’ contribution rates investments over asset classes and the have been considered in depth by the Fund’s use of a number of investment managers. Investment Steering Committee (ISC) and Regular reports will be made to the ISC. the strategic asset allocation has been set

The Actuary’s market related assumptions in regard to the 2007 valuation are:

% A liability based fixed interest gilt yield of: 4.4 A liability based index linked gilt real yield of: 1.3 Therefore implied inflation of: 3.1

92 Funding Strategy Statement Additional Information: Funding Strategy Statement

His asset out performance assumptions are:

Past service liabilities Pre-retirement = gilts + 2.5% Post – retirement = gilts +1% Total fund = gilts + 1.9%* Future service liabilities = Inflation + 3.75%

Given the above assumptions as to fixed return requirements for the fund relative to interest gilt yields and inflation these conditions as at 31 March 2007: give the following assumed investment

% Past service liabilities =4.4% + 1.9% = 6.30 Future service liabilities =3.1% + 3.75% = 6.85

Examination of the Fund Returns expected allowing for the benefit of diversification by Hymans Robertson shows a long term of 7.93%. It is felt that the long term strategic expected return (for the individual investment return expected for the Fund asset classes) of 7.06% and a long term gives a comfortable margin over the strategic expectation for the whole fund Actuary’s assumptions.

Funding Strategy Statement 93 ­­­Identification of risks and counter-measures

Awareness of the risks that may impact on inherent in the predominantly equity based the funding strategy and expectations of strategy, so that actual asset out-performance future solvency is crucial to determining the between successive valuations could diverge appropriate measures to mitigate those risks. significantly from the overall 1.9% per annum required. The funding of defined benefits is by its nature uncertain. The funding strategy is The chart below shows a “funnel of doubt” based on both financial and demographic funding level graph, which illustrates assumptions. These assumptions are the range and uncertainty in the future specified in the actuarial valuation report. progression of the funding level, relative to When actual experience is not in line with the the funding target adopted at the valuation. assumptions adopted a surplus or shortfall Using a simplified model, the chart shows will emerge at the next actuarial valuation the probability of exceeding a certain funding and may require a subsequent contribution level over a 10 year period from the valuation adjustment to bring the funding back into line date. For example, the top line shows the with the target. 95th percentile level (i.e. there is a 5% chance of the funding level at each point in time being The Administering Authority has been better than the funding level shown, and a 95% advised by the Actuary that the greatest risk chance of the funding level being lower). in the funding strategy is the investment risk

140%

Funding L evel 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 50th Percentile 95th Percentile 75th Percentile 25th Percentile 5th Percentile

94 Funding Strategy Statement Additional Information: Funding Strategy Statement

The Administering Authority has itself undertaken an exercise to identify those risks that are specific to the Fund and the measures to be taken to counter those risks. These include the strengthening of the arrangements for the discretionary admission of employing bodies under the “community of interest” provisions. These arrangements, unlike those for transferee admission arrangements which incorporate a guarantee from the transferring scheduled body employer and bond requirements, currently leave the fund exposed to the risk that the employer will default on their liabilities. Our solution is to impose requirements on “community of interest” admissions that they are either sponsored by a scheduled body, guaranteeing their liabilities or required to provide a bond, indemnifying the fund as a whole. This will immediately reduce the risk borne by the fund albeit at the expense of individual employers. The resultant risk assessment is attached to this FSS as Schedule B.

Funding Strategy Statement 95 Monitoring and Review

The Administering Authority has taken advice • if there have been changes to the from the Fund Actuary in preparing this circumstances of any of the employing Statement, and has also consulted with its authorities to such an extent that they institutional investment advisers Hymans impact on or warrant a change in the Robertson, its independent investment funding strategy; and advisers Keith Neale and Tony Hardy and • if there have been any significant special the Pension Fund’s Investment Steering contributions paid into the Fund. Committee. Approved in accordance with the powers A full review of this Statement will occur no delegated to me. less frequently than every three years, to coincide with completion of a full actuarial valuation. Any review will take account of the then current economic conditions and will also reflect any legislative changes. Margaret Lee The Administering Authority will monitor the Head of Financial Control and Governance progress of the funding strategy between 31 March 2008 full actuarial valuations. If considered appropriate, the funding strategy will be reviewed (other than as part of the triennial valuation process), for example: • if there has been a significant change in market conditions and/or deviation in the progress of the funding strategy; • if there have been significant changes to Fund membership, or LGPS benefits;

96 Funding Strategy Statement Additional Information: Funding Strategy Statement Schedule A - Employers who will be given the opportunity to introduce the increase in their deficit recovery contributions and/or their ongoing rate contributions in steps over the 3 year period 2008/2009 to 2010/2011 by either phasing or aggregation;

