Essex Pension Fund Annual Report 2011-2012 Front cover image: St Andrews Church, Greenstead, Ongar - the oldest wooden church in the world page 2 Pension Fund Annual Report 2011-2012

Pension Fund Annual Report 2011/12 Contents

04 Introduction & Overview 04 • Chairman’s Foreword 06 • Statement from the 02 Executive Director for Finance 09 • Financial Summary

10 Section 1: Governance Arrangements 10 • Who manages and runs the Pension Fund 11 • Management Structure 12 • Business Plan

19 Section 2: Investments 20 • Investment Strategy 2011/12 20 • Asset Allocation Benchmark 14 as at 31 March 2012 22 • Investment Decisions 24 • Investment Performance 2011/12

26 Section 3: Pensions Services 27 • Statement from the Pensions Services Manager 28 • Membership Summary 28 • Key Service Standards for Scheme Members 20 29 • Scheme Details 31 • Participating Employers of the Fund

35 Section 4: Scheme Actuary 36 • Statement by Consulting Actuary 2010 Actuarial Valuation 42 Section 5: Annual Statement of Accounts 28 43 • Responsibilities for the Statement of Accounts 44 • Fund Account 45 • Net Asset Statement 46 • Notes to the Accounts 82 • Statement by External Auditors

84 Section 6: Additional Information 85 • Statement of Investment Principles 101 • Funding Strategy Statement 34 117 • Governance Policy and Compliance Statement 124 • Communications Policy Statement 131 • Pension Knowledge and Skills Compliance Statement 133 • Glossary 136 • Contact Points

page 3 Chairman’s Foreword

In May 2011 Cllr Rodney Bass was re-elected to serve a second term as Essex County Council Chairman (May 2010 – May 2012). The County Councillor for Heybridge and Tollesbury since 1997, he first served on the Investment Steering Committee in 1999 and was elected Chairman in 2001; an office he has continued to hold since that time. In June 2011 on his re-election as Chairman of the Investment Steering Committee, by virtue of that office, he also became the Chairman of the Essex Pension Fund Board.

Review of the Activities of the Fund during 2011/ 12

It is my pleasure, as Essex Pension Fund The Board Chairman of the Essex Board (the Board) • received regular updates on the Pension Fund Board (the The Board was established in 2008 2011/12 Pension Fund Business as an overarching body to oversee Plan and approved a new 2012/13 Board) and the Investment the functions of the County Council as Business Plan; Steering Committee (ISC) Administering Authority of the Fund. Its • received from internal audit a to introduce the Essex composition and terms of reference, report on the work undertaken on together with those of the ISC, are the Pension Fund during 2010/11 Pension Fund Report and set out at Section 6 . The Board met and proposed to be carried out Accounts for 2011/12. on 4 occasions during the year and during 2011/12. I am pleased to undertook a full programme of work, the be able to report that the audits In last year’s report I was pleased highlights of which are set out below. of both Investments and Pensions to inform you that the Fund had Administration that were carried enjoyed an improved year in terms At its meeting in March 2011, the Board, out during 2011/12 both provided of investment performance and having reviewed its effectiveness and full assurance, the highest level of that the Fund had reached a record that of the ISC, made recommendations assurance possible; high. Although during 2011/12 to Council for changes to the Board’s • received a report from the External investment market returns have been membership structure. These were Auditor on his proposed programme mixed, I can report that the Fund’s approved by the Council in May 2011. of external audit work and fees for investment return (a gross return of The Board’s membership was extended the Pension Fund for 2010/11; 1.5%) out-performed its benchmark by 2, an additional representative of the • subsequently received the External by 0.8% and that the Fund has yet Unitary Authorities and a representative Auditor’s Annual Governance Report again reached a record high value of of smaller employing bodies. This latter on the results of his work and the £3.520bn (having been £3.414bn as representative was to be selected by Action Plan proposed by the Fund in at 31 March 2011). The increase in a ballot of eligible employers at an response; the market value of assets held was employer forum. This ballot took place • received a report from the Actuary £30.7m and investment income of at the Employer Forum on 20 January on his interim review of the Fund as £60.7m was received during the year. 2012. Jenny Moore, Business Manager at 31 March 2011 and determined at Billericay School (one of the new that no changes were necessary to Academies) was elected and took up the Funding Strategy; her seat at the next meeting of the • noted the Pension Fund Report and Board on 7 March 2012, completing our Accounts for 2010/11; new membership. page 4 Pension Fund Annual Report 2011-2012

• received quarterly reports from the • attendance by some members at and putting in place arrangements ISC on its activities; a seminar run by one of the Fund’s for the implementation of any • undertook an assessment of the investment managers on its Long necessary changes; Board and ISC’s annual training Term Global Growth fund; and • changes to our communications in needs and agreed a plan for • induction training for new members. order to improve engagement with meeting them; employers and other stakeholders; • received updates on the review Investment Steering • to put in place a framework structure of public sector pensions and Committee (ISC) and associated documentation responded to the DCLG consultation for the implementation of the new The ISC met on five occasions during on proposed changes to the LGPS; policies agreed on admission the year and has undertaken a full and • reviewed and agreed the Fund’s arrangements, employer active programme of work. This has policies on requests for early participation and bulk transfers; and included: payment of deferred pensions and • the annual review of Fund communication; • approving a revised Statement of investment strategy and structure • approved a draft Administration Investment Principles for 2011; in conjunction with the Fund’s Strategy for consultation with • quarterly Investment Performance institutional investment consultants. employers and members; reviews; • reviewed and approved the • overseeing the search for a manager Governance Policy and Compliance for a new timber mandate, including Statement for 2011; the interview of short-listed I would like to take this • reviewed and approved the Treasury candidates and the selection of the opportunity to thank the Management Strategies for 2011/12 successful candidate; members of the Board and the and 2012/13; • overseeing the procurement process ISC, the Executive Director for • received regular reports on risk for the retendering of the contract Finance, the Investment team, monitoring and measurement for Global Custodian, an ongoing the Pensions Services team, the of performance against agreed process that will be completed in Fund advisers and all who have objectives; 2012/13; participated in the management • received the final report on the • the annual review of Fund of the Fund for their work during Independent Review of Pension performance, strategy and structure the year. Administration, prioritised the key and the approval of a number of Finally I must pay tribute to recommendations and approved the changes to strategy and structure; Councillor Tom Smith-Hughes, drawing up of an action plan to meet • approving a draft Statement of who passed away at the end of those recommendations; and Investment Principles for 2012, to go April following a long and brave • received a report on a review of out to consultation with interested battle with cancer. Tom was the parties; and the Fund’s AVC arrangements and longest serving member of the • agreeing to reduce the number of agreed the completion of the review Investment Steering Committee independent investment advisers to as part of the 2012/13 Business and a founder member of the the ISC from two to one. Plan. Essex Pension Board. He was a valued colleague and friend and The Future A full programme of training was will be sorely missed. arranged for the Board in order to Some of the key actions proposed for allow its members to acquire the the forthcoming year are as follows: detailed knowledge necessary Councillor Rodney L. Bass • completion of the re-tendering Essex Pension Fund Board and to exercise their responsibilities Investment Steering Committee effectively. Training sessions of the contract for Global Chairman. included: Custodian and the market testing of the contract for the remaining • a full strategy day covering topics independent investment adviser to such as LGPS scheme change the ISC; proposals, auto-enrolment, • completion of the review of the academies, ECC and others' provision of AVC arrangements; transformation agendas, de-risking • an interim review of the Fund as at of investment strategy, CIPFA 31 March 2012 by the Actuary and knowledge and skills requirements, if necessary a review of funding business planning priorities and strategy; the Board member handbook and • monitoring of the outcomes of the alternatives; proposals for changes to the LGPS

page 5 Statement from the Executive Director for Finance

‘Margaret Lee, was appointed Executive Director for Finance (EDfF) in June 2010. She is the Council’s and the Pension Fund's S151 Officer.’

Overview Under the Local Government Pension Scheme (Administration) Regulations 2008, the County Council is required to maintain a pension fund (the Fund) for its employees and those of other Scheduled Bodies within its area. The Fund is also empowered to admit the employees of certain other bodies, town and parish councils, educational establishments, contractors providing services transferred from scheduled bodies and community interest bodies. As a result the Fund now contains around 450 separate employing bodies.

The majority of the County Council’s functions as administering authority of the Fund are delegated either to the Essex Pension Fund Board (the Board), the Investment Steering Committee (ISC) or to its officers. The respective roles and responsibilities of the Board and the ISC are described in detail in the Governance and Compliance Statement in Section 6 whilst the work that they have undertaken in the year is highlighted in the Chairman's foreword. Section 2 of this report provides information on the Fund’s investments. Details of the investment strategy that has been agreed by the ISC and implemented over the course of the year can be found in the section entitled Investment Strategy.

As Section 151 Officer I have the day to day responsibility for the running of the Pension Fund, with a team of officers assisting me to fulfil this function. 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 the activities of Pensions Services appears later in this report on Page 27. Investments and contributions monitoring along with the Fund’s accounting function, is carried out by Martin Quinn, Head of Investments and his staff on the Investments Team.

During the year, Essex County Council’s internal audit function carried out two audits on the Fund; Pensions Administration and Pensions Investments. Both of these audits were given a rating of Full Assurance, the highest rating possible and this is a reflection of the hard work and dedication of these two teams.

The purpose of this statement is to highlight the manner in which the Fund has fulfilled its remaining responsibilities during the year. page 6 Pension Fund Annual Report 2011-2012

Interim Review of Statement of Communications Policy the Fund Investment Principles Statement (CPS) The Fund’s Actuary was commissioned During 2011/12 the ISC agreed The above regulations also require to carry out an Interim Valuation as changes to the Fund’s strategic LGPS administering authorities to at March 2011. The review did not asset allocation and investment prepare, maintain and publish a constitute a full actuarial valuation management structure. These Communication Policy Statement but was intended to give an estimate changes along with a revised setting out the communication of the financial position of the Fund assessment undertaken by the arrangements of their pension funds. at that date. The review showed that Fund’s institutional consultants, the overall funding level had improved Hymans Robertson, of the long term During the year a full review of the slightly to 74%, compared to 71% at investment returns that the Fund pension administration function the last triennial valuation in 2010 and might expect from its target structure was undertaken by the Fund’s on course to reach the funding target were incorporated into a revised SIP Independent Governance and of 100% funded at the end of the agreed by the ISC in June 2012. The Administration Adviser. In light deficit recovery periods set in the last latest version of the SIP can been of her recommendations and the valuation. The next triennial actuarial found in Section 6 of this report. communication objectives outlined valuation of the Fund will take place in the Business Plan a revised CPS as at 31 March 2013, with results Governance Policy has been developed and can also be available later in that year. and Compliance found in Section 6 of this report. Statement (GPCS) Funding Strategy Under the LGPS (Amendment) Pensions Knowledge Statement (FSS) (No 2) Regulations 2005, LGPS and Skills Compliance Under the LGPS (Amendment) administering authorities are Statement Regulations 2004 administering required to prepare, maintain and In 2011, CIPFA published their Code authorities are required to prepare, publish a Governance Policy setting of Practice on Public Sector Pensions maintain and publish a written out the governance arrangements Knowledge and Skills. Included in statement setting out their funding of their pension funds. In 2007, the this is the recommendation that strategy, which the Fund’s actuary Regulations were further amended all LGPS funds adopt a statement is required to consider in issuing to require LGPS administering of compliance with this Code and the rates and adjustment certificate authorities to prepare, maintain that funds, as part of best practice, following triennial valuations of the and publish a statement of their report on an annual basis how these Fund. The main aim of the FSS is to compliance with a set of best policies have been put into practice establish a clear and transparent fund- practice governance principles. throughout the financial year. The specific strategy, which will identify work undertaken by the Board how employers’ pension liabilities In May 2011 the Fund’s governance towards compliance with the CIPFA are best met going forward whilst arrangements were reviewed by the Knowledge and Skills Framework can aiming to maintain as nearly constant County Council. As a result of this be found in Section 6. employer rates as possible. The FSS review the GPCS was updated to must be revised and republished reflect the decisions made in regard whenever there is a material change to the structure of the Essex Pension in the policy on the matters set out Fund Board and its Scheme of in either the FSS or the Authority’s Delegation to Officers. I am pleased Statement of Investment Principles to report that the Fund’s governance (SIP). There have been no material arrangements comply fully with changes in policy this year, as a result the latest guidance issued by the no revisions of the FSS have been Secretary of State for Communities required since it was last published and Local Government. The updated in March 2011 following the changes GPCS can be found in Section 6 of made in consideration of the results of this report. the 2010 actuarial valuation. A copy of the FSS can be found in Section 6 on page 101.

page 7 I am pleased to report that during these challenging times that we have continued to be able to maintain and improve General our high level of service despite the The summary table below gives a snap shot of the financial position increasing complexity and nature of the and membership of the Fund. activities required.

History of the Fund

2007/08 2008/09 2009/10 2010/11 2011/12

Value at 31 March (£000) 2,927,368 2,224,807 3,084,874 3,414,012 3,519,647

Number of Contributors 43,152 46,857 43,728 *43,351 42,315

Contributions (£000) 190,220 211,227 204,046 223,459 210,146

Number of Pensioners 27,118 27,992 29,165 30,612 32,269

Benefits Paid (£000) 139,884 151,202 161,196 177,342 179,809

* Restated

As you can see from the table above I am pleased to report that during for the third consecutive year the these challenging times we have number of contributors to the Fund continued to be able to maintain has dipped again slightly whilst at the and improve our high level of service same time the number of pensioners despite the increasing complexity and has increased. This appears to reflect nature of the activities required and the continuing financial constraints it was pleasing to note the positive within which so many of the Fund’s findings of the independent review of employers are required to work. the pension administration function that was undertaken during the year. The Fund has, however, seen an increase in the numbers of employers You will find elsewhere within this admitted to the Fund as a result of publication the statutory statement on existing employers exploring new the responsibilities for the Statement ways of working. In addition, a of Accounts, which deals with the number of Essex schools have chosen formality of the arrangements that to convert to academies. As a result have been put in place to ensure that they became standalone bodies proper practices have been observed. for the purposes of the actuarial valuation. Lastly, I would like to record here my appreciation for all the staff involved We continue to monitor developments in the financial administration of the in the ongoing review of the LPGS. Fund, for all the work that they have carried out, the care that they have taken and the high standard that has Margaret Lee been achieved. Executive Director for Finance

page 8 Pension Fund Annual Report 2011-2012 Financial Summary

2007/08 2008/092009 /10 2010/11 2011/12 £’000 £’000 £’000 £’000 £’000

Value of fund at start of year 3,042,879 2,927,368 2,224,807 3,084,874 3,414,012

Revenue Account for year:-

Contributions 190,220 211,227 204,046 223,459 210,146 Investment and other income 88,876 92,506 72,464 76,829 75,050 Benefits and other expenses (173,993 ) (183,754 ) (195,364 ) (212,113 ) (210,251 )

Increase in income 105,103 119,979 81,146 88,175 74,945

Increase/(decrease) in market value of investments in year (220,614 ) (822,540 ) 778,921 240,963 30,690

Increase/(decrease) in fund during year (115,511 ) (702,561 ) 860,067 329,138 105,635