Essex County Council Colchester Sixth Form College Basildon District Council Epping Forest College Braintree District Council Harlow College Brentwood Borough Council Palmers Sixth Form College Castle Point Borough Council South East Essex College of Arts & Technology Chelmsford Borough Council South East Essex Sixth Form College Colchester Borough Council Thurrock and Basildon College Epping Forest District Council Writtle Agricultural College Harlow District Council Anglia Polytechnic University Maldon District Council University of Essex Rochford District Council Southend-on-Sea Borough Council (Unitary) Tendring District Council Thurrock Council (Unitary) Uttlesford District Council Essex Fire Authority Essex Police Authority Essex Probation Committee Braintree College Chelmsford College Colchester Institute

Funding Strategy Statement 97 Schedule B - Funding strategy risk assessment

Risk Consequence Action proposed to mitigate effects Investment markets Increases required in - Diversified portfolio perform below actuarial employers’ contributions - Monitoring against targets assumptions - Reallocation of assets - Keep employers informed Market yields move at Increases required in - Diversified portfolio variance with actuarial employers’ contributions - Monitoring against targets assumptions - Reallocation of assets - Keep employers informed Investment managers Increases required in - Diversified structure fail to achieve employers’ contributions - Monitor against targets performance targets - Change managers where considered appropriate - Keep employers informed Asset reallocation in Increases required in - Monitor against benchmark volatile markets may employers’ contributions - Automatic rebalancing lock in past losses process in place which prevents lock-in of losses Illiquidity of certain Difficulty in realising - Monitoring markets and asset investments - Factor into disinvestments classes strategy Pay and price inflation Increases required in - Monitoring significantly different employers’ contributions - Keep employers informed from actuarial assumptions The effect of increases Employers default on - Take view on strength of in employers’ contributions their contributions individual employer’s on employers’ ability to pay covenant when setting terms of admission agreement (inc. bonds) and in setting term of deficit recovery - Keep employers’ contributions as stable and affordable as possible Mortality rates continue Increases required in - Strengthening of actuarial to improve. employers’ contributions valuation assumptions - Keep employers informed - Monitoring

98 Funding Strategy Statement Additional Information: Funding Strategy Statement

Risk Consequence Action proposed to mitigate effects Frequency of early Increases required in - Ensure that employers are retirements increases employers’ contributions made aware of consequences of their decisions - Ensure that employers are financially responsible for consequences of their decisions - Monitor situation on ill health retirements - Keep employers informed Adverse changes to Increases required in - Ensuring that Fund concerns LGPS regulations employers’ contributions are raised in consultation process and decision makers lobbied - Monitor - Keep employers informed Adverse changes to Increases required in - Ensure that Fund concerns other legislation, tax employers’ contributions are raised in consultation process rules etc. and decision makers lobbied - Monitor - Keep employers informed Administering authority Individual employer’s - Ensure that employers are unaware of structural contribution becomes reminded of their responsibilities changes in an inappropriate requiring - Monitor and send reminders of employer’s membership review and increase. employers responsibilities re this where appropriate Administering authority Individual employer’s - Ensure that employers are not advised of an employer contribution becomes reminded of their responsibilities closing to new entrants inappropriate requiring - Monitor and send reminders of review and increase. employers responsibilities re this where appropriate

Funding Strategy Statement­­­­­­­ 99 Risk Consequence Action proposed to mitigate effects An employer ceasing to Increases required in - Admission arrangements exist with insufficient employers’ contributions strengthened for new admissions funding or adequacy of bond under the “community of interest” provisions to require that they are subjected to a risk assessment, sponsored by a scheduled body, guaranteeing their liabilities, and may be required to provide a bond - Take view on strength of individual employer’s covenant when setting terms of admission agreement (inc. bonds) and in setting term of deficit recovery - Monitor - Keep employers informed Failure in supervision of Increases required in - Ensure ISC properly investment managers employers’ contributions - resourced, sufficient time made available to consider issues, reports prepared on all matters of concern, suitable training given, proper decision making processes employed and arrangements in place to ensure continuity maintained Loss of key staff at Increases required in - Monitor investment managers employers’ contributions - Replace managers if considered appropriate Loss of key staff at Failure to achieve - Monitor Administering Authority funding strategy - Structure duties and training ­­­­ to assist in continuity - Replace staff as soon as possible - Recruitment and retention measures

100 Funding Strategy Statement Additional Information: Funding Strategy Statement

Appendix Actuarial Valuation as at 31 March 2007

Method and assumptions used in calculating the funding target, for the long term the funding target additional investment performance on the assets of the Fund relative to the yields Method available on long dated gilt stocks as at the The actuarial method to be used in the valuation date. The allowance for this out- calculation of the funding target is the performance is based on the liability profile Projected Unit method, under which the of the Scheme, with a higher assumption in salary increases assumed for each member respect of the “pre-retirement” (i.e. active and are projected until that member is assumed deferred pensioner) liabilities than for the to leave active service by death, retirement “post-retirement” (i.e. pensioner) liabilities. or withdrawal from service. This method This approach thereby allows for a gradual implicitly allows for new entrants to the shift in the overall equity/bond weighting scheme on the basis that the overall age of the Fund as the liability profile of the profile of the active membership will remain membership matures over time. stable. As a result, for those employers which Individual Employers are closed to new entrants, an alternative method is adopted (The Attained Age Having determined the AOAs as above for method), which makes advance allowance for the Fund overall, it is important to consider the anticipated future aging and decline of the how the financial assumptions in particular current closed membership group. impact on individual participating employers. As employers in the Fund will have different Financial assumptions mixes of active, deferred and pensioner Investment return (discount rate) members, adopting a different pre/post retirement investment return approach is A yield based on market returns on UK equivalent to hypothecating a different Government gilt stocks and other instruments equity/bond mix investment strategy for which reflects a market consistent discount each employer. Such an approach would rate for the profile and duration of the be inconsistent with the Fund practice, as Scheme’s accrued liabilities, plus an Asset set out in the FSS, of allocating investment Out-performance Assumption (“AOA”) of 2.5% performance pro rata across all employers p.a. for the period pre-retirement and 1.0% based on a “mirror image” investment p.a. post-retirement. strategy to the whole Fund. In completing The asset out-performance assumptions the calculations for individual employers represent the allowance made, in calculating therefore, a single, composite, pre and post

Funding Strategy Statement 101 retirement asset out-performance assumption method and assumptions as used to calculate of 1.5% p.a. has been calculated which, for the the funding target except that the financial Fund as a whole, gives the same value of the assumptions adopted will be as described below. funding target as the separate pre and post The financial assumptions for assessing the retirement AOAs. future service contribution rate should take Inflation (Retail Prices Index) account of the following points: The inflation assumption will be taken to • contributions will be invested in market be the investment market’s expectation conditions applying at future dates, which for inflation as indicated by the difference are unknown at the effective date of the between yields derived from market valuation, and which are not directly linked instruments, principally conventional and to market conditions at the valuation date; and index-linked UK Government gilts as at the • the future service liabilities for which these valuation date, reflecting the profile and contributions will be paid have a longer duration of the Scheme’s accrued liabilities. average duration than the past service Salary increases liabilities. The assumption for real salary increases The financial assumptions In relation to (salary increases in excess of price inflation) future service (i.e. the normal cost) are not will be determined by an allowance of specifically linked to investment conditions as 1.5% p.a. over the inflation assumption as at the valuation date itself, and are based on described above. This includes allowance for an overall assumed real return (i.e. return in promotional increases. excess of price inflation) of 3.75% per annum, with a long term average assumption for price Pension increases inflation of 2.75% per annum. These two Increases to pensions are assumed to be assumptions give rise to an overall discount in line with the inflation (RPI) assumption rate of 6.5% p.a. described above. This is modified Adopting this approach the future service appropriately to reflect any benefits which rate is not subject to variation solely due are not fully indexed in line with the RPI (e.g. to different market conditions applying at Guaranteed Minimum Pensions in respect of each successive valuation, which reflects the service prior to April 1997). requirement in the Regulations for stability Full details of the assumptions adopted are set in the “Common Rate” of contributions. In out in the actuary’s formal valuation report. market conditions at the effective date of the 2007 valuation this approach gives rise to a Method and assumptions used in calculating somewhat more optimistic stance in relation the cost of future accrual to the cost of accrual of future benefits The cost of future accrual (normal cost) compared to the market related basis used for will be calculated using the same actuarial the assessment of the funding target.

102 Funding Strategy Statement Additional Information: Funding Strategy Statement

At each valuation the cost of the benefits out-performance assumptions used for the accrued since the previous valuation will funding target is fully taken into account in become a past service liability. At that time assessing the funding position. any mismatch against gilt yields and the asset

Summary of key whole Fund assumptions used for calculating funding target and cost of future accrual (the “normal cost”) for the 2007 actuarial valuation

Long-term gilt yields Fixed interest 4.4% p.a. Index linked 1.3% p.a. Implied RPI price inflation 3.1% p.a.

Past service Funding Target financial assumptions Investment return pre-retirement 6.9% p.a. Investment return post-retirement 5.4% p.a. Salary increases 4.6% p.a. Pension increases 3.1% p.a.

Future service accrual financial assumptions Investment return 6.5% p.a. RPI price inflation 2.75% p.a. Salary increases 4.25% p.a.

Pension increases 2.75% p.a.

Principal demographic assumptions Non-retired members’ mortality PA92 MC YoB tables + 1 year (+5 years for retirements in ill health) Retired members’ mortality PA92 MC YoB tables + 1 year (+5 years for retirements in ill health) Commutation One half of members take maximum lump sum, others take 3/80ths

Funding Strategy Statement 103 Governance Compliance Statement 2009 as at 13 June 2009

Page 105 Legal Requirements 106 Introduction 107 The Governance Arrangements of the Essex Pension Fund 110 Essex Pension Fund Governance Compliance Statement

104 Governance Governance and Compliance Communications Statement Policy Additional Information: Government Compliance Statement 105 105 , and 1 Governance Compliance Statement Governance and Communications Policy An administering authority must - revise their statement following a material matters the of any on policy their in change mentioned in paragraph publish the statement as revised. an statement their revising or preparing In such consult must authority administering persons as they consider appropriate. When they publish their statement, or the administering an revised, as statement the to it of a copy send must authority Secretary of State.