Value of fund at end of year 2,927,368 2,224,807 3,084,874 3,414,012 3,519,647

page 9 Section 1 Governance

The Essex Pension Fund Board (The Board) Arrangements The Board was established in 2008 and exercises all of the powers and duties Who Manages and Runs the of the Council in relation to its functions Essex Pension Fund? as Administering Authority except where they have been specifically delegated The County Council’s functions as administering authority are to another committee or officers. delegated to the Essex Pension Fund Board (the Board), the Investment Its functions include monitoring the Steering Committee (ISC) and its officers. administration of the Pension Scheme, exercising Pension Fund discretions and determining Pension Fund policy in regard Investment Steering to employer admission arrangements. The Committee (ISC) membership of the Essex Pension Board 2011/12 Essex County Council during 2011/12 is detailed below: The assets of the Fund are the Officers and Others property of its membership and Other than those responsibilities Board Representatives the interests of those members delegated specifically to the Board, 2011/12 are safeguarded by the ISC, which or the ISC, all of the Administering County Councillors oversees and approves all matters Authority responsibilities are R. L. Bass B.A., F.C.I.B. (Chairman) related to the Fund's investments. delegated to officers. The D. M. Finch (Deputy Chairman) Their main role is to decide asset Executive Director for Finance has J. F. Aldridge (from 10 May 2011) May 2011) allocation, appoint investment overall responsibility for the day to Mrs T. M. Chapman (to 9 managers and periodically review day operations and management N.J. Hume (from 10 May 2011) and monitors investment manager of the Fund, implementing the A. Jackson (to 9 May 2011) performance. The members of decisions of the Board and ISC. M. C. Lager the ISC during 2011/12 were: T. C. Smith-Hughes B.A., A.C.I.B. This includes the power to seek professional advice and devolve Mrs S. Barker (Conservative substitute ISC Representatives day to day handling of the Fund to from 9 May 2011) 2011/12 professional fund managers and Representatives of Scheme Members County Councillors advisers within the scope of the Vacant (to 10 October 2011) R. L. Bass B.A., F.C.I.B. (Chairman) regulations. She is assisted by the Keith Blackburn (UNISON) (from D. M. Finch (Vice Chairman) Head of Investments who provides 11 October 2011) J. F. Aldridge (from 10 May 2011) monitoring and accounting for the Representatives of Unitary Councils and Mrs T. M. Chapman (to 9 May 2011) the Essex Leaders Group N.J. Hume (from 10 May 2011) investments of and contributions J. P. F. Archer (ELGA) A. Jackson (to 9 May 2011) to, the Essex Pension Fund. She is P. A. Challis (Essex Leaders and Chief M. C. Lager also aided by the Pension Services Executives Group) T. C. Smith-Hughes B.A., A.C.I.B. Manager who is responsible for the S. M. Walsh ( Authority) Mrs S. Barker (Conservative management of Pension Services to provide a comprehensive E. C. Johnson (Essex Fire Authority) May substitute from 9 May 2011) M. Healy (Thurrock Council) (from 10 pension administration and Observers 2011) membership service to the May 2011) J.P.F. Archer (representing B Johnson (Thurrock Council) (to 9 Stakeholders in the Essex Pension Employers) B Kelly (Southend on Sea Borough Fund, ensuring that all benefits are Keith Blackburn (representing Council) (from 10 May 2011) paid promptly and that all statutory Employees/Beneficiaries) A. Moring (Southend on Sea Borough (from 11 October 2011) requirements are met. Council) (to 9 May 2011) Executive Director for Finance Representative of Small Admitted Bodies Independent Advisers to the Margaret Lee CIPFA J. Moore () (from Investment Steering Committee 20 January 2012) K.D. Neale C.P.F.A. Independent Governance and A. Hardy Administration Adviser to the Essex Investment Consultant Pension Board Hymans Robertson LLP pageK. McWilliam10 Pension Fund Annual Report 2011-2012

Fund Management Structure and Other Professional Organisations

The Essex Pension Fund invests in all major asset classes. Section 1 Governance These investments are managed externally by specialist Arrangements Fund Managers who are listed below. Fund Managers

Equity Mandate Manager Global Equities Alliance Bernstein Global Equities Baillie Gifford & Co. Global Equities FIL Pensions Management Global Emerging Markets Equities First State Investment Management (UK) Ltd Global Equities (Passive) Legal & General Investment Management Global Equities Marathon Asset Management Ltd

Bond Mandate Manager Corporate Bonds Goldman Sachs Asset Management Bonds (Passive) Legal & General Investment Management Corporate Bonds M & G Investments Other Organisations Property Providing Services to Mandate Manager the Fund Direct & Indirect Property Aviva Investors Global Services Ltd Property Solicitors Alternatives Essex County Council – Legal Services Mandate Manager Nabarro Nathanson Passive Currency Legal & General Investment Management Active Currency Mellon Capital Management Corporation AVC Provider Active Currency Record Currency Management The Equitable Life Assurance Society (terminated October2011 ) The Standard Life Assurance Private Equity Hamilton Lane (UK) Ltd Company Infrastructure M & G Investments Infrastructure Partners Group Management II S.à r.l. Actuary Company Loans M & G Investments Mercer (until December 2011) Timber Stafford Timberland Ltd Barnett Waddingham LLP (from Shareholder Activism Governance for Owners LLP 1 December 2011) Shareholder Activism Hermes Focus Asset Management Ltd Shareholder Activism Relational Investors LLC Auditor (terminated December2010) Audit Commission Performance Monitoring BNY Mellon Performance & Risk Analytics Europe Limited

Custodian The Bank of New York Mellon

page 11 Essex Pension Fund Business Plan 2011/12

Governance

Objectives: • Provide a high quality ‘gold standard’ service whilst maintaining value for money • Ensure the Pension Fund is managed and its services delivered by people who have the appropriate knowledge and expertise • Evolve and look for new opportunities that may be beneficial for our stakeholders, ensuring efficiency at all times • Act with integrity and be accountable to our stakeholders for our decisions, ensuring they are robust and well based • Understand and monitor risk and compliance • Continually measure and monitor success against our objectives • Pursue socially responsible business practices

Action How will this be achieved? Officer Progress as at March 2012 managing Action*

1. Annual business plan A draft business plan will be HoI and Complete - Plan agreed by March will be put in place produced based upon the draft PSM 2011 Board. objectives and submitted to the Board for approval in March 2011.

2. Measurement of Performance reports will be HoI and Complete - Measurement against progress provided to the Board. PSM Fund Objectives now forms part of the regular reporting to the Board.

3. Review the scheme of Scheme of delegation to be GMI Complete - A high level review delegation reviewed to ensure appropriate of the scheme of delegation was reporting lines, particularly in undertaken by Council on 10 May relation to Pension Services 2011. and the recent move to Finance Professional Services.

page 12 Pension Fund Annual Report 2011-2012

Action How will this be achieved? Officer Progress as at March 2012 managing Action*

4. Further roll out of Consider further development GO Ongoing – training and training of training for Board and officers • Ongoing training programme put needs assessments including: in place for Board with various elements of training delivered • Induction programme to be during year, including induction for offered to all new members all new members. of the Board and ISC. Training • Training needs assessment opportunities identified and completed by some Board offered to existing members members. throughout the year. • Training needs assessment • Officer training and development arrangements to be reviewed by needs will be identified through officers before end of March. “my performance” process and • Discussion ongoing on Pension reviewed during year. Board Members Resource to • Background reports will be replace handbook. prepared on all decisions to be • A statement on Knowledge and taken by the Board and ISC. Skillls is shown on pages 131 • Arrangements to ensure that to 132. appropriate advice is available to the ISC from institutional investment consultant and two independent investment advisers will be maintained. • Where specific issues require additional specialist advice, suitable providers will be identified. • A handbook has been prepared and will be maintained for members of the Board.

Review of success of training and agreeing an ongoing training assessment and delivery programme for PFB, ISC and, possibly, officers, which could incorporate the CIPFA Knowledge and Skills Framework.

5. Annual review of Review governance policy to HoI and Complete - undertaken at June 2011 governance policy ensure it is relevant and up to PSM Board. date, including the governance compliance statement therein.

page 13 Action How will this be achieved? Officer Progress as at March 2012 managing Action*

6. Annual review of Review the effectiveness of the GO and December 2011 Board meeting Pension Fund Board Pension Fund Board and the IGA agreed to carry this item forward to services supplied to it. 2012/13 due to the previous review results just being discussed at ISC in November 2011.

7. Review Fund objectives Fund objectives to be reviewed HoI and Complete - undertaken at December later in 2011/12 in advance of PSM 2011 Board. preparation of 2012/13 business planning. Measurement indicators will assist in understanding the appropriateness of the current objectives.

8. Commence One of the ISC’s Independent HoI Complete – at its meeting on 17 procurement of Investment advisers is due to end November, the ISC agreed to reduce Independent his contract mid way through 2012. the number of Independent Advisers Investment Adviser Arrangements will be made to from two to one. As a consequence ensure that a successor is in place successor arrangements are not when required. required.

page 14 Pension Fund Annual Report 2011-2012

Investments

Objectives: • To maximise the returns from investments within reasonable risk parameters • To ensure the Fund is properly managed • Ensure all significant Fund investment issues are communicated properly to all interested parties

Action How will this be achieved? Officer Progress as at March 2012 managing Action*

9. Monitor compliance Annually review the Statement of HoI Complete. The Statement of with statutory Compliance to be published in the Compliance has now been published guidance on SIP. in the Pension Fund’s Annual Report. investment decision making and disclosure

10. Review of asset Commission the investment HoI Complete. The study was submitted allocation consultants to carry out an asset to the ISC in July 2011. liability study for the Fund and coordinate the reporting of its findings to the ISC.

11. Review of Statement of Annual review of SIP following HoI On track. A draft revised SIP was Investment Principles the annual review of strategy & approved for consultation by the ISC (SIP) structure. in February 2012. The consultation will be undertaken and the revised SIP incorporating any recommended amendments in the light of consultation will be brought back to the ISC for approval in June 2012.

12. To determine whether Ensure that new fee monitoring HoI Complete - A report was submitted value for money arrangements agreed as part to the ISC in July 2011. is being obtained of strategy & structure review from the investment are implemented by investment management fees consultant as part of their annual being paid and to review of performance and identify any areas reported to the ISC. where efficiencies can be achieved

page 15 Funding

Objectives: • Within reasonable risk parameters, to achieve and then maintain assets equal to 100% of liabilities in the timescales determined in the Funding Strategy Statement • To determine employer contribution requirements recognising the desirability of maintaining as nearly constant employer contributions as possible • To have consistency between the investment strategy and funding strategy • To manage employers’ liabilities effectively by the adoption of employer specific funding objectives • Maintain liquidity in order to meet projected net cash-flow outgoings • Minimise unrecoverable debt on termination of employer participation

Action How will this be achieved? Officer Progress as at March 2012 managing Action*

13. Review Funding In conjunction with the interim HoI Complete - At its September meeting Strategy Statement review and in discussion with the the Board agreed not to amend the Actuary, the FSS will be reviewed to FSS in light of the outcomes of the ensure that it remains appropriate. March 2011 Interim Review.

14. Interim Review as at An interim review of the Fund HoI Complete - A presentation on the 31 March 2011 as at 31 March 2011 will be interim review was given to the commissioned from the Actuary. September Board.

15. Admission/employer The agreed framework structure HoI and Discussions are ongoing with new participation/bulk and associated documentation will PSM Actuary (Barnett Waddingham) on transfer policy be developed and implemented taking this forward. during the year.

page 16 Pension Fund Annual Report 2011-2012

Administration

Objectives: • Deliver a high quality, friendly and informative service to all beneficiaries, potential beneficiaries and employers at the point of need • Ensure benefits are paid to, and income collected from, the right people at the right time in the right amount • Data is protected to ensure security and authorised use only

Action How will this be achieved? Officer Progress as at March 2012 managing Action*

16. Independent Review The Independent Governance EDfF Complete. of Administration Adviser will complete the review of administration services.

17. Hutton Review / Pending outcomes, review and HoI and Complete. Review of Public put in place a plan to deliver any PSM Sector Pensions requirements.

18. Complete the annual Provide data to the Fund Actuary HoI and Complete. end of year data in order that any necessary PSM exercise as at calculations may be carried out. 31 March 2011

19. Review the provision Investigate current and alternative PSM Complete. of AVC arrangements arrangements available. Ensure stakeholders have choices.

20. Staff resources will be As part of the ongoing general PSM and Ongoing - Monitoring of workloads, monitored to ensure management of the service, HoI and impact of volume of employers that appropriate workloads, resources and priorities admitted into the Fund, continues. support can be are monitored and discussed provided to the Board, at team meetings. The support the ISC and other arrangements for the Pension stakeholders Fund, the Board and the ISC will need to be kept under review as new arrangements and policies are introduced.

21. Administration Investigate and develop an action PSM Complete. Strategy plan for the implementation of an administration strategy, following the completion and outcome of the administration review.

22. Procurement of The position of Fund Actuary will be HoI Complete – Following interviews in Actuary subject to market testing. October, Barnett Waddingham were appointed Actuary w.e.f. 1 December 2011.

23. Procurement of Global The position of Global Custodian GMI Ongoing – due to complete in Custodian will be subject to market testing. 2012/13.

page 17 Communications

Objectives: • Communicate in a friendly, expert and direct way to our stakeholders, treating all our stakeholders equally • Ensure our communications are simple, relevant and impactful • Deliver information in a way that suits all types of stakeholder • Aim for full appreciation of the pension scheme benefits by all scheme members and prospective scheme members

Action How will this be achieved? Officer Progress as at March 2012 managing Action*

24. Hutton Review Pending outcomes, review and PSM Awaiting detailed proposals on put in place a plan to deliver any implementation. communication requirements.

25. Improve employer Review and put in place a plan PSM A Communications Policy Statement engagement to improve engagement with was agreed by the Board on 7 March employers of the fund. This will be 2012 and is shown on pages 124 to undertaken as part of a review of 130 of this report. the communication strategy.

26. Improve engagement Review and put in place a plan to PSM A Communications Policy Statement with other improve engagement with other was agreed by the Board on 7 March stakeholders stakeholders within the Fund. 2012 and is shown on pages 124 to This will be undertaken as part of 130 of this report. a review of the communication strategy.

27. Further develop Investigate ways of increasing use PSM A Communications Policy Statement website of the website, including an area was agreed by the Board on 7 March for Employers. 2012 and is shown on pages 124 to 130 of this report.