. . . 3 a. b. 4 5 1

2008. the frequency of any committee or committee any of frequency the whether such a committee or sub-

An administering authority must prepare a prepare must authority administering An written statement setting out – function their delegate they whether or part of their function in relation to committee, a to fund pension a maintaining a sub-committee or an officer of the authority; if they do so i. the terms, structure and operational procedures of the ii. sub-committee meetings; iii. representatives includes committee (including authorities employing of Scheme not are which authorities whether so, if and members, or employers) those representatives have voting rights. the extent to which a delegation, or the with complies a delegation, of absence guidance given by the Secretary of State so not does it that extent the to and, comply, the reasons for not complying. publish must authority administering An the first such statement on or before March

.

. Legal Requirements Governance Compliance Statement a. b. Requirements in respect of the Governance Compliance Statement 1 Under the Local Government Pension Scheme (LGPS) Regulations all LGPS Funds in England and Wales are required to produce a Governance Compliance Statement, revise it following any material change in their delegation arrangements and publish it. delegation; c. 2 Introduction

Under the Local Government Pension Membership Summary as Scheme Regulations 1997, the County Council is required to maintain a pension 31 March 2009 fund (the Fund) for its employees and those of other Scheduled Bodies within its area. The Fund is also empowered to admit the County Council 20,881 employees of certain other bodies. District/Unitary Councils 10,864 Essex County Council therefore administers Other Employing Bodies 15,112 the Fund for its own employees and those of the 14 District/Borough/Unitary Councils and numerous other bodies. In total there Total Contributors 46,857 are over 360 separate employing bodies in the Fund. The Fund excludes provision for teachers, fire-fighters and police officers, Retired Employees 27,992 for whom separate arrangements exist. Benefits are prescribed by, and the Fund is invested in accordance with, the provisions Deferred Pensioners* 26,272 of the Local Government Pension Scheme Regulations 1997. The rate of employee contributions for 2009/10 is as set out * Deferred pensioners are former employees below: who have chosen not to transfer their pension rights.

Pensionable Pay (p.a.) Rate % At the last triennial valuation of the Fund, as at 31 March 2007, Fund assets were Less than £12,600 5.5% £1.916 billion, which represented 71.4% of £12,601 - £14,700 5.8% the Fund’s liabilities. By 31 March 2009 the total value of Fund assets had increased to £14,701 - £18,900 5.9% £2.225 billion. An interim review of the Fund by the Actuary at that date which will provide £18,901 - £31,500 6.5% an update on the level of funding had is £31,501 - £42,000 6.8% awaited. £42,001 - £78,700 7.2% More than £78,700 7.5%

106 Governance Governance and Compliance Communications Statement Policy Additional Information: Government Compliance Statement 107 107

Governance Compliance Statement Governance and Communications Policy To consider any views expressed expressed views any consider To the review annually and approve to investment review and appoint to performance and quality the assess to parameters investment the set to to monitor compliance of the to assess the risks assumed by the asset the review and approve to To receive periodic actuarial valuation

(viii) To coordinate Administering Authority Authority Administering coordinate To (viii) Central by consultations to responses other and professional Government, bodies. (ix) by employing organisations and staff representatives. To the Investment Steering Committee: (i) Investment of Statement the of content Principles. (ii) Managers, Custodian and Advisors. (iii) in annually Manager Investment each of conjunction with investment advisers and the Chief Financial Officer. (iv) within which the Investment Managers can operate and review these annually. (v) the with arrangements investment Statement of Investment Principles. (vi) a on as well as level a global at Fund manager by manager basis. (vii) allocation benchmark for the Fund. its on reports quarterly submit To (viii) activities to the Essex Pension Fund Board. (vii) reports from the Actuary. 2.

To exercise on behalf of the Council all all Council the of behalf on exercise To work the oversee and monitor To To monitor the administration of the discretions Fund Pension exercise To policy Fund Pension determine To Fund’s Pension the determine To

To the Essex Pension Fund Board (i) in Council the of duties and powers the of Administering as functions its to relation Fund Pension Essex the of Authority except where they have been specifically another to Council the by delegated include will this officer; an to or Committee the following specific functions: (ii) of the Investment Steering Committee through its quarterly reports. (iii) benefit the including Scheme, Pension pensions of payment and regulations administration day to day their and Resolution Disputes Internal the including delivers it that ensure and Procedures, practice best with complies and value best guidance where considered appropriate. (iv) Authority. Administering the of behalf on (v) admission employer to regard in arrangements. (vi) Funding Strategy and approve its Funding Strategy Statement. The Governance Arrangements of the Essex Pension Fund

1. A. Delegations Essex County Council has delegated its functions in relation to the maintenance of the Essex Pension Fund as follows: 2. To the County Solicitor: behalf with solicitors and external pension to act as the administering authority for providers. the purposes of the pensions complaints c. To provide information and make the procedure. necessary arrangements for non scheduled bodies and employers to join the ECC 3. To the Chief Financial Officer: Pension Fund via an admission agreement to manage the Pension Fund including the d. To provide information to employers power to seek professional advice and to and services on all relevant pensions devolve day-to-day handling of the Fund to implications of TUPE transfers in professional advisers within the scope of outsourcing situations the Pensions Regulations. e. To ensure effective communications with Note: The Chief Financial Officer is not scheme members and pensioners, through empowered to change the managers of the Newsletters, Annual Benefit Statements Pension Fund. (for active and deferred members) and the Pension Services web site. 4. To the Executive Director of Finance: f. To ensure responses to ODPM A. to exercise the functions of the Council consultations are shared with all in relation to pensions as specified in Employing Organisations participating in Schedule 1H of the Regulations 2000. the Essex Pension Fund Note: This delegation excludes management g. To ensure all general complaints from of the Pension Fund which is the scheme members and pensioners are responsibility of the Chief Financial Officer. dealt with in a sympathetic and consistent approach The operational procedures related to these h. To ensure regular meetings are held with functions are carried out by Pension Services all Employing Organisations participating and are as follows: in the Essex Pensions Fund (at least twice a. To ensure that the fund complies with a year) the Local Government Pension Scheme i. To ensure guidance relating to Regulations 1997 (as amended), the HMRC benchmarking is followed requirements for Pension Funds and any j. To ensure discretions allowed to the other relevant statutory provision administering authority as laid down in b. To provide a comprehensive pensions the Local Government Pension Scheme administration service for members of the Regulations 1997 are determined and pensions fund. This includes the provision reviewed periodically. A policy statement of cash equivalent transfer values, pension outlining these decisions is published to sharing on divorce, estimated retirement all Employing Organisations within the benefits and information on increasing Essex Fund scheme membership. Also liaise on their k. To ensure all Employing Organisations

108 Governance Governance and Compliance Communications Statement Policy Additional Information: Government Compliance Statement 109 109 Liberal 1 non-voting 2 members of the 6 Governance Compliance Statement Governance and Communications Policy Conservatives and 5 C. The Investment Steering Steering Investment The C. Committee The Investment Steering Committee is currently composed of Council - Democrat - together with observers. One of these observers is Government Local Essex the by nominated Association and represents all employers (including non-scheme employers) and the other is nominated by UNISON and represents all scheme members within the Essex Fund. The Investment Steering Committee is supported in the execution of its advisers investment three by responsibilities (two independent and one institutional) and Directorate. Finance Authority’s the from staff The Committee meets routinely on six occasions each year generally in October March, February, December, November, or are meetings those of Four July. and June managers investment with meet to primarily two but performance their review to order in meetings each year in February and July are Pension of consideration the for aside set strategy. Fund Committee the of meetings special addition In are held when required for the discharge of its functions in regard to such matters as the investment of appointment and selection managers. the Authority’s Finance and Human Resources Directorates. Excellence Customer and The Committee meets quarterly. 1 1 members 6 representative 1 Conservatives Conservatives representative 1 and the Teachers Teachers the 2000 and Liberal Democrat), 1 Pension Regulations or any regulations regulations any or Regulations Pension same. the amending or replacing including Essex County Council notify notify Council County Essex including Pensions Services of their policy statement as Employers to allowed discretions the on laid down in the Local Government Scheme Regulations 1997 responsibilities other all ensure To the by Services Pensions to delegated Authority are met Chief the of agreement the to subject Executive in any case involving a Director, the County Solicitor, the Monitoring to Finance, of Head the or Officer Local the under discretion exercise Government Pensions Regulations, the Termination (Early Government Local (Discretionary Employment) of Wales) and Compensation)(England Regulations

representative from Essex Fire Authority, Authority, Fire Essex from representative representative nominated by ELGA,

l. B. B. The Pension Board The Pension Board is composed of and of the County Council (5 nominated jointly by Southend-on-Sea Borough Council and Thurrock Council, representative from Essex Police Authority, 1 1 The Pension Board is supported in the the in supported is Board Pension The from staff by responsibilities its of execution representative nominated by the Essex Essex the by nominated representative Leaders Group and all represents (who UNISON by nominated Fund). Essex the within members scheme Essex Pension Fund Governance Compliance Statement

Not Partially Fully Principle Compliant Compliant Compliant A Structure (a) the Management of the administration of benefits and strategic 3 management of fund assets clearly rests with the main committee established by the appointing Council (b) that representatives of participating LGPS employers, admitted bodies and scheme members (including pensioner and deferred members) are members of either the main or secondary committee established to 3 underpin the work of the main committee (c) that where a secondary committee or panel has been established, the 3 structure ensures effective communication across both levels. (d) that where a secondary committee or panel has been established, at least one seat on the main committee is allocated for a member from the 3 secondary committee or panel. B Representation (a) that all key stakeholders are afforded the opportunity to be represented within the main or secondary committee structure. These include (i) employing authorities (including non-scheme employers, eg admitted 3 bodies) (ii) scheme members (including deferred and pensioner scheme members) 3 (iii) independent professional observers 3 (iv) expert advisers (on an ad hoc basis) 3 (b) that where lay members sit on a main or secondary committee, they are treated equally in terms of access to papers and meetings, training and are given full opportunity to contribute to the decision making process, 3 with or without voting rights. Comments: a)i) There are a number of representatives of employing authorities on the Pension Board and the ISC but they do not include a specific admitted bodies representative. Representation has been determined on the basis of employer contributions of which the admitted bodies contributions form a small proportion only.