28. Instigate joint Instigate joined up HoI and A Communications Policy Statement communications communications covering PSM was agreed by the Board on 7 March Administration and Investment 2012 and is shown on pages 124 to issues. 130 of this report.

page 18 Pension Fund Annual Report 2011-2012

Section 2 Investments

page 19 Investment Strategy Overview

Each year the ISC reviews the Fund’s investment strategy over the prior 12 months and formulates its future strategy going forward. The 2011 yearly review took place at the meeting held in February 2012. Central to the review was the discipline of Fund Weighting ensuring that the Fund’s investment strategy remained consistent with the funding strategy. 100.0 28.0 2.5 7.0 7.0 7.0 7.0 4.0 5.5 5.0 15.0 2.0 1.0 4.0 1.0 4.0 UK Equities 8.5 30.0 Global Equities 28.0 100.0 100.0 100.0 100.0 The strategy adopted for 2011/12 was very much a consolidation of the current fund North America Equities 6.4 23.0 structure with a number of small changes to individual mandates and asset classes Europe Equities 6.4 23.0 designed to add significant value when taken together. Japan Equities 4.5 16.0 Pacific ex-Japan Equities 2.2 8.0 The table opposite shows the strategic allocation benchmark as at 31 March 2012, Emerging markets Equities 4.0 100.0 as agreed at the February meeting. Total Equities 60.0 100.0 100.0 100.0 100.0 100.0 100.0

UK Index Linked 2.5 100.0 UK Fixed Interest Gilts UK Corporate bonds Libor + 10.5 100.0 100.0 Total Bonds 13.0 100.0 100.0 100.0

Infrastructure 4.0 100.0 Timber 2.0 100.00 Private equity 4.0 100.0 Property 15.0 100.0 Financing 1.0 100.0 Currency 1.0 100.0 Total alternatives 27.0 100.0 100.0 100.0 100.0 100.0 100.0

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

page 20 Pension Fund Annual Report 2011-2012

Strategic Benchmark Asset Allocation of the Pension Fund as at 31 March 2012

Swing Equities Bonds Alternatives Active Global Mandates Active Mandate Effective Benchmark Baillie Gifford LTGG Alliance Bernstein Private Equity Infrastructure L&G Equity L&G Bonds First State Marathon Financing Currency Property Fidelity Timber GSAM M&G

Fund Weighting 100.0 28.0 2.5 7.0 7.0 7.0 7.0 4.0 5.5 5.0 15.0 2.0 1.0 4.0 1.0 4.0 UK Equities 8.5 30.0 Global Equities 28.0 100.0 100.0 100.0 100.0 North America Equities 6.4 23.0 Europe Equities 6.4 23.0 Japan Equities 4.5 16.0 Pacific ex-Japan Equities 2.2 8.0 Emerging markets Equities 4.0 100.0 Total Equities 60.0 100.0 100.0 100.0 100.0 100.0 100.0

UK Index Linked 2.5 100.0 UK Fixed Interest Gilts UK Corporate bonds Libor + 10.5 100.0 100.0 Total Bonds 13.0 100.0 100.0 100.0

Infrastructure 4.0 100.0 Timber 2.0 100.00 Private equity 4.0 100.0 Property 15.0 100.0 Financing 1.0 100.0 Currency 1.0 100.0 Total alternatives 27.0 100.0 100.0 100.0 100.0 100.0 100.0

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

The passive balanced manager monitors the fund assets against its benchmark and is required to rebalance the overall asset allocation by adjusting assets within the passive balance mandate.

page 21 Portfolio Distribution at 31 March

The graphs below show the change in the Fund’s actual portfolio distribution between the main asset classes as at 31 March over the last two years.

UK Equities Overseas Equities UK Fixed Interest Overseas Fixed Interest Other Property Index Linked Cash

2011 2012 Investment Decisions The following outlines key strategic decisions that the ISC have made during 2011/12 that have helped shape both the strategic and actual portfolio allocations shown above. It also discusses changes resulting from decisions made in prior years that have been implemented during 2011/12.

E q u i t y No changes were made during the year to the investment managers that manage the Fund's equity mandates. The Committee has, however, decided that the overweight to equities will be decreased gradually by using equities as the primary source for financing new investment Bonds opportunities in alternative asset classes. The ISC decided to amend Largest 10 Equity Holdings of the Fund as at Goldman Sachs’ corporate bond 31 March 2012 mandate to a Libor plus 2% mandate. This took effect on 7 The table below shows the Fund's top 10 equity holdings as at 31 March 2012. April 2011. In addition the income mandate currently managed by L&G Market Value at Proportion of the net was revisited. It was agreed that 31 March 2012 assets of the Fund as liabilities are inflation linked £m (%) there was no strategic rationale AMAZON.COM INC 26.77 0.76 for holding conventional gilts and that L&G's portfolio be switched to BAIDU INC/CHINA ADR 23.57 0.67 100% index linked. The transfer APPLE INC 22.96 0.65 to index linked was done gradually over the course of a three month TENCENT HOLDINGS LTD 16.31 0.46 period. The transfer was completed INTUITIVE SURGICAL INC 15.89 0.45 by the end of September 2011. PPR EUR4.00 14.68 0.42 GOOGLE INC 14.31 0.41 ATLAS COPCO AB SER A NPV (POST SPLIT) 14.13 0.40 EBAY 13.94 0.40 VALE SA ADR 13.52 0.38 Total 176.08 5.00 page 22 Pension Fund Annual Report 2011-2012

Property Holdings Property The ISC in the prior year agreed Market Value at 31 March 2012 to raise the strategic allocation Retail to property to 15% (an additional £m injection of cash of £80m). As at 31  Retail Offices 100.8 March 2011, Aviva had drawn-down  Offices 48.8 £10m of this amount. During 2011-12 Industrial/OtherIndustrial/Other 46.4 a further £45m has been drawdown  to fund investments in direct property.  Property UnitProperty Trusts Unit Tr237.9usts At the strategy meeting held in Total 433.9 February 2012 the ISC requested that the advisers of the Fund investigate the potential merits of investing in global property.

During the year, 6 new direct MarketLargest Value atDirect 31 March 2012 properties were purchased whilst 2 Property Holdings properties were sold. More detail in respect of the Fund’s property Market Value at 31 March 2012 portfolio is opposite below. £m  Office 48/49 Chancery Lane 15.650 The first table opposite provides detail  Office 55 – 57 Dean Street, London 13.425 of the type of property in which the  Retail 971 Great West Road, Brentford 11.400 Fund invests whilst the second table  Retail 734-736 Seven Sisters Road, London 11.200 provides detail of the Fund's 5 largest  Retail 74-82 Western Road and 15 Stone Street, Brighton 10.600 direct properties held as at 31 March.

Alternatives Infrastructure Loans 2012, the Fund's only investments in During 2010/11 the ISC appointed There has been no strategic change in this asset class are a residual holding an additional infrastructure manager, this asset class. The Financing Fund within the Governance for Owners Partners Group. The Fund made has continued with a programme of European Fund (GO) and a small a commitment last year initially of drawdowns during the year to finance investment in a side pocket of the ¤80m (£70m approx.) to their indirect new ventures. Hermes UK Specialist Focus Fund. product. The ISC further agreed to Currency Timber invest an additional ¤22.7m (£20m During the year the decision was taken During 2010/11 the ISC agreed that approx.) with Partners Group, this by the ISC to switch the two currency 2% of the Fund’s assets (£50m) be time in their direct product. The first mandates managed by Mellon allocated to a new timber mandate. drawdown was made in May 2011. Currency and Record Management After a successful tender process from equitized funds to cash based Stafford Timberland was appointed Private Equity funds. The switch was completed in in November 2011 to manage this In 2011/12 the Fund invested in 6 August 2011. Subsequently, due mandate. As at the 31 March 2012, new partnerships taking the number to the extremely poor performance the outstanding commitment stood at of private equity partnerships to 40. by Record the ISC took the decision £22.2m. Of these, 6 partnerships have now to terminate their mandate. As a drawn down their full commitment. Other Investments result the mandate was terminated in The ISC is committed to increasing Further research was commissioned October 2011. its commitment to private equity in in 2011/12 on other types of asset the future and reinforced this at its Shareholder Activism classes as part of a potential widening February 2012 meeting when it was The decision was taken in 2009 to of the alternatives portfolio. agreed to extend Hamilton Lane’s dis-invest from this asset class. The programme of £50m per annum Fund, as a result of this decision has, to achieve a 4% allocation to this when the opportunity has arisen been asset class. steadily dis-investing. As at 31 March

page 23 Investment Performance 2011/12 The investment performance of the Fund Managers is reported on a quarterly basis to the Investment Steering Committee (ISC). The Fund Managers submit reports and valuations for this purpose and meet at least annually with the Committee and/or its officers to make oral presentations and to answer questions.

Fund Managers are required to provide performance information to BNY Mellon Performance & Risk Analytics Europe Ltd, who assess the rate of return achieved and provide performance reports for consideration by the ISC.

Total Fund Annual Investment Returns Performance 40

The graph on the right shows 35.5 the relative performance of the 30 35.5 Essex Pension Fund. The overall

return on the Fund for 2011/12 26.6 20 26.1 was 1.5% compared to the 24.3 24.3 customised benchmark of 0.7%. For comparison the WM Local 10 12.7 Authorities average fund return 12.3 1.5 10.0 7.8 7.6 0.7 for the same period was 2.6%. 7.2 0 -2.7

-10 -3.8 -18.5 -18.4 -19.9 -20 -21.0

-30 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

 Benchmark %  Essex Fund %

The analysis set out below shows the returns by asset class: Returns by Asset Class for 2011/12 25

20 21.1 20.4 15

10

5 3.3 6.2 1.4 1.3 1.1 5.0 0 -0.1 -5 -1.4 -0.3 -0.4 2 -0.7 -1.2

UK Equities Overseas UK Bonds UK Index Property Equities Linked

 Benchmark %  Essex Fund %  Variation page 24 Pension Fund Annual Report 2011-2012

Performance Comparisons

15 The graph on the left shows the 12 14.8 long term performance of the 13.7 Fund and the variation against 9 the benchmark.

6 5.9 5.9 3  Benchmark % 2.8 2.8 0  Essex Fund % 1.1 0.0 0.0 Variation 3 Years 5 Years 10 Years 

Manager Performance

The table below shows the value and proportion of all investment managers’ portfolios as at 31 March 2012. The performance of each portfolio compared to benchmark during 2011/12 is also shown.

Benchmark Essex Fund Funds Return Managed Manager (%)* (%) £m % Legal & General Investment Managers – Growth Portfolio -0.8 -0.6 993 28.5 Legal & General Investment Managers – Income Portfolio 20.8 21.3 128 3.7 Legal & General Investment Managers – Passive Currency 1.2 0.9 21 0.6 Aviva Investors Global Services Ltd. 6.2 4.9 463 13.3 Alliance Bernstein -0.4 -9.1 213 6.1 Baillie Gifford & Co 0.1 -0.9 290 8.3 FIL Pensions Management -0.4 -1.4 240 6.9 First State Investments (UK) Ltd -8.5 6.7 192 5.5 Marathon Asset Management Ltd – Segregated -0.5 0.7 215 6.1 Marathon Asset Management – Pooled 1.2 0.1 68 2.0 Goldman Sachs Asset Management 1.6 1.1 171 4.9 M&G Investments - Alpha Opportunities 0.6 1.9 147 4.2 Mellon Capital Management Corporation -11.2 -14.6 26 0.7 Fund 0.7 1.5 3,486 100

* In addition to the investments shown above, the Fund also invested £155m (4.5%) in Private Equity Partnerships, £103m (3.0%) in Infrastructure, £61m (1.7%) in Timber, Financing and other partnerships.

page 25 Section 3 Pensions Services

page 26 Pension Fund Annual Report 2011-2012

Statement from the Pensions Services Manager

Following on from last An independent review of We have continued to increase our year, 2011/12 continued administration was undertaken last communications activities, not just Section 3 Pensions Services year and it determined that the Essex with our scheme membership but the theme of change and Pension Fund has an excellent team also with our scheme employers. We uncertainty especially of managers and staff providing its have planned 10 presentations for regarding the future of services. The review did not find any employers throughout the year. These areas of major concern, however presentations last up to 2 hours and the Local Government there is always room for improvement cover everything including the current Pension Scheme. and we will all be working together scheme overview, taxation, national After many months of to implement the recommendations pension changes and will eventually made. During this year we have carried include new scheme proposals. At negotiations a new out surveys with both our employers these events we will also spend the LGPS for 2014 looks to and scheme members with feedback afternoon discussing the latest LGPS be emerging, this will resulting in 100% and 97.7% issues with scheme members. satisfaction scores respectively. be a career average From April 2012 new pensions arrangement rather than HM Revenue & Customs (HMRC) legislation introducing Automatic a final salary scheme introduced a new pension tax regime Enrolment came into effect requiring in April 2011 where a person may be all employers (public and private) to with the retirement age liable for a tax charge if the annual enter their employees into a pension linked to an individual’s growth from all pension arrangements arrangement, over the period 2012 state pension age. exceeds £50,000. Although this is to 2018. The LGPS already enrols an individual taxation issue for each most employees on their first day of member, there has been a significant employment and will be a “qualifying amount of work undertaken by scheme”. The new legislation will Pensions Services in order to provide require local government employers to them with information on their enrol all employees into the LGPS and pension growth in the Essex Pension if they opt out to re-enrol them every Fund, which they may need to declare 3 years. As it is estimated 25% of all to HMRC. local government employees are not in the scheme both scheme employers It has been another extremely busy and the Essex Pension Fund will need year for employer outsourcing activity a significant increase in resources to and new admissions to the Fund. administer this new legislation. There have been a large number of enquiries from schools interested in becoming academies. To date around 100 schools have converted to status. Also, as anticipated, the number and the complexity of outsourcing arrangements undertaken by Fund employers has continued to increase, placing a considerable strain on our limited resources. We have recently moved some extra resource into this area of work and during the coming year we plan to complete work on our Admissions Framework and to put in place the resources and structure needed for this important and growing area of work going forward.

page 27 Membership Summary

Total Contributors Total Pensioners Deferred Pensioners

2010/11 2011/12

2010/11 2011/12 County Council 18,559 17,057 District/Unitary Councils 10,353 9,830 Other Employing Bodies 14,439 15,428 Total Contributors 43,351 42,315 Retired Employees 25,899 27,425 Dependants 4,713 4,844 Total Pensioners 30,612 32,269 Deferred Pensioners* 34,723 38,101

* Deferred pensioners are former employees who have chosen not to transfer their pension rights.

Key Service Standards for Scheme Members

Type of Work Maximum Actual % Achieved Turnaround Time 2010/11 2011/12

Letter detailing transfer in quote* 10 working days 93 86

Letter detailing transfer out quote* 10 working days 97 87.3

Process refund and issue payment voucher 5 working days 84 85.5

Letter notifying retirement benefit amount - estimates 10 working days 98 96.2

Letter notifying actual retirement benefits and issue of payment voucher for lump sum retirement grant 5 working days 96 95.1

Letter acknowledging death of active / deferred / pensioner member 5 working days 98 99.7

Letter notifying amount of dependant's benefits 5 working days 96 96

Calculate and notify deferred benefits 10 working days 78 82.6

Note: The above measures reflect the reports that are passed to the Pension Board on an annual basis, and also the CIPFA benchmarking.

The turnaround times for transfers have been affected this year due to delays in the provision of revised government actuary department factors, which are outside of our control.

page 28 Pension Fund Annual Report 2011-2012 Scheme Details

Essex County Council administers the Local Government Pension Scheme for its own employees, those of the 14 District/Borough/Unitary Councils and numerous other bodies. The scheme excludes provision for teachers, fire- fighters and police officers, for whom separate arrangements exist. Benefits are prescribed by, and the Essex Pension Fund is invested in accordance with, the provisions of the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007, the Local Government Pension Scheme (Administration) Regulations 2008 and Local Government Pension Scheme (Management and Investment) of Funds Regulations 1998. The rate of member contributions is between 5.25% and 7.5% of pensionable pay. The rate of employer contributions is set at each triennial valuation of the Essex Pension Fund.