110 Governance Governance and Compliance Communications Statement Policy Additional Information: Government Compliance Statement 111 111

Fully Compliant Partially Compliant

Governance Compliance Statement

Not Compliant Governance and Communications Policy 3 3 3 3 3 3

committee sits. at least twice a year and is synchronised with the dates when the main (b) that an administering authority’s secondary committee or panel meet at least quarterly. secondary forum. (a) that an administering authority’s main committee or committees meet of committees, sub-committees, advisory panels or any other form of F Meetings – Frequency (b) that where such a policy exists, it applies equally to all members involved in the decision-making process. facility time and reimbursement of expenses in respect of members taken by the administering authority, there is a clear policy on training, (a) that in relation to the way in which statutory and related decisions are E Training/ Facility Time/ ExpensesTime/ Facility Training/ E rights to each body or group represented on main LGPS committees. clear and transparent, including the justification for not extending voting (a) the policy of individual administering authorities on voting rights is secondary committee. Voting D role and function they are required to perform on either a main or (a) that committee or panel members are made fully aware of the status, constituted. of Lay Members and Role C Selection consideration to whether it requires additional expert advice once it is investment consultant to advise the ISC. The Pensions Board will give a)iv) We already employ two independent investment advisers and an arrangements. requested to undertake independent assessments of our governance to either the Pension Board or ISC. Instead our external auditor will be a)iii) We do not propose to appoint an independent professional observer

Principle Not Partially Fully Principle Compliant Compliant Compliant (c) that administering authorities who do not include lay members in their formal governance arrangements, provide a forum outside of those arrangements by which the interests of key stakeholders can be 3 represented.

Comments: (c) Not applicable. G Access (a) that subject to any rules in the council’s constitution, all members of main and secondary committees or panels have equal access to committee 3 papers, documents and advice that falls to be considered at meetings of the main committee. H Scope (a) that administering authorities have taken steps to bring wider scheme 3 issues within the scope of their governance arrangements. I Publicity (a) that administering authorities have published details of their governance arrangements in such a way that stakeholders with an interest 3 in the way in which the scheme is governed can express an interest in wanting to be part of those arrangements.

112 Governance Governance and Compliance Communications Statement Policy Windmill at Aythorpe Roding Communications Policy Statement 2009 as at 6 May 2009

Page 115 Legal Requirements 116 Introduction 117 The Communication Arrangements of the Essex Pension Fund

114 Governance Communications and Communications Policy Statement Policy Additional Information: Communications Policy Statement 115 115 to 2 and 1 Communications Policy Statement Governance and Communications Policy References in paragraphs employing authorities include references to non-Scheme employers. . 5 2006. April 1 . 2

An administering authority must prepare, prepare, must authority administering An maintain and publish a written statement concerning policy their out setting communications with – members; representatives of members; prospective members; and employing authorities. out set must statement the particular In – on policy their and information of provision The members, to Scheme the about publicity representatives of members and employing authorities; of method and frequency format, The distributing such information or publicity; and The promotion of the Scheme to employing their and members prospective authorities. published be must statement such first The on or before and revised be must statement The published by the administering authority following a material change in their policy on any of the matters referred to in paragraph

.

. . . Legal Requirements Communications Policy Statement a. b. c. d. 2 a. b. c. 3 4 Requirements in respect of the Communications Policy Statement 1 Under the Local Government Pension Scheme (LGPS) Regulations all LGPS Funds in England and Wales are required to prepare, maintain and publish a written statement setting out their policy regarding communications with members and employing authorities. Introduction

This is the Communications Policy Statement of the Essex Pension Fund, which is administered by Essex County Council, the administering authority.

116 Governance Communications and Communications Policy Statement Policy Additional Information: Communications Policy Statement 117 117 31

Communications Policy Statement Governance and Communications Policy

March which provides a projection a projection provides which 31 March

Each year every scheme member is member scheme every year Each Statement Benefit Annual an with provided as at should member the that benefits the of membership the LGPS, the from receive the calculations, the in used details death of respect in place in arrangements State member’s the of details and grant Pension entitlement. Annually the Fund issues each member member each issues Fund the Annually with a Newsletter setting out details of developments within the LGPS and the Fund. In addition Pension Services provide a administration pensions comprehensive pensions the of members for service cash of provision the includes This fund. equivalent transfer values, pension sharing benefits retirement estimated divorce, on and information on increasing scheme their on liaise also They membership. behalf with solicitors and external pension providers.

All members receive at least two payslips every year, and P60’s are issued. To Deferred Members: Deferred To Each year every deferred member is provided with an Annual Benefit Statement as at March which gives an up to date value of their benefits. Pensioner’s: The Fund’s To To Active Members: Active To • • •

The County Council’s website has a pensions to devoted pages of number matters. In addition to copies of the above on information include these publications Pensions pensions. of areas different many website, own its has also Services however, this is currently under review. The Communication Arrangements of the Essex Pension Fund • Website While the Pension Fund’s accounts form part of the Essex County Council Report and Accounts which are published annually and made widely available, the Fund is also now required to publish a separate Report and Accounts for the Pension Fund and copies of these will be provided to all scheme employers and other interested parties. Annual Report and Accounts Annual Report General The Pension Fund is required under the LGPS Regulations to produce and publish a Funding Strategy Statement and a Statement of Investment Principles, incorporating a Statement of Compliance with the Myners’ Investment Principles, together with the Governance Compliance Statement referred to above. All of these statements are required to be reviewed annually and updated where appropriate. As part of that process the Fund consults with interested parties including scheme employers. publicity about the Scheme publicity about Provision of information and and information of Provision To employers: • Information on all relevant pensions implications of TUPE transfers in • At least twice a year the Fund issues outsourcing situations are provided to the each employer with a Communications employers involved. Newsletter. These will tend to have a • Discretions allowed to the administering specific focus such as the closure of authority as laid down in the Local accounts process or arrangements for Government Pension Scheme Regulations producing FRS 17 disclosure information 1997 are determined and reviewed but they will also include details of periodically. A policy statement outlining developments within the LGPS and the these decisions is published to all Fund. Employing Organisations within the Essex • Each year the Fund will arrange, Fund. through the services of the actuary, for the production of FRS 17 disclosure information as required by individual employers. • At least once each year the Fund holds a Forum for employers at which presentations are given by fund officers, advisers and the Fund Actuary on matters of topical interest. These have included such matters as investment performance, prospective and actual changes in LGPS regulations, funding strategy and fund valuations. In future these Forums are to be strengthened by the inclusion of representation and reports from the Pension Board and the ISC. • Pensions Services hold meetings on request with all Employing Organisations participating in the Essex Pension Fund • Responses to consultations on the LGPS are shared with all Employing Organisations participating in the Essex Pension Fund

118 Governance Communications and Communications Policy Statement Policy Additional Information: Communications Policy Statement 119 119 Communications Policy Statement Governance and Communications Policy The Essex Pension Fund, in conjunction with the Southern Shires Group, produces details out sets that Handbook a Scheme of the Scheme benefits in an easy to read format. Copies of this Handbook are Essex with starters new all to provided other the through and, Council County employers, to all other new starters who are entitled to join the Scheme. The Handbooks are also made available to request. on representatives employees’ their employing authorities their employing • prospective members and and members prospective Promotion of the Scheme to to Scheme the of Promotion Glossary

Accrued Interest – Interest earned on a bond Benchmark – A yardstick against which the since the last interest payment date. If the investment policy or performance of a fund stock is sold, the accrued interest is paid (gross manager can be compared. of tax) to the seller at the time of the transaction Bond – A certificate of debt issued by a in addition to the clean price of the stock. company, government, or other institutions. Active Management – A style of investment A bondholder is a creditor of the issuer and management where the fund manager aims usually receives interest at a fixed rate. Also to outperform a benchmark by superior asset referred to as fixed interest securities. allocation, market timing or stock selection (or Cash – Cash is defined as cash instruments a combination of these). (e.g. money market deposits) and cash in Actuary – An independent consultant who bank and at hand. advises the County Council on the financial Convertible Stock – Stock which gives the position of the fund. Every three years the holder the right, but not the obligation, to actuary reviews the assets and liabilities, convert all or part of the holding into another of the fund and produces the actuarial stock or stocks on specified dates and on valuation which recommends the employers specified terms. contribution rates. Corporate Governance – This is the system Additional Voluntary Contributions (AVC) – by which companies are run, and the means An option available to individuals to secure by which they are responsive to their additional pension benefits by making regular shareholders, employees and society. payments in addition to the 6% or 5% of basic earnings payable. Custody – Safe-keeping of securities by a financial institution. The custodian keeps Admission Bodies – Bodies whose staff a record of a client’s investments and may can become members of the Pension Fund also collect income, process tax reclaims and by virtue of an admission agreement made provide other services, according to the clients between the Authority and relevant body. instructions. Annualised Return – The rate of return for Currency Trading – Buying and Selling world any given period expressed as the equivalent currencies. average return per year. Deferred Pension – The pension benefit Asset Allocation – The apportionment of a payable from normal retirement age to a fund’s assets between asset classes and/or member of the Fund who has ceased to world markets. The long-term strategic asset contribute as a result of leaving employment allocation of a fund will reflect the fund’s or opting out of the pension scheme before investment objectives. In the short term, the the state retirement age. fund manager can aim to add value through tactical asset allocation decisions.