2. Ill Health th4. in Service 1. Benefits Dea Retirement A lump sum death grant of 3 Brief details of some of the principal times A member with at least 3 months actual pensionable pay received is benefits available to members of membership retired: payable, regardless of the length the Local Government Pension (1) on the grounds that his/her of membership. In addition, Scheme are listed below. ill-health or infirmity of mind or pensions are payable for life to Benefits will normally be based body renders him/her permanently surviving spouses, civil partners on two factors: length of service incapable of performing the duties and nominated cohabiting partners. during which contributions have of their job, and Dependant children under the age been paid to the scheme, known (2) that they have a reduced of as “Membership”, and the salary 18, or 23 if in continuing full-time likelihood of obtaining any gainful education or training, also qualify on which those contributions were employment before their normal for a pension. paid (normally the last 12 months retirement age of 65. of membership). This is commonly will receive immediate payment of known as “Final Pay”. 5. Death after a pension and, where applicable, a i) Annual Pension Retirement lump sum. The calculation of the annual Spouse’s, civil partner’s, nominated If it is considered that the member pension is based on the following cohabiting partner’s and dependant will be capable of obtaining gainful formula:- children’s pensions are payable as employment within 3 years, the Final Pay x 1/80 x Membership up to above If death occurs before the pension is reviewable after 18 31st March 2008 pension has been in payment for 10 months and, in any case, will cease Final Pay x 1/60 x Membership from years, the balance is paid as a lump after 3 years. For all other ill health 1st April 2008 sum death grant. retirements, the pension is payable The pension will receive a cost for life. of living increase each April in 6. Death in Deferment In certain circumstances, the accordance with Pensions Increase A lump sum death grant of 5 membership is increased to times (Review) Orders. the deferred pension is payable. In compensate for premature ii) Lump Sum addition, spouse’s, civil partner’s, retirement. There may be an entitlement to a nominated cohabiting partner’s and tax-free lump sum, calculated using dependant children’s pensions are 3. Deferred Benefits the following formula: payable as above. Final Pay x 3/80 x Membership up to Leavers with at least 3 months 31st March 2008 membership, who are not entitled (There is no automatic lump sum for to receive immediate payment, Membership from 1st April 2008) are awarded a deferred benefit. iii) Conversion of Pension This is normally paid at age 65 but All members can exchange pension provisions exist for early payment in for a lump sum subject to HM certain circumstances. Alternatively, Revenue and Customs limits. it may be possible to transfer the cash equivalent value of the deferred benefit to another pension arrangement. Deferred benefits receive cost of living increases each April in accordance with Pensions Increase (Review) Orders.

page 29 A modified scheme prescribed by the Local Government Pension Scheme Regulations1997 is available for councillors of authorities whose Independent Remuneration Panel has taken a decision to allow them the option to be members. The rate of member contributions is 6% of pensionable allowances and the rate of employer contributions is set at each triennial valuation of the Essex Pension Fund.

1. Benefits Brief details of some of the principal benefits available to councillor members are listed below. th4. Deain Service Benefits will normally be based A lump sum death grant of 2 on two factors: length of service 2. Ill Health times career average pay is during which contributions have Retirement payable, regardless of the length been paid to the scheme, known A member with at least months of membership. In addition, as “Membership”, and the average 3 membership retired: pensions are payable for life to of the allowances on which those on the grounds that they have surviving spouses, civil partners contributions were paid over the become permanently unable (until and nominated cohabiting partners. total period of membership. This their 65th birthday) to perform Dependant children under the age is commonly known as “Career the duties of their office because of 18, or 23 if in continuing full-time Average Pay”. of ill-health or infirmity of mind education or training, also qualify i) Annual Pension or body for a pension. The calculation of the annual pension is based on the following will receive immediate payment of a pension payable for life and a lump 5. Death after formula:- Retirement /80 x sum. Career Average Pay x 1 Spouse’s, civil partner’s, nominated Membership In certain circumstances, the membership is increased to cohabiting partner’s and dependant The pension will receive a cost children’s pensions are payable as of living increase each April in compensate for premature retirement. above If death occurs before the accordance with Pensions Increase pension has been in payment for 5 (Review) Orders. 3. Deferred Benefits years, the balance is paid as a lump ii) Lump Sum sum death grant. The calculation of the tax-free lump Leavers with at least 3 months sum is based on the following membership, who are not entitled 6. Death in Deferment formula: to receive immediate payment, Career Average Pay x 3/80 x are awarded a deferred benefit. A lump sum death grant equal to Membership This is normally paid at age 65 the deferred retirement lump sum is iii) Conversion of Pension but provisions exist for early payable. In addition, spouse’s, civil All councillor members can payment in certain circumstances. partner’s, nominated cohabiting exchange pension for an additional Alternatively, it may be possible to partner’s and dependant children’s lump sum subject to HM Revenue transfer the cash equivalent value pensions are payable as above. and Customs limits. of the deferred benefit to another (non LGPS) pension arrangement. Deferred benefits receive cost of living increases each April in accordance with Pensions Increase Information for members, including (Review) Orders. full guides to the Local Government Pension Scheme, can be viewed on the Essex Pension Fund website at www.essexpensionfund.co.uk

The Pensions Services Manager Tax Reference Number: and her staff will be pleased to 747 39028 69475 answer any questions regarding Pension Scheme Tax Reference: membership of the Local PSTR 00328636RV Government Pension Scheme Formerly known as the (Telephone 01245 431912 or e-mail Registered Fund Number. [email protected]). page 30 Pension Fund Annual Report 2011-2012 Participating Employers of the Fund

Scheme Cathedral Primary School St Andrews Primary School (North Cecil Jones High School Weald) Employers Chase Lane Primary School St Andrews Primary School (Weeley) Clacton County High School St Benedicts College County, Unitary, Collingwood Primary School St Christopher School, The Borough & Districts Coppins Green Primary School St Clare’s Primary School Essex County Council Cornelius Vermuyden School, The St Helen’s Infant School Basildon Borough Council Deanes School, The St John Fisher Primary School Braintree District Council Dunmow St Mary's Primary School St Katherine’s Primary School Brentwood Borough Council Earls Colne Primary School St Mary’s C of E Primary School Castle Point Borough Council Eastwood Primary School St Osyth Primary School Chelmsford Borough Council Elmstead Market Primary School Takeley Primary School Borough Council Elmwood Primary School Thaxted Primary School Epping Forest District Council Endeavour School, The Thomas Willingale Primary School Harlow District Council Engaines Primary School Upshire Primary School Maldon District Council Fitzwimarc School, The Ursuline Convent School Rochford District Council Grays School, The Waltham Holy Cross Infants School Southend-on-Sea Borough Council Great Clacton Junior School Walton Primary School (Unitary) Great Dunmow Primary School Woodville Primary School Tendring District Council Great Totham School Wyburns Primary School Thurrock Borough Council (Unitary) Grove Wood Primary Uttlesford District Council Helena Romanes School Academy Schools Heybridge Primary School (conversion Scheduled Hockley Primary School date 01/12/2011) Holland Haven Primary School Anglia Ruskin University , The (conversion Colchester Borough Homes Holland Park Primary School Horndon-on-the-Hill Primary School date 01/04/2011) Essex Fire Authority Ashingdon Primary School Essex Police Authority Howbridge Infants School Katherines Primary School (conversion date 01/09/2011) Essex Probation Committee Basildon Lower Academy The Gateway Academy Kenningtons Primary School Kingswood Infants School Basildon Upper Academy Billericay School (conversion date Incorporated Colleges Kingswood Junior School Lawford Primary School 01/07/2011) Leverton Infants School Boswells School, The (conversion Leverton Junior School date 01/02/2012) Colchester Sixth Form College Mersea Island Primary School Burnt Mill School (conversion date Epping Forest College Millfield Primary School 01/12/2011) Milton Hall Primary School Buttsbury Junior School (conversion Palmers Sixth Form College Newlands Spring Primary School date 01/05/2011) SEEVIC Newport Free Grammar School Chelmer Valley High School South Essex College North Crescent Primary School (conversion date 01/08/2011) Writtle Agricultural College Northlands Junior School Chelmsford High School for Girls Northwick Park Primary and Nursery Schools (ExGM) School Our Lady Immaculate Primary School for Girls Beauchamps School Prince Avenue Primary School (conversion date 01/10/2011) Belfairs Community College Rochford Primary School Colchester Royal Grammar School Brentwood County High School Rodings Primary School (conversion date 01/01/2012) Brinkley Grove Primary School Rolph Primary School Colne Community School, , The of Science & (conversion date 01/09/2011) Broomfield Primary School Technology Davenant Foundation School, The Buttsbury Infants School St Andrews Junior School (Hatfield (conversion date 01/04/2011) Peverel) Debden Park (conversion date

page 31 01/04/2011) 01/08/2011) (conversion date 01/08/2011) Eastwood High School (conversion Lee Chapel Primary School Stanway School (conversion date date 17/08/2011) (conversion date 01/08/2011) 01/03/2012) Flitch Green Academy (conversion (conversion date date 01/04/2011) 01/10/2011) Gable Hall School (conversion date (conversion date 01/03/2012) Stisted CofE Primary (conversion 01/07/2011) date 01/10/2011) Gilberd School (conversion date Ormistion Rivers Academy Tendring Technology College & VI 01/03/2012) (conversion date 01/09/2011) Form (conversion date 01/08/2011) Passmores School (conversion date The Ockendon School (conversion date 01/07/2011) 01/09/2011) Thomas Lord Audley (conversion Great Berry School (conversion date Philip Morant School and College, date 01/03/2012) 01/08/2011) The (conversion date 01/11/2011) Thriftwood School (conversion date Plumberow Primary School 01/10/2011) Gt Chesterford Academy (conversion (conversion date 01/09/2011) (conversion date date 01/10/2011) , The (conversion date 01/08/2011) Hadleigh Infants School (conversion 01/02/2012) Tyrrells School (conversion date date 01/08/2011) RA Butler Infants 01/11/2011) Hadleigh Junior School (conversion RA Butler Junior (conversion date 01/09/2011) Robert Drake Primary School date 01/06/2011) Harris Academy Chafford Hundred (conversion date 01/08/2011) Westborough Academy Campus (conversion date Runwell Primary (conversion date Westcliff High School for Boys 01/10/2011) 01/08/2011) Westcliff High School for Girls Harwich & Dovercourt Academy Saffron Walden High School Westerings Primary School (conversion date 01/03/2012) (conversion date 01/06/2011) (conversion date 01/09/2011) Hassenbrook School (conversion Sandon School (conversion date Westwood Primary (conversion date date 01/09/2011) 01/08/2011) 01/08/2011) Hilltop Junior School (conversion (conversion Wickford C of E Infant School date 01/08/2011) date 01/02/2012) (conversion date 01/12/2011) Hockerill Anglo-European College Shoeburyness School (conversion William De Ferrers School Holy Cross Primary School date 01/12/2011) (conversion date 01/04/2011) (conversion date 01/08/2011) South Benfleet Primary School William Edwards School (conversion Honywood Community School (conversion date 01/08/2011) date 01/08/2011) Hutton All Saints CofE Primary Southend High School (Boys) School (conversion date Southend High School for Girls Town & Parish 01/12/2011) St Albans Catholic Primary School Councils (conversion date (conversion date 01/08/2011) 01/08/2011) St Bernards High School Ashingdon Parish Council Jotmans Hall Primary School (conversion date 01/08/2011) Barnston Parish Council (conversion date 01/08/2011) St Clere’s School (conversion date Blackmore Parish Council Kents Hill Infant (conversion date 01/09/2011) Billericay Town Council 01/09/2011) St Helen’s Junior School (conversion Brightlingsea Town Council Kents Hill Junior (conversion date date 01/08/2011) Broomfield Parish Council 01/11/2011) St Helena School (conversion date Buckhurst Hill Parish Council , The 01/03/2012) Burnham On Crouch Town Council (conversion date 01/07/2011) St Marks West Essex Catholic Canvey Island Town Council King Edward VI Grammar School Schools (conversion date Chigwell Parish Council (conversion date 01/04/2011) 01/08/2011) Coggeshall Parish Council King Harold Business & Enterprise St Martin’s School (conversion date Danbury Parish Council Academy 01/07/2011) Earls Colne Parish Council King John School (conversion date St Thomas More High School Epping Town Council 01/04/2011) (conversion date 07/08/2011) Feering Parish Council Kingston Primary (conversion date St Thomas More RC Primary School Frinton & Walton Town Council

page 32 Pension Fund Annual Report 2011-2012

Galleywood Parish Council Braintree Women's Aid The Inclusion Trust Great Baddow Parish Council Brentwood Community Transport Thurrock Community Leisure Ltd Great Burstead & South Green Brentwood Leisure Trust Thurrock Thames Gateway Parish Council Cambridge Access Validating Development Corporation Great Dunmow Town Council Agency, The Trading Standards Institute Great Notley Parish Council Care Quality Commission University of Essex Great Wakering Parish Council Castle Point Citizen’s Advice Bureau University of Essex Student Union Halstead Town Council Central Essex Community Services Worthing Homes Ltd Harwich Town Council (previously Mid Essex PCT) Hawkwell Parish Council Chelmer Housing Partnership Admission Bodies Herongate and Parish Chelmsford Agency for Volunteering Ashlyn Healthcare Ltd Council Chelmsford Citizens Advice Bureau Braintree District Leisure Community Heybridge Parish Council Chelmsford Community Transport Association Ltd Hullbridge Parish Council Ltd Central Parking System of UK Ltd Chelmsford Council for Voluntary Ingatestone and Fryerning Parish Churchill Catering Ltd Services Council Churchill Contract Services Limited Colchester and Tendring Womans Leigh on Sea Town Council Community Clean Refuge Little Waltham Parish Council Corporate Document Services Ltd Essex Association of Local Councils Little Yeldham Parish Council Dovercourt Healthcare Ltd Essex Comercial Services (previously Loughton Town Council Elmy Landscapes Ltd Wivenhoe Park Management Ltd) Maldon Town Council English Landscaped Maintenance Essex County Scout Council Myland Parish Council Ltd Essex Joint Branch Board of the North Weald (Bassett) Parish Essex Cares Limited Police Federation of and Council Essex Community Support Limited Wales Ongar Parish Council Essex Employment & Inclusion Rayleigh Town Council Essex Local Valuation Service General Social Care Council Limited Runwell Parish Council Essex Equipment Services Limited Saffron Walden Town Council Hamilton Lodge Trust Ltd Harlow & District Sports Trust Europa Support Services Sandon Parish Council Harlow Community Transport Goldenley Healthcare Ltd Sible Hedingham Parish Council Harlow Welfare Rights & Advice Greenfields Community Housing Ltd South Hanningfield Parish Council Harwich Connexions Transport Co- Head Office Cleaning Services Ltd South Woodham Ferrers Town op Ltd HQ Theatres Ltd Council Hatfield Peverel Day Nursery Kier Harlow Ltd Springfield Parish Council Home Ltd Longfield Healthcare Ltd St Osyth Parish Council Impulse Leisure May Gurney (Construction) Ltd Stansted Mountfitchet Parish Itec Learning Technology Ltd MCCH Society Ltd Council Moat Housing Group Ltd Morrison Facilities Services Ltd Stanway Parish Council Open College Network Eastern Thurrock Stebbing Parish Council Region Morrison FS Ltd Colchester Thaxted Parish Council Orchestras Live Nightingale Cleaning Ltd Tiptree Parish Council Phoenix Group Homes P H Jones Ltd Waltham Abbey Town Council Race Equality Foundation The Papworth trust Parish Council Rainbow Services, Harlow Pinnacle PSG (previously Wates West Mersea Town Council Rochford Housing Association Ltd Facilities Management Ltd) Witham Town Council Rural Community Council of Essex Riverside Truck Rental Limited Wivenhoe Town Council Safer Places RM Education Writtle Parish Council SLM Rushcliffe Care Social Care Institute for Excellence Serco Solutions Admitted Bodies (SCIE) Skanska (Columbus) Alphaprint (Colchester) Limited) SOS Domestic Abuse Projects Skanska (Cornelius) Ardleigh Reservoir Committee Thames Gateway South Essex South Essex Homes Basildon Women's Refuge Partnership St Georges Community Housing Ltd

page 33 Sweyne Healthcare Ltd Essex & Suffolk Water Company Renaissance Southend Ltd Vehicle Lease & Service Ltd Essex Careers & Business Saffron Walden Almshouses Vertex Partnership Saffron Walden Museum Society Westminster Drug Project Ltd Essex County Association for the Saffron Walden Training College Women’s Royal Voluntary Service Blind South East England Virtual (Essex CC) Essex Economic Partnerships Education Action Zone WRVS Food Services Ltd Essex Federation of Congregational South East Essex College of Arts & Women's Homes Technology Bodies with no Essex Joint Crematorium Committee South East Essex Technology Centre current contributors Essex Magistrates Courts Committee South Essex Local Valuation Panel Age Concern Essex Essex Physically Handicapped Southend Association of Voluntary Association Alfred McAlpine Contruction Ltd Services Essex River Authority Anglian Water Authority Southend Association of Voluntary Essex Water Company Association of Public Service Services Exwaste Ltd Finance Officers Southend Education Action Zone Family Service Units Basildon College Federation of Public Passenger Southend Transport Ltd Basildon Community Housing Transport Employees Thames Water Utilities Ltd Association , The Thameside Windows Ltd Basildon DVC (Commission for New Grove Infants School Thurrock and Basildon College Town) Grove Junior School Thurrock College Blackwater Housing Association Harlow Co-op Development Agency Tollesbury Parish Council Harlow Council Employees Social Torrells GM School Braintree, Dunmow & Witham Joint Club Towngate Theatre Sanitary Committee Harlow Council for Voluntary Trans Vol Bramston Sports Centre Services Veolia Enviromental Services (UK) Brentwood High House Hostel Harlow Development Corporation PLC (previously Cleanaway Ltd) Brightlingsea Harbour Committee Harlow ITEC - Termiante February Veolia Water East Ltd Business Link (Essex) Ltd 2010 Welsh National Board of Nursing, Central Council for Education & Harlow Renaissance Ltd Midwifery & Health Visitors Training in Social Work Harlow Theatre Trust Westcliff Theatre & Art Centre Centre for Education & Training Harlow Trade Union Centre Windyridge Management Committee Health Visitors Harwich Connexions Transport Co- Chappel Parish Council operative Ltd Chelmsford Environment Harwich Port Health Authority Partnership HBS Business Services Group Ltd Clacton & Harwich Education Action King Edward VI Alms House, Saffron Zone Walden Colchester MIND Lambourne Parish Council Colchester Transport Ltd Little Thurrock Primary School Colchester Youth Arts Partnership Marks Tey Parish Council Connaught Partnership Ltd Mid Essex Primary Care Trust Crouch Harbour Authority (previously Witham, Braintree & East Anglian Regional Examination Halstead Care Trust) Board National Board of Nursing , East Basildon Education Action Zone Midwifery & Health Visitors, Tourist Board Scotland Eastern Orchestral Board National Institute for Social Work Eastwood Infants School Northwick Park Infants School Eastwood Junior School Northwick Park Junior School Elm Park (Ardleigh) Ltd Nursing & Midwifery Council English National Board of Nursing & Palace Theatre Trust Midwifery Personal Social Services Council

page 34 Pension Fund Annual Report 2011-2012

Section 4 Scheme Actuary

page 35 Statement by Consulting Actuary

This is the statement required under Regulation 34(1)(d) of The Local Government Pension Scheme (Administration) Regulations 2008.

An actuarial valuation of the Essex Pension Fund was carried out as at 31 March 2010 to determine the contribution rates with effect from 1 April 2011 to 31 March 2014. The results of the valuation are contained in our report dated 31 March 2011.

Accounts for the year ended 31 March 2010

On the basis of the assumptions The funding plan adopted in assessing the contributions for each individual adopted, the valuation revealed employer is in accordance with the Funding Strategy Statement (FSS). Different that the value of the Fund’s assets approaches adopted in implementing contribution increases and deficit recovery of £3,085 million represented 71% periods are as determined through the FSS consultation process. of the Funding Target liabilities of £4,319 million at the valuation date. The valuation was carried out using the projected unit actuarial method. Full The valuation also showed that details of the actuarial assumptions are contained in our report dated 31 March a common rate of contribution of 2010, but the main financial assumptions used for assessing the Funding Target 12.2% of Pensionable Pay per annum and the common contribution rate were as follows: was required from employers. The common rate is calculated as being For past service For future service sufficient, together with contributions liabilities liabilities (Common paid by members, to meet all (Funding Target) Contribution Rate) liabilities arising in respect of service after the valuation date. Rate of discount: - pre retirement 7.0% per annum 6.75% per annum Adopting the same method and - post retirement 5.5% per annum 6.75% per annum assumptions as used for assessing the Funding Target the deficit Rate of pay increases: 4.5% per annum 4.5% per annum could be eliminated by an average Rate of increases in pensions additional contribution rate of 9.2% in payment (in excess of of Pensionable Pay for 20 years. This Guaranteed Minimum Pension): 3.0% per annum 3.0% per annum would imply an average employer contribution rate of 21.4% of Pensionable Pay in total. The assets were assessed at market value.

In practice, each individual employer’s The next triennial actuarial valuation of the Fund is due as at 31 March 2013. position is assessed separately and Based on the results of this valuation, the contributions payable by the the contributions required are set individual employers will be revised with effect from 1 April 2014. out in our report dated 31 March 2011 (also listed in the attached schedule). In addition to the certified contributions, payments to cover Paul Middleman additional liabilities arising from early Fellow of the Institute and Faculty of Actuaries retirements (other than ill-health Mercer Limited retirements) will be made to the Fund June 2011 by the employers. page 36 Pension Fund Annual Report 2011-2012 Contributions Schedule

2011/12 2012/13 2013/14 Individual Future Service Individual Future Service Individual Future Service Adjustment Rate (% of Adjustment Rate (% of Adjustment Rate (% of pay) plus pay) plus pay) plus Lump Sum Lump Sum Lump Sum Employers (£s) (£s) (£s) 1 Essex County Council 0.1% plus 12.3% plus 0.1% plus 12.3% plus 0.1% plus 12.3% plus (excluding schools) £19,810,000 £19,810,000 £19,810,000 £19,810,000 £19,810,000 £19,810,000 Schools - Essex CC area 7.7% 19.9% 7.7% 19.9% 7.7% 19.9% 2 Basildon District Council -0.3% plus 11.9% plus -0.3% plus 11.9% plus -0.3% plus 11.9% plus £2,705,000 £2,705,000 £2,826,725 £2,826,725 £2,953,928 £2,953,928 3 Braintree District Council 0.5% plus 12.7% plus 0.5% plus 12.7% plus 0.5% plus 12.7% plus £1,527,700 £1,527,700 £1,596,447 £1,596,447 £1,668,287 £1,668,287 4 Brentwood Borough Council -0.2% plus 12.0% plus -0.2% plus 12.0% plus -0.2% plus 12.0% plus £1,318,000 £1,318,000 £1,377,310 £1,377,310 £1,439,289 £1,439,289 5 Castle Point Borough Council 0.8% plus 13.0% plus 0.8% plus 13.0% plus 0.8% plus 13.0% plus £932,700 £932,700 £974,700 £974,700 £1,018,600 £1,018,600 6 Chelmsford Borough Council 0.0% plus 12.2% plus 0.0% plus 12.2% plus 0.0% plus 12.2% plus £1,860,300 £1,860,300 £1,860,300 £1,860,300 £1,860,300 £1,860,300 7 Colchester Borough Council -0.4% plus 11.8% plus -0.4% plus 11.8% plus -0.4% plus 11.8% plus £2,162,000 £2,162,000 £2,259,290 £2,259,290 £2,360,958 £2,360,958 8 Epping Forest District Council 0.8% plus 13.0% plus 0.8% plus 13.0% plus 0.8% plus 13.0% plus £1,651,000 £1,651,000 £1,725,295 £1,725,295 £1,802,933 £1,802,933 9 Harlow District Council 0.1% plus 12.3% plus 0.1% plus 12.3% plus 0.1% plus 12.3% plus £2,769,000 £2,769,000 £2,893,605 £2,893,605 £3,023,817 £3,023,817 10 Maldon District Council -0.4% plus 11.8% plus -0.4% plus 11.8% plus -0.4% plus 11.8% plus £657,000 £657,000 £686,565 £686,565 £717,460 £717,460 11 Rochford District Council 0.0% plus 12.2% plus 0.0% plus 12.2% plus 0.0% plus 12.2% plus £765,333 £765,333 £765,333 £765,333 £765,333 £765,333 12 Southend on Sea Borough 0.3% plus 12.5% plus 0.3% plus 12.5% plus 0.3% plus 12.5% plus Council (excluding schools) £5,289,900 £5,289,900 £5,527,946 £5,527,946 £5,776,703 £5,776,703 Schools - Southend on Sea 9.8% 22.0% 9.8% 22.0% 9.8% 22.0% BC area 13 Tendring District Council 0.7% plus 12.9% plus 0.7% plus 12.9% plus 0.7% plus 12.9% plus £1,653,000 £1,653,000 £1,653,000 £1,653,000 £1,653,000 £1,653,000 14 Thurrock Borough Council 0.0% plus 12.2% plus 0.0% plus 12.2% plus 0.0% plus 12.2% plus (excluding schools) £4,109,667 £4,109,667 £4,109,667 £4,109,667 £4,109,667 £4,109,667 Schools - Thurrock BC area 8.2% 20.4% 8.2% 20.4% 8.2% 20.4% 15 Uttlesford District Council 0.8% plus 13.0% plus 0.8% plus 13.0% plus 0.8% plus 13.0% plus £420,192 £420,192 £439,101 £439,101 £458,860 £458,860 605 Alphaprint Ltd 2.2% plus 14.4% plus 2.2% plus 14.4% plus 2.2% plus 14.4% plus £900 £900 £900 £900 £900 £900 84 Anglia Ruskin University -1.7% plus 10.5% plus -1.7% plus 10.5% plus -1.7% plus 10.5% plus £1,379,800 £1,379,800 £1,379,800 £1,379,800 £1,379,800 £1,379,800 586 Ashlyn Healthcare Ltd 1.0% plus 13.2% plus 1.0% plus 13.2% plus 1.0% plus 13.2% plus £6,400 £6,400 £6,700 £6,700 £7,000 £7,000 640 Basildon Lower Academy -1.0% plus 11.2% plus -1.0% plus 11.2% plus -1.0% plus 11.2% plus £65,500 £65,500 £68,400 £68,400 £71,500 £71,500 641 Basildon Upper Academy -0.8% plus 11.4% plus -0.8% plus 11.4% plus -0.8% plus 11.4% plus £163,800 £163,800 £171,200 £171,200 £178,900 £178,900 566 Braintree District Leisure -1.6% plus 10.6% plus -1.6% plus 10.6% plus -1.6% plus 10.6% plus Community Association Ltd £64,500 £64,500 £67,400 £67,400 £70,500 £70,500 606 Braintree Womens Aid 4.1% plus 16.3% plus 4.1% plus 16.3% plus 4.1% plus 16.3% plus £4,600 £4,600 £4,800 £4,800 £5,000 £5,000 644 Brentwood Community 1.9% 14.1% 1.9% 14.1% 1.9% 14.1% Transport

page 37 2011/12 2012/13 2013/14 Individual Future Service Individual Future Service Individual Future Service Adjustment Rate (% of Adjustment Rate (% of Adjustment Rate (% of pay) plus pay) plus pay) plus Lump Sum Lump Sum Lump Sum Employers (£s) (£s) (£s) 558 Care Quality Commission 4.1% plus 16.3% plus 4.1% plus 16.3% plus 4.1% plus 16.3% plus £127,900 £127,900 £133,600 £133,600 £139,700 £139,700 547 Central Parking System of 3.3% plus 15.5% plus 3.3% plus 15.5% plus 3.3% plus 15.5% plus the UK Ltd (Southend) £14,700 £14,700 £15,300 £15,300 £16,000 £16,000 553 Chelmer Housing Partnership -0.5% plus 11.7% plus -0.5% plus 11.7% plus -0.5% plus 11.7% plus £495,600 £495,600 £517,900 £517,900 £541,200 £541,200 149 Chelmsford College 0.2% plus 12.4% plus 0.2% plus 12.4% plus 0.2% plus 12.4% plus £109,267 £109,267 £109,267 £109,267 £109,267 £109,267 637 Clacton Coastal Academy -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £107,900 £107,900 £112,800 £112,800 £117,800 £117,800 181 Colchester Academy -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £86,700 £86,700 £90,600 £90,600 £94,700 £94,700 100 Colchester Borough -0.4% plus 11.8% plus -0.4% plus 11.8% plus -0.4% plus 11.8% plus Homes Ltd £74,300 £74,300 £77,700 £77,700 £81,200 £81,200 148 Colchester Institute -1.4% plus 10.8% plus -1.4% plus 10.8% plus -1.4% plus 10.8% plus £457,400 £457,400 £457,400 £457,400 £457,400 £457,400 152 Colchester Sixth Form 1.1% plus 13.3% plus 1.1% plus 13.3% plus 1.1% plus 13.3% plus College £57,767 £57,767 £57,767 £57,767 £57,767 £57,767 622 Corporate Document 1.0% plus 13.2% plus 1.0% plus 13.2% plus 1.0% 13.2% Services Ltd £1,800 £1,800 £1,900 £1,900 589 Dovercourt Healthcare Ltd 3.9% plus 16.1% plus 3.9% plus 16.1% plus 3.9% plus 16.1% plus £25,000 £25,000 £26,200 £26,200 £27,300 £27,300 560 Elmy Landscapes Ltd 3.4% plus 15.6% plus 3.4% plus 15.6% plus 3.4% plus 15.6% plus £300 £300 £400 £400 £400 £400 646 English Landscapes 1.1% 13.3% 1.1% 13.3% 1.1% 13.3% Maintenance Ltd 151 Epping Forest College -0.3% plus 11.9% plus -0.3% plus 11.9% plus -0.3% plus 11.9% plus £128,900 £128,900 £134,700 £134,700 £140,800 £140,800 633 Essex Cares Ltd -5.0% 7.2% -5.0% 7.2% -5.0% 7.2% 636 Essex Community Support Ltd -3.3% 8.9% -3.3% 8.9% -3.3% 8.9% 635 Essex Equipment Service Ltd -2.4% 9.8% -2.4% 9.8% -2.4% 9.8% 66 Essex Fire Authority -0.9% plus 11.3% plus -0.9% plus 11.3% plus -0.9% plus 11.3% plus £531,333 £531,333 £531,333 £531,333 £531,333 £531,333 634 Essex Inclusion and -4.6% 7.6% -4.6% 7.6% -4.6% 7.6% Employments 25 Essex Police Authority -2.0% plus 10.2% plus -2.0% plus 10.2% plus -2.0% plus 10.2% plus £2,279,367 £2,279,367 £2,279,367 £2,279,367 £2,279,367 £2,279,367 627 Essex Police Federation 3.0% plus 15.2% plus 3.0% plus 15.2% plus 3.0% plus 15.2% plus £2,500 £2,500 £2,600 £2,600 £2,700 £2,700 26 Essex Probation Committee -1.5% plus 10.7% plus -1.5% plus 10.7% plus -1.5% plus 10.7% plus £739,333 £739,333 £739,333 £739,333 £739,333 £739,333 625 Europa FM Ltd 0.9% plus 13.1% plus 0.9% plus 13.1% plus 0.9% plus 13.1% plus £115,800 £115,800 £121,100 £121,100 £126,500 £126,500 548 General Social Care Council -2.2% plus 10.0% plus -2.2% plus 10.0% plus -2.2% plus 10.0% plus £303,700 £303,700 £317,400 £317,400 £331,700 £331,700 587 Goldenley Healthcare Ltd 2.6% plus 14.8% plus 2.6% plus 14.8% plus 2.6% plus 14.8% plus £12,200 £12,200 £12,700 £12,700 £13,300 £13,300 618 Greenfields Community tbc tbc tbc tbc tbc tbc Housing Ltd 630 Greensward Academy -0.9% plus 11.3% plus -0.9% plus 11.3% plus -0.9% plus 11.3% plus £143,300 £143,300 £149,700 £149,700 £156,400 £156,400