120 Essex Pension Fund Annual Report and Accounts 2009–2010 Additional Information: Glossary

Derivatives – Are financial instruments Income Distribution – Usually referred to whose value derives from an underlying unit trusts, the distribution of income to unit asset. Futures/Forwards are among the most holders in strict proportion to the number common. of units held at the ex-dividend date (units brought after this date will not generate a Dividend – The part of a company’s after dividend). tax earning which is distributed to the shareholders in the form of cash or shares. Indexed Linked – Bonds on which the The directors of the company decide how interest and ultimate capital repayment are much dividend is to be paid and when. The recalculated on the basis of changes in the dividend is neither automatic nor guaranteed Retail Price Index. for ordinary shareholders. Listing – For shares (or bonds) to be traded Emerging Equity Markets – There are about officially on a stockmarket they need to be 80 stock markets around the world of which listed. Essentially, this is an endorsement 22 markets are generally considered to be from the market authorities that the securities mature, the rest are classified under the and their issuer meet certain criteria. heading of emerging markets. Margin Account – When a futures contract Equities – Ordinary shares in UK and Overseas is first opened, an initial margin payment is companies traded on a stock exchange. made into an account held by the Clearing Shareholders have an interest in the profits House. This is intended to represent the of the company and are entitled to vote at maximum gain or loss on the contract, based shareholders’ meetings. on current market volatility Each subsequent day, every open contract is valued to reflect Fixed Interest Securities – Investments in the market movements, the scheme may be mainly government stocks, which guarantee a required to make an additional payment or fixed rate of interest. The securities represent receive a repayment. loans which are repayable at a future date but which can be traded on a recognised stock Mandate – The agreement between a client exchange in the meantime. and investment manager laying down how the fund is to be managed. May include Futures – Contracts to buy or sell specific performance targets by reference to a quantities of a commodity or financial benchmark. instrument at a specified price with delivery set at a specified time in the future. Market Value – The price at which an investment can be bought or sold at a given Gilts, Gilt-edged Securities – The familiar date. name given to sterling, marketable, securities (or bonds) issued by the British Government.

Essex Pension Fund Annual Report & Accounts 2009-2010 121 Mature Equity Markets – Countries which Specialist Management – A fund management include the United Kingdom, United States arrangement whereby a number of managers and Japan are commonly referred to as having each concentrate on a different asset class. A mature markets. These markets have an specialist fund manager is concerned primarily established economy and knowledge is freely with stock selection within the specialist asset available. class. Asset allocation decisions are taken by the trustees, their consultants or a specialist Maturity – End of the life of a fixed interest tactical asset allocation manager. security at which point it is repaid. Transaction Costs – Those costs associated Ordinary shares – Securities, which represent with managing a portfolio, notably brokerage an ownership, interest in a company. costs and taxes. Passive Management – A style of investment Transferee Admission Bodies – An external management that seeks to attain performance body contracted to provide services or assets equal to market or index returns. in connection with the exercise of a function of Property unit trusts (PUTS) – Pooled the Local Authority. investment vehicles that enable investors Transfers to/from other schemes – These are to hold a stake in a diversified portfolio of sums paid to or received from other pension properties. schemes and relate to the current value of Resolution Bodies – Scheme employers with past contributions which transfer with a the power to decide if an employee or group of member when changing employment. employees can belong to the scheme. Unit Trust – A pooled fund in which investors Retirement under the “Rule of 85” – Where can buy and sell units on an on-going basis. an employer consents to the early payment of Unquoted Securities – Shares which are dealt retirement benefits after age 50, the member’s in the market but which are not subject to any age and pensionable service totalling at least listing requirements and are given no official 85, and where other reasons for retirement do status. not apply. Unrealised Gains/(losses) – The increase/ Return – The total gain from holding an (decrease) at year-end in the market value of investment over a given period, including investments held by the fund since the date of income and increase (decrease) in market their purchase. value. Scheme Employers – Local Authorities and other similar bodies whose staff automatically qualify to become members of the pension fund.

122 Essex Pension Fund Annual Report and Accounts 2009–2010 Little Oakley Beach This information is issued by Essex County Council For further information on issues relating to Fund Investments and Accounts please contact: Martin Quinn Head of Investments Finance Directorate Phone: (01245) 431412 Fax: (01245) 436904 Email: [email protected] If you have any queries on the benefits or costs of membership of the Pension Fund please contact: Jody Evans Pensions Services Manager Pensions Services Phone: (01245) 431912 Fax: (01245) 493439 Email: [email protected] Or you can write to us at: Essex County Council Investment Team PO Box 11 County Hall Chelmsford Essex CM1 1LX

The information contained in this document can be translated, and/or made available in alternative formats, on request.

Published October 2010. DS10 2382

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