page 38 Pension Fund Annual Report 2011-2012 2011/12 2012/13 2013/14 Individual Future Service Individual Future Service Individual Future Service Adjustment Rate (% of Adjustment Rate (% of Adjustment Rate (% of pay) plus pay) plus pay) plus Lump Sum Lump Sum Lump Sum Employers (£s) (£s) (£s) 607 H Q Theatres Ltd -2.6% plus 9.6% plus -2.6% plus 9.6% plus -2.6% plus 9.6% plus £13,300 £13,300 £13,900 £13,900 £14,500 £14,500 Hockerill Anglo-European 0.1% plus 12.3% plus 0.1% plus 12.3% plus 0.1% plus 12.3% plus College £64,800 £64,800 £67,700 £67,700 £70,700 £70,700 165 Harlow College -0.7% plus 11.5% plus -0.7% plus 11.5% plus -0.7% plus 11.5% plus £205,900 £205,900 £215,200 £215,200 £224,900 £224,900 645 Harlow Community Transport -2.2% 10.0% -2.2% 10.0% -2.2% 10.0% 624 Head Office Cleaning 1.5% plus 13.7% plus 1.5% 13.7% 1.5% 13.7% Services £49,100 £49,100 King Harold tbc tbc tbc tbc tbc tbc

610 Kier Harlow Ltd 1.4% plus 13.6% plus 1.4% plus 13.6% plus 1.4% plus 13.6% plus £321,300 £321,300 £335,800 £335,800 £350,900 £350,900 590 Longfield Healthcare Ltd 3.8% plus 16.0% plus 3.8% plus 16.0% plus 3.8% plus 16.0% plus £27,200 £27,200 £28,400 £28,400 £29,700 £29,700 632 Maltings Academy 0.3% plus 12.5% plus 0.3% plus 12.5% plus 0.3% plus 12.5% plus £65,400 £65,400 £68,300 £68,300 £71,400 £71,400 543 May Gurney tbc tbc tbc tbc tbc tbc (Construction) Ltd 639 MCCH Society Ltd -12.2% 0.0% -12.2% 0.0% -12.2% 0.0% 568 Mid Essex Primary Care Trust tbc tbc tbc tbc tbc tbc

611 Moat Housing Group -1.4% plus 10.8% plus -1.4% plus 10.8% plus -1.4% plus 10.8% plus £25,300 £25,300 £26,400 £26,400 £27,600 £27,600 631 -1.7% plus 10.5% plus -1.7% plus 10.5% plus -1.7% plus 10.5% plus £64,600 £64,600 £67,500 £67,500 £70,500 £70,500 617 Orchestras Live -0.5% plus 11.7% plus -0.5% 11.7% -0.5% 11.7% £20,000 £20,000 638 Ormiston Park Academy -0.4% plus 11.8% plus -0.4% plus 11.8% plus -0.4% plus 11.8% plus £45,100 £45,100 £47,200 £47,200 £49,300 £49,300 629 P H Jones Ltd 2.7% plus 14.9% plus 2.7% plus 14.9% plus 2.7% plus 14.9% plus £13,500 £13,500 £14,100 £14,100 £14,700 £14,700 161 Palmers College 0.1% plus 12.3% plus 0.1% plus 12.3% plus 0.1% plus 12.3% plus £67,100 £67,100 £67,100 £67,100 £67,100 £67,100 621 Pinnacle F M -0.1% plus 12.1% plus -0.1% plus 12.1% plus -0.1% plus 12.1% plus £8,300 £8,300 £8,700 £8,700 £9,100 £9,100 246 RA Butler Infants Academy 1.5% plus 13.7% plus 1.5% plus 13.7% plus 1.5% plus 13.7% plus £5,000 £5,000 £5,200 £5,200 £5,400 £5,400 237 RA Butler Juniors Academy 0.9% plus 13.1% plus 0.9% plus 13.1% plus 0.9% plus 13.1% plus £19,000 £19,000 £19,900 £19,900 £20,800 £20,800 614 Rochford Community 1.4% plus 13.6% plus 1.4% plus 13.6% plus 1.4% plus 13.6% plus Housing £45,300 £45,300 £47,300 £47,300 £49,300 £49,300 602 Rushcliffe Care 1.9% plus 14.1% plus 1.9% plus 14.1% plus 1.9% plus 14.1% plus £24,700 £24,700 £25,800 £25,800 £26,900 £26,900 162 SEEVIC College -1.1% plus 11.1% plus -1.1% plus 11.1% plus -1.1% plus 11.1% plus £56,900 £56,900 £59,400 £59,400 £62,200 £62,200 552 Serco Solutions 0.3% plus 12.5% plus 0.3% plus 12.5% plus 0.3% plus 12.5% plus £2,200 £2,200 £2,300 £2,300 £2,400 £2,400 601 SLM -2.4% plus 9.8% plus -2.4% plus 9.8% plus -2.4% plus 9.8% plus £32,500 £32,500 £33,900 £33,900 £35,400 £35,400 549 Social Care Institute for tbc tbc tbc tbc tbc tbc Excellence

page 39 2011/12 2012/13 2013/14 Individual Future Service Individual Future Service Individual Future Service Adjustment Rate (% of Adjustment Rate (% of Adjustment Rate (% of pay) plus pay) plus pay) plus Lump Sum Lump Sum Lump Sum Employers (£s) (£s) (£s) 141 Southend High School Girls -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £51,800 £51,800 £54,100 £54,100 £56,500 £56,500 274 South Essex College -1.0% plus 11.2% plus -1.0% plus 11.2% plus -1.0% plus 11.2% plus £346,600 £346,600 £362,300 £362,300 £378,600 £378,600 597 South Essex Homes Ltd 0.6% plus 12.8% plus 0.6% plus 12.8% plus 0.6% plus 12.8% plus £194,300 £194,300 £203,100 £203,100 £212,200 £212,200 613 St Georges Community -0.3% plus 11.9% plus -0.3% plus 11.9% plus -0.3% plus 11.9% plus Housing £125,900 £125,900 £131,500 £131,500 £137,500 £137,500 594 Sweyne Healthcare Ltd 0.5% plus 12.7% plus 0.5% plus 12.7% plus 0.5% plus 12.7% plus £5,800 £5,800 £6,100 £6,100 £6,300 £6,300 609 The Gateway Academy -1.5% plus 10.7% plus -1.5% plus 10.7% plus -1.5% plus 10.7% plus £35,000 £35,000 £36,500 £36,500 £38,200 £38,200 647 The Papworth Trust 8.8% 21.0% 8.8% 21.0% 8.8% 21.0% 539 Thurrock Community -0.4% plus 11.8% plus -0.4% plus 11.8% plus -0.4% plus 11.8% plus Leisure Ltd £43,700 £43,700 £45,700 £45,700 £47,700 £47,700 580 Thurrock Thames Gateway tbc tbc tbc tbc tbc tbc Development Corporation 56 University of Essex 3.9% plus 16.1% plus 3.9% plus 16.1% plus 3.9% plus 16.1% plus £1,573,000 £1,573,000 £1,573,000 £1,573,000 £1,573,000 £1,573,000 623 Vehicle Lease and 0.3% plus 12.5% plus 0.3% plus 12.5% plus 0.3% plus 12.5% plus Service Ltd £1,500 £1,500 £1,600 £1,600 £1,700 £1,700 583 Vertex -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £309,800 £309,800 £323,800 £323,800 £338,300 £338,300 575 Warden Housing 6.3% plus 18.5% plus 6.3% plus 18.5% plus 6.3% plus 18.5% plus Association Ltd £4,200 £4,200 £4,400 £4,400 £4,600 £4,600 Westborough Primary tbc tbc tbc tbc tbc tbc 102 Westcliff Boys Academy 0.4% plus 12.6% plus 0.4% plus 12.6% plus 0.4% plus 12.6% plus £35,800 £35,800 £37,400 £37,400 £39,100 £39,100 615 Westminster Drug Project 3.8% plus 16.0% plus 3.8% plus 16.0% plus 3.8% plus 16.0% plus £2,500 £2,500 £2,600 £2,600 £2,700 £2,700 565 Women's Royal Voluntary 4.4% plus 16.6% plus 4.4% plus 16.6% plus 4.4% plus 16.6% plus Service £14,900 £14,900 £15,600 £15,600 £16,300 £16,300 534 Worthing Homes Ltd 2.1% plus 14.3% plus 2.1% plus 14.3% plus 2.1% plus 14.3% plus £128,600 £128,600 £134,400 £134,400 £140,400 £140,400 164 Writtle College -1.1% plus 11.1% plus -1.1% plus 11.1% plus -1.1% plus 11.1% plus £210,633 £210,633 £210,633 £210,633 £210,633 £210,633 573 WRVS Food Services Ltd 2.1% 14.3% 2.1% 14.3% 2.1% 14.3% Town and Parish councils 2.1% plus 14.3% plus 2.1% plus 14.3% plus 2.1% plus 14.3% plus £142,503 £142,503 £160,101 £160,101 £177,700 £177,700 Former Small Admitted Bodies 31 Ardleigh Reservoir -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Committee £15,593 £15,593 £18,019 £18,019 £20,445 £20,445 501 Basildon Women's Refuge -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £27,812 £27,812 £32,138 £32,138 £36,465 £36,465 585 Brentwood Leisure Trust -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £34,322 £34,322 £39,661 £39,661 £45,000 £45,000 555 Cambridge Access Validating -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Agency £6,785 £6,785 £7,841 £7,841 £8,896 £8,896 540 Castle Point Citizen's Advice -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Bureau £1,638 £1,638 £1,893 £1,893 £2,148 £2,148 567 Chelmsford Agency for -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Volunteering £7,436 £7,436 £8,593 £8,593 £9,750 £9,750 page 40 Pension Fund Annual Report 2011-2012 2011/12 2012/13 2013/14 Individual Future Service Individual Future Service Individual Future Service Adjustment Rate (% of Adjustment Rate (% of Adjustment Rate (% of pay) plus pay) plus pay) plus Lump Sum Lump Sum Lump Sum Employers (£s) (£s) (£s) 531 Chelmsford Citizen's Advice -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Bureau £4,953 £4,953 £5,723 £5,723 £6,494 £6,494 537 Chelmsford Community -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Transport £9,800 £9,800 £11,325 £11,325 £12,850 £12,850 511 Chelmsford Council for -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Voluntary Service £3,967 £3,967 £4,584 £4,584 £5,201 £5,201 505 Colchester Women's Aid -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £3,972 £3,972 £4,590 £4,590 £5,208 £5,208 37 East of England Tourist -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Board £25,759 £25,759 £29,766 £29,766 £33,773 £33,773 544 Essex Association of Local -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Councils £8,819 £8,819 £10,191 £10,191 £11,563 £11,563 512 Essex County Scout Council -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £4,890 £4,890 £5,650 £5,650 £6,411 £6,411 47 Essex Local Valuation -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Tribunal £3,758 £3,758 £4,343 £4,343 £4,927 £4,927 67 Hamilton Lodge Trust Ltd -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £15,249 £15,249 £17,621 £17,621 £19,993 £19,993 44 Harlow Sports Centre -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £28,634 £28,634 £33,089 £33,089 £37,543 £37,543 571 Harlow Welfare Rights -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus & Advice £31,414 £31,414 £36,301 £36,301 £41,187 £41,187 500 Harlow Women's Aid -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £93,223 £93,223 £107,725 £107,725 £122,227 £122,227 576 Harwich Connexions -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Transport Co-operative Ltd £3,753 £3,753 £4,337 £4,337 £4,920 £4,920 572 Hatfield Peveral Day Nursery -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £1,243 £1,243 £1,437 £1,437 £1,630 £1,630 582 Impulse Leisure -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £33,363 £33,363 £38,553 £38,553 £43,743 £43,743 78 Itec Learning -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Technologies Ltd £20,038 £20,038 £23,155 £23,155 £26,272 £26,272 554 Open College Network -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Eastern Region £3,663 £3,663 £4,233 £4,233 £4,803 £4,803 529 Phoenix Group Homes -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £5,275 £5,275 £6,096 £6,096 £6,916 £6,916 518 Race Equality Foundation -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £35,320 £35,320 £40,814 £40,814 £46,309 £46,309 271 Rainbow Services -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £6,331 £6,331 £7,316 £7,316 £8,301 £8,301 64 Rural Community Council -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus of Essex £26,058 £26,058 £30,112 £30,112 £34,165 £34,165 506 Southend Women's Aid -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £4,193 £4,193 £4,845 £4,845 £5,497 £5,497 559 Thames Gateway South -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Essex Partnership Ltd £5,804 £5,804 £6,707 £6,707 £7,610 £7,610 604 The Inclusion Trust -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus £16,220 £16,220 £18,743 £18,743 £21,266 £21,266 538 The Trading Standards -0.6% plus 11.6% plus -0.6% plus 11.6% plus -0.6% plus 11.6% plus Institute £23,958 £23,958 £27,685 £27,685 £31,412 £31,412 516 Wivenhoe Park Management Ltd tbc tbc tbc tbc tbc tbc

page 41 Section 5 Annual Statement of Accounts

page 42 Pension Fund Annual Report 2011-2012

Responsibilities for the Statement of Accounts

The Authority’s The Executive Responsibilities Director for The authority is required : Finance’s • To make arrangements for Responsibilities the proper administration The Executive Director for Finance of its financial affairs and to is responsible for the preparation secure that one of its officers of the Fund’s statement of accounts has the responsibility for the in accordance with proper practices administration of those affairs. set out in the Chartered Institute In this authority that officer is the of Public Finance and Accountancy Executive Director for Finance; (CIPFA) Code of Practice on Local • To manage its affairs to secure Authority Accounting in the UK. economic, efficient and effective Executive Director use of resources and safeguard In preparing this statement of for Finance’s its assets; accounts, the Executive Director for Certificate • To approve the statement of Finance has: I certify that the Statement of accounts. • Selected suitable accounting Accounts on pages 44 to 80 has policies and then applied them been prepared in accordance with consistently; proper practices and presents fairly • Made judgements and estimates the financial transactions of the that were reasonable and Essex Pension Fund during the year prudent; ended 31 March 2012 and financial • Complied with the Code of position of the Fund at that date Practice on Local Authority of its assets and liabilities, other Accounting; than liabilities to pay pensions and • Kept proper accounting records benefits after the year end. which were up to date; • Taken reasonable steps for the prevention and detection of fraud and other irregularities.

Margaret Lee Executive Director for Finance

page 43 Fund Account

The table below shows the Essex Pension Fund Account for the year ended 31 March 2012 and 31 March 2011:

2010/11 2011/12 £000 Notes £000 Contributions and Benefits Contributions 3 (173,106 ) Employer contributions (161,588 ) (50,353 ) (223,459 ) Member contributions (48,558 ) (210,146 ) (27,683 ) Transfers in from other pension funds 4 (14,192 ) (169 ) Other income (152 ) (251,311 ) (224,490 ) Benefits 5 130,775 Pensions 141,174 43,229 Commutation of pensions and lump sum retirement benefits 33,883 3,338 177,342 Lump sum death benefits 4,752 179,809

Payments to and on account of leavers 17,246 Transfers out to other schemes 6 9,946 15 Refunds of contributions 10 15 State Scheme Premiums 1 11 1,816 Administration expenses 7 1,922 196,419 191,688

(54,892 ) Net additions from dealings with members (32,802 )

Investments

Returns on Investments (48,977 ) Investment income 8 (60,706 ) Profit and losses on disposal of investments and changes in (240,963 ) market value of investments 9 (30,690 ) 2,134 Taxes on income 10 2,463 13,560 Investment management expenses 11 16,100 (274,246 ) Net returns on investments (72,833 )

(329,138 ) Net increase/(decrease) in the net assets available for benefits during the year (105,635 )

(3,084,874 ) Net assets of the scheme at 1 April (3,414,012 )

(3,414,012 ) Net assets as at 31 March (3,519,647 )

page 44 Pension Fund Annual Report 2011-2012 Net Asset Statement

The table below shows the Essex Pension Fund Net Asset Statement for the year ended 31 March 2012 and 31 March 2011:

31 March 31 March 2011 2012 £000 Notes £000 restated Investments 9 Investment assets 226,019 Fixed interest securities 170,600 2,118,859 Equities 2,185,607 171,839 Index-linked securities 127,446 147,520 Property 196,040 234,688 Property unit trusts 237,865 126,264 Private equity 154,424 65,914 Infrastructure 103,002 – Timber 28,181 58,341 Active currency 25,676 156,301 Other managed funds 163,410 22 Derivative contracts 21,653 76,737 Cash deposits 68,868 13,347 3,395,851 Other investments balances 8,085 3,490,857

Investment liabilities (3,060) Derivative contracts (45 ) (9,429 ) (12,489 ) Other investments balances (4,611 ) (4,656 ) 3,383,362 3,486,201

Long term assets 12 12,428 Contributions due from employers 11,081

Current assets 12 13,150 Cash 10,085 18,746 Contributions due from employers and other current assets 19,151

Current liabilities (13,674 ) Unpaid benefits and other current liabilities (6,871)

3,414,012 Net assets of the scheme available to fund benefits as at 31 March 3,519,647

page 45 1. Basis of Preparation 2. Accounting Policies The financial statements have been prepared in Fund Account – accordance with the requirements of the Local Revenue Recognition Government Pension Scheme (Administration) 2.1. Contribution income Regulations 2008, the Code of Practice on Local Normal contributions, both Authority Accounting in the from the members and from the employer, are accounted for on an 2011/12 issued by CIPFA which is based upon accruals basis at the percentage International Financial Reporting Standards rate recommended by the Fund (IFRS) as amended for UK public sector and Actuary in the payroll period to which it relates. with the guidelines set out in the Statement of Employers’ augmentation Recommended Practice 2011/12(SORP) and the contributions and financial strain Financial Reports of Pension Schemes Statement of contributions are accounted for Recommended Practice (revised May 2007). in the period in which the liability arises. Any amounts due in the year but unpaid will be classed as The financial statements summarise the Fund’s transactions for the a current financial asset. Amounts 2011/12 financial year and its position at financial year-end as at31 not due until future years are March 2012. They do not take account of obligations to pay pensions classed as long-term assets. and benefits which fall due after the end of the financial year. However, a statement calculating the Fund’s Actuarial present value of promised 2.2. Transfers to and from other retirement benefits as at31 March 2012 using IAS19 methodology is schemes included in the notes to the accounts and can be found in Note 15. The Transfer values represent the actuarial position of the scheme as at 31 March 2010 is dealt with in the amount received and paid during report of the consulting actuary on page 36 and these statements should the year for members who have be read in conjunction with them. either joined or left the Fund

during the financial year and are Independent investment managers have been appointed to manage calculated in accordance with the investments of the Pension Fund. The Fund also invests in private the Local Government Scheme equity, infrastructure and timber through the use of limited partnerships. Regulations (see Notes 4 and 6). The Investment Steering Committee (ISC) oversees the management of Transfers in from members wishing these investments and meets regularly with the investment managers to to use the proceeds of their monitor their performance against agreed benchmarks. The ISC in turn additional voluntary contributions reports to the Essex Pension Fund Board. to purchase scheme benefits are accounted for on a receipts basis and included in transfers in (Note 4). Bulk (group) transfers are accounted for on an accruals basis in accordance with the terms of the transfer agreement.

2.3. Investment income 2.3.1. Dividend income Dividend income is recognised in the Fund Account on the date the shares are quoted ex-dividend. Any amounts not received by 31 March are disclosed in the Net Asset Statement as other investment

page 46 Pension Fund Annual Report 2011-2012

balances due. Investment income decreases in market value of 2.6. Administration expenses also includes withholding tax investments held at any time Administration expenses are where this cannot be recovered. during the year, including profits accounted for on an accruals basis. The amount of irrecoverable and losses realised on sales All expenses are recognised net of withholding tax is disclosed as of investments and unrealised any recoverable VAT. All relevant a separate line item on the face changes in market value. staff costs, including management, of the Fund Account and a more accommodation, and other detailed breakdown can be found Fund Account – overheads costs have been charged in Note 10 of the accounting notes Expenses Recognition directly to the Fund on the basis that accompany these financial of time spent on investment and statements. 2.4. Benefits payable contribution related matters and Under the regulations, retirees pension administration. In 2011/12 2.3.2. Income from fixed interest can receive a lump sum retirement this totalled £1.299m (£1.182m in Income from fixed interest and grant in addition to their annual 2010/11). index linked securities, cash and pension. Pension and lump sum short-term deposits are recognised retirement grants are accounted for 2.7. Investment expenses in the Fund Account on an accruals from the date of retirement. When a All investment expenses are basis, using the effective interest member chooses to take a greater accounted for on an accruals basis. rate of the financial instrument retirement grant in return for a Fees of the external investment as at the date of acquisition or reduced pension, these lump sums managers and custodian are agreed origination. Income includes the are accounted for on an accruals in their mandates governing their amortisation of any discount or basis from the date that the option appointments. Broadly these premium, transaction cost or other is exercised. Any amounts due are based on the market value of differences between the initial but not paid are disclosed in the investments under their management carrying amount of the instrument Net Asset Statement as current and therefore increase or reduce as and its amount at maturity liabilities. the value of investments change. In calculated on an effective interest Other benefits are accounted for addition the Fund has negotiated rate basis. on the date the member leaves the with the following managers that an Fund or upon death. element of their fee be performance 2.3.3. Income from other related subject to them reaching a investments 2.5. Taxation trigger point: Income from other investments is The Fund is a registered public • First State Investments (UK) Limited accounted for on an accruals basis. service scheme under section 1 • Marathon Asset Management Any amount not received by the end (1) of Schedule 36 of the Finance Limited of the financial year is disclosed Act 2004 and as such is exempt • FIL Pensions Management in the Net Asset Statement under from UK income tax on interest other investment balances. received and from capital gains tax Performance related fees totalled on proceeds of investments sold. £0.423m in 2011/12 (£0.520m in 2.3.4. Property Income from overseas investments 2010/11). Property related income consists suffers withholding tax in the primarily of rental income. Rental country of origin, unless exemption When an investment manager’s fee income from operating leases on is permitted. Irrecoverable tax is invoice has not been received by the properties owned by the Fund is accounted for as a fund expense as balance sheet date a creditor has recognised on a straight line basis it arises (see Note 10). been raised and the actual invoice over the term of the lease. As Essex County Council is the amount is shown within current administering authority for the liabilities. 2.3.5. Change in market value Fund, VAT input tax is recoverable The change in market value of on all Fund activities including The cost of obtaining investment investments during the year expenditure on investment and advice from external consultants is is recognised as income and property expenses. included in investment management comprises of all increases and charges.

page 47 2. Accounting Policies - continued

Net Asset Statement price ruling on the final day of the infrastructure, debt securities and accounting period. private equity. The valuation of these 2.8. Financial Assets pooled or directly held securities Financial assets are included in 2.12. Unquoted investments is undertaken by the investment the Net Asset Statement on a fair The fair value of investments for manager or responsible entity and value basis as at the financial year which market quotations are not advised as a unit or security price. end date of 31 March. The financial readily available are determined as The valuation standards followed in asset is recognised in the Net Asset follows: these valuations adhere to industry Statement on the date the Fund guidelines or standards set by the becomes party to the contractual 2.12.1. Unquoted equity and private constituent documents of the pool or acquisition of the asset. From this equity limited partnerships the management agreement. date any gains or losses arising from For unquoted equity and private equity changes in fair value of the asset limited partnerships, investments 2.14. Unit trust and managed funds are recognised by the Fund in the are valued based on the Fund’s Unit trusts and managed funds are Fund Account. Acquisition costs share of the net assets in the private valued at bid prices provided by are included in the purchase cost of equity fund or limited partnership the relevant fund managers, which investments. using the latest financial statements reflect the market value of the published by the respective fund underlying investments. In the case 2.9. Contingent assets managers. There is usually a time of pooled investment vehicles that Contingent assets are possible assets delay in receiving information from are accumulation funds, change in that arise from past events, whose the private equity fund managers. market value also includes income existence will be confirmed only by In general these are valued as at which is reinvested in the fund, net of the occurrence or non occurrence 31 March 2012 and are compiled applicable withholding tax. of one or more uncertain events not in accordance with the guidelines wholly within the Council’s control. issued by the British Venture Capital 2.15. Fixed interest investments Contingent assets are not recognised Association or an equivalent body. In a The value of fixed interest investments in the financial statements but are few cases an estimate of the valuation in the Fund’s investment portfolio are disclosed as a note to the accounts at 31 March 2012 has been made. recorded at net market value based on where an inflow of economic benefits The Fund amends the 31 December their current yield i.e. excludes interest or service potential is probable and 2011 valuation for payments made to earned but not paid over at the Fund can be reliably measured. and received from the private equity year-end, which is included separately Contingent assets are assessed managers for the period 1 January within accrued investment income and continually. If it becomes virtually 2012 to 31 March 2012. disclosed within Note 9. certain that an inflow of economic benefits or service potential will 2.12.2. Unquoted property, timber 2.16. Derivatives arise, and the asset’s value can be and infrastructure partnerships 2.16.1. Use of derivatives reliably measured, a debtor and the Investments in unquoted property, The Fund uses derivative financial related revenue are recognised in the timber and infrastructure pooled instruments to manage its exposure financial statements. funds are valued at the net asset to specific risks arising from its value or a single price advised by the investment activities. The Fund does 2.10. Valuation of investments fund manager. not hold derivatives for speculative The value of investments as shown purposes. in the Net Asset Statement has been 2.13. Directly held investments and determined as follows: other unquoted securities 2.16.2. Value of derivatives Directly held investments include Derivative contract assets are held at 2.11. Market quoted investments investments in limited partnerships, fair value bid price and liabilities are In the majority of cases, market shares in unlisted companies, fair valued at offer price. Changes quoted equity investments for which trust and bonds. Other unquoted in the fair value of derivatives are there is a readily available market securities typically include included in the change in market price is determined by the bid market pooled investments in property, value (see Note 9).

page 48 Pension Fund Annual Report 2011-2012

2.16.3. Value of futures Cash equivalents are short-term highly the carrying amount for instruments The value of futures contracts is liquid investments that are readily that will mature within the next twelve determined using exchange prices convertible to known amounts of cash months from the balance sheet date is published by the relevant futures and that are subject to minimal risk of assumed to equate to the fair value. exchange e.g.: LIFFE – London changes in value. International Financial Futures The fair values of loans and Exchange at the reporting date. 2.20. Financial Liabilities receivables at 31st March have been Amounts due from or owed to the The Fund recognises financial liabilities reviewed and were assessed as being broker are amounts outstanding at fair value as at the financial year end the same as the carrying amounts in in respect of the initial margin and date of 31 March. A financial liability is the balance sheet. Assets are carried variation margin. recognised in the Net Asset Statement in the balance sheet at fair value. The on the date the Fund becomes party to values are based on the bid price. 2.16.4. Value of forward currency the liability. From this date, any gains contracts or losses arising from changes in the When an asset or liability is translated Forward foreign exchange contracts fair value of the liability are recognised at balance sheet date the gain / loss outstanding at year end are stated by the Fund. is taken as unrealised but when the at fair value, which is determined asset or liability is settled (i.e. received as the loss or gain that would arise 2.21. Continent liabilities / paid) the gain / loss becomes if the outstanding contract was Contingent liabilities are possible realised. required to be settled on 31 March. obligations that arise from past events whose existence will only be confirmed The Authority has not entered into any 2.17. Dividend, Interest and Foreign by the occurrence or non-occurrence financial guarantees that are required Currency of one or more uncertain future events to be accounted for as financial Dividend, interest, purchases and not wholly within the Council’s control. instruments. sales of investments in foreign currencies have been accounted Contingent liabilities are not 2.23. Critical judgements in applying for using spot market rates as at recognised in the financial statements, accounting policies the date of transaction. End of but are disclosed as a note to the year spot market exchange rates accounts, unless the possibility of an 2.23.1. Use of financial instruments are used to value cash balances outflow of resources is remote. The Fund uses derivative financial held in foreign currency bank instruments to manage its exposure accounts, market values of overseas Contingent liabilities are assessed to specific risks arising from its investments and purchases and continually. If an outflow of resources investments. In applying the sales outstanding at the end of the becomes probable, a provision is accounting policies set out within the reporting period. recognised. notes that accompany the financial statements the Council has had to 2.18. Direct Property 2.22. Financial instruments make certain judgements about Direct property investments have Financial assets are recognised by complex transactions or those been valued at open market value the Authority on the Balance Sheet involving uncertainty about future as at 31 March 2012, by Jones Lang only when goods or services have events. The critical judgements made LaSalle, Chartered Surveyors. The been provided or rendered to a in the financial statements are based valuer's opinion of market value third party. Financial liabilities are around determining a fair value for the and existing use value was primarily recognised when the goods or services alternative investments shown in the derived using comparable recent ordered from a third party have been Net Asset Statement. It is important market transactions on arm’s-length received by the Authority and the third to recognise valuations for these type terms. party has performed its contractual of investments are highly subjective obligations. in nature. They are inherently based 2.19. Cash and Cash Equivalents on forward-looking estimates and Cash comprises of cash in hand and The Authority currently only has judgements that involve many factors. demand deposits. liabilities carried at amortised cost and

page 49 2. Accounting Policies - continued

2.23.2. Unquoted private equity 2.23.5. Pension fund liability Unquoted private equities are valued The pension fund liability is by the investment managers using calculated every three years by the guidelines set out by the British appointed actuary, with annual Venture Capital Association. The updates in the intervening years. value of unquoted private equities The methodology used is in line as at 31 March 2012 was £154.4m with accepted guidelines and in (£126.3m as at 31 March 2011). accordance with IAS19. Assumptions underpinning the valuation are 2.23.3. Infrastructure agreed with the actuary and are Overseas infrastructure values summarised in the Statement by are determined in accordance Consulting Actuary shown in Section with generally accepted valuation 4 of this report. This estimate is principles in compliance with subject to significant variances article 5 (3) of the Luxembourg based on changes to the underlying law of 15 June 2004 on investment assumptions. companies in risk capital. The infrastructure portfolio managed by As permitted under IAS26, the Fund M&G Investments are valued by the has opted to disclose the actuarial investment manager using guidelines present value of the promised set out by the International Private retirement benefits by way of a note Equity and Venture Capital (IPEV) to the Net Asset Statement. This is Valuation Guidelines. shown in Note 15.

The value of infrastructure as at 31 2.24. Post balance sheet events March 2012 was £103.0m (£69.5m as As at 31 March 2012, two employing at 31 March 2011). bodies within the Fund, Connaught Partnership Ltd and Chelmsford 2.23.4. Timber Agency for Volunteering were Timber valuations are determined subject to liquidation proceedings. by independent appraisers that Subsequent to the balance sheet typically estimate fair market values date, a payment of £440,000 was in accordance with the Uniform made in respect of Connaught Standards of Professional Appraisal Partnership Ltd and £11,000 was Practice (USPAP) and standards of received in respect of Chelmsford professional appraisal practice that Agency for Volunteering. prevail in the countries where assets are located. The value of timber as at 31 March 2012 was £28.1m (£0.0m as at 31 March 2011)

page 50 Pension Fund Annual Report 2011-2012

3. Contributions Receivable

3.1. By category

2010/11 Employer’s Contributions 2011/12 £000 £000 96,103 Normal 86,582 16 Augmentation 2 71,482 Deficit 66,288 5,505 Other 8,716 173,106 Total 161,588

Other employers’ contributions relate to payments for the cost of early retirements.

During 2011/12 no lump sum contributions in respect of actuarial deficiency were received. During2010 /11 lump sum contributions in respect of actuarial deficiency were received from the Essex Probation of 0£ .100m and an accrual in respect of the Essex Magistrates Court Committee £12.556m.

3.1. By type

2010/11 Analysis of contributions 2011/12 Members Employers Members Employers £000 £000 £000 £000 restated restated 17,448 55,855 Administering Authority 16,646 53,696 23,546 89,573 Scheduled Bodies 24,421 84,396 1,478 5,097 Admitted Bodies 1,352 6,322 4,912 15,545 Community Admission Bodies 3,509 10,664 2,740 6,371 Transferee Admission Bodies 2,416 5,869 229 665 Resolution Bodies 214 641 50,353 173,106 Total 48,558 161,588

4. Transfers in from other schemes

2010/11 2011/12 £000 £000 705 Group Transfers – 26,978 Individual Transfers 14,192 27,683 Total 14,192

No amounts were received in respect of group transfers from other schemes in 2011/12. During 2010/11, £0.700m was received from Suffolk County Council, Ipswich Museum and £0.005m was received from Metropolitan Police Superannuation Scheme.

page 51 5. Benefits Payable

2010/11 2011/12 £000 £000 restated 49,311 Administering Authority 52,888 67,784 Scheduled Bodies 74,591 6,519 Admitted Bodies 6,729 4,468 Community Admission Bodies 3,684 2,348 Transferee Admission Bodies 2,872 345 Resolution Bodies 410 130,775 Total 141,174

6. Transfers to other schemes

2010/11 2011/12 £000 £000 – Group Transfers – 17,246 Individual Transfers 9,946 17,246 Total 9,946

No amounts were payable in respect of group transfers to other schemes during 2011/12 and 2010/11.

7. Administration Expenses

2010/11 2011/12 £000 £000 1,182 Administration and Processing 1,299 413 Actuarial Fees 253 63 Audit Fees 64 150 Legal Fees 301 8 Other Professional Fees 5 1,815 Total 1,922

The administration and processing expenses represent a proportion of relevant officers’ salaries on the basis of time spent on pension administration and investment matters.

page 52 Pension Fund Annual Report 2011-2012

8. Investment Income

8.1. By type

2010/11 2011/12 £000 £000 restated 29,213 Dividends from equity 34,771 3,156 Income from index linked securities 2,978 6,265 Income from pooled property investments 8,469 8,173 Net rent from property 10,884 388 Interest from cash deposits 677 720 Other 952 47,915 Total investment income showing rent from property net 58,731 Add back: 1.062 Property operating expenses 1,975 48,977 Total investment income showing rent from property gross 60,706

In line with latest best practice guidelines, the note that accompanies investment income requires the Authority to show rent from property net of other property income and operating property expenses. However rent from property which is included under ‘investment income’ in the Fund Account is shown on a gross basis. Please note the 2010/11 figure for Net rent from property has been restated to take account of the above guidelines.

8.2. Investment property net rental

2010/11 2011/12 £000 £000 8,969 Rental income from investment property 12,093 Direct operating expenses arising from (796) investment property (1,209) 8,173 Net Gain/Loss 10,884

8.3. Movement in the fair value of investment properties

2010/11 2010/11 2010/11 2011/12 2011/12 2011/12 Freehold Leasehold Total Freehold Leasehold Total £000 £000 £000 £000 £000 £000 90,050 27,650 117,700 Balance at start of year 120,075 27,445 147,520 24,069 3 24,072 Additions 36,885 16,401 53,286 – – – Disposals (5,958) – (5,958) 5,956 (208) 5,748 Net gain/loss on fair value 2,258 (1,066) 1,192 120,075 27,445 147,520 Balance at end of the year 153,260 42,780 196,040

page 53 9. Investments

9.1. Value of investments by fund manager

The value of investments held by each manager on 31 March was as follows:

31 March 2011 31 March 2012 £000 % £000 % 234,141 6.9 Alliance Bernstein 212,762 6.1 395,996 11.7 Aviva Investors 463,225 13.3 292,439 8.7 Baillie Gifford & Co - LTTG 289,880 8.3 121 – Capital International 67 – 244,026 7.2 FIL Pensions Management 240,431 6.9 180,131 5.3 First State Investments (UK) Ltd 192,357 5.5 168,675 5.0 Goldman Sachs Asset Management International 170,600 4.9 1,141,356 33.7 Legal and General Investment Management 1,121,267 32.2 281,785 8.3 Marathon Asset Management Ltd 283,036 8.1 22 – Nomura Asset Management UK Ltd 22 – 144,375 4.3 M&G Investments - Alpha Opportunities 147,102 4.2 53,913 1.6 M&G Investments - Infracapital 66,762 1.9 6,689 0.2 M&G Investments - Financing Fund 13,861 0.4 12,001 0.4 Partners Group Management II S.à r.l. 36,241 1.1 – – Stafford Timberland Limited 28,181 0.8 1,624 – Governance for Owners European Focus Fund 723 – 849 – Hermes UK Smaller Companies Focus Fund 1,724 0.1 2,764 0.1 Relational Hermes US Fund – – 30,053 0.9 Mellon Capital Management 25,676 0.7 28,288 0.8 Record Currency Management – – (4,208) (0.1) Legal and General Investment Management - currency 20,996 0.6 168,322 0.5 Private Equity/Other 171,288 4.9 3,383,362 100.0 3,486,201 100.0

page 54 Pension Fund Annual Report 2011-2012

9.2. Reconciliation of movements in investments and derivatives for the year ended 31 March 2012

Value at Purchases Net Sales Change in Cash Value at 1 April Transfers Proceeds Market Movement 31 March 2011 Value 2012 £000 £000 £000 £000 £000 £000 £000 Fixed interest securities 226,019 – (31,718 ) (30,000 ) 6,299 – 170,600 UK government 57,344 – (31,718 ) (30,000 ) 4,374 – – UK corporate 168,675 – – – 1,925 – 170,600 Equities 2,118,859 522,292 (730 ) (424,965 ) (29,849 ) – 2,185,607 UK 343,945 59,515 1,402 (39,127) 3,006 – 368,741 Overseas 1,774,914 462,777 (2,132 ) (385,838 ) (32,855 ) – 1,816,866 Index-linked securities 171,839 49,596 (30,898 ) (94,797 ) 31,706 – 127,446 UK 171,839 49,596 (30,898 ) (94,797 ) 31,706 – 127,446 Property 382,208 61,782 – (10,925 ) 840 – 433,905 Direct Property 147,520 53,286 – (5,598 ) 1,192 – 196,040 UK properties freehold 120,075 36,885 – (5,598 ) 2,258 – 153,260 UK properties leasehold 27,445 16,401 – – (1,066 ) – 42,780 Property unit trusts 234,688 8,496 – (4,967 ) (352 ) – 237,865 Private equity 126,264 51,196 – (32,440 ) 9,404 – 154,424 UK 629 65 – (283 ) (160 ) – 251 Overseas 125,635 51,131 – (32,157 ) 9,564 – 154,173 Infrastructure 65,914 37,360 – (4,950 ) 4,678 – 103,002 UK 53,913 10,234 – (2,358 ) 4,973 – 66,762 Overseas 12,001 27,126 – (2,592 ) (295 ) – 36,240 Timber – 23,526 – – 4,655 – 28,181 Active currency 58,341 – (22,935 ) – (9,730 ) – 25,676 Other managed funds 156,301 12,291 – (3,933 ) (1,249 ) – 163,410 UK 151,913 12,291 – (1,205 ) (312 ) – 162,687 Overseas 4,388 – – (2,728 ) (937 ) – 723 Derivative future contracts 22 – – – (1 ) – 21 Overseas equities futures 22 – – – (1 ) – 21 Cash 76,737 – 22,935 (13,937 ) 13,937 (30,804 ) 68,868 Cash deposits held at custodian/other 76,572 – 22,935 (13,773 ) 13,773 (30,968 ) 68,539 Sterling 40,393 – 22,935 – – (22,377 ) 40,951 Foreign currency 36,179 – – (13,773 ) 13,773 (8,591 ) 27,588 Cash deposits held in margin account at GSAM 165 – – (164 ) 164 164 329 Sterling 109 – – – – 167 276 Foreign currency 56 – – (164 ) 164 (3 ) 53 3,382,504 758,043 (63,346 ) (615,947 ) 30,690 (30,804 ) 3,461,140 Other investment balances Assets 13,347 8,085 Amounts receivable for sales The change in market value includes all increases of investments 8,082 and decreases in the market value of investments 2,591 Investment Income Due 5,265 held at any time during the year, including profits 5,494 Liabilities (9,429 ) and losses realised on sales of investments since (4,611 ) Amounts payable for 1 April. purchase of investments (9,281 ) For 2011/12 the total transaction costs were (4,484 ) Investment withholding £1.2m (£1.2m in 2010/11). tax payable (148 ) (127 ) Derivative pending foreign (3,060 ) 21,587 Assets – 21,632 Liabilities (3,060 ) (45 ) Net investments assets 3,383,362 3,486,201

page 55 9.3. Reconciliation of movements in investments and derivatives for the year ended 31 March 2011

Value at Purchases Net Sales Change in Cash Value at 1 April Transfers Proceeds Market Movement 31 March 2010 Value 2011 £000 £000 £000 £000 £000 £000 £000 Fixed interest securities 217,771 3,656 – (6,146 ) 10,738 – 226,019 UK government 57,037 3,656 – (6,146 ) 2,797 – 57,344 UK corporate 160,734 – – – 7,941 – 168,675 Equities 1,905,749 461,317 – (431,800 ) 183,593 – 2,118,859 UK 329,583 31,214 – (43,941 ) 27,089 – 343,945 Overseas 1,576,166 430,103 – (387,859 ) 156,504 – 1,774,914 Index-linked securities 172,895 13,996 – (24,701 ) 9,649 – 171,839 UK 172,895 13,996 – (24,701 ) 9,649 – 171,839 Property 303,981 73,910 – (9,396 ) 13,713 – 382,208 Direct Property 117,700 24,072 – – 5,748 – 147,520 UK properties freehold 90,050 24,069 – – 5,956 – 120,075 UK properties leasehold 27,650 3 – – (208 ) – 27,445 Property unit trusts 186,281 49,838 – (9,396 ) 7,965 – 234,688 Private equity 91,446 39,859 – (16,022 ) 10,981 – 126,264 UK 704 33 – (430 ) 322 – 629 Overseas 90,742 39,826 – (15,592 ) 10,659 – 125,635 Infrastructure 45,633 18,012 – (1,961 ) 4,230 – 65,914 UK 45,633 5,479 – (1,446 ) 4,247 – 53,913 Overseas – 12,533 – (515 ) (17 ) – 12,001 Timber – – – – – – – Active currency 57,357 – – – 984 – 58,341 Other managed funds 186,687 11,192 – (46,478 ) 4,900 – 156,301 UK 148,671 11,192 – (8,143 ) 193 – 151,913 Overseas 38,016 – – (38,335 ) 4,707 – 4,388 Derivative future contracts 21 – – – 1 – 22 Overseas equities futures 21 – – – 1 – 22 Cash 92,716 – 33,000 (2,174 ) 2,174 (48,979 ) 76,737 Cash deposits held at custodian/other 92,557 – 33,000 (2,168 ) 2,168 (48,985 ) 76,572 Sterling 80,875 – 33,000 – – (73,482 ) 40,393 Foreign currency 11,682 – – (2,168 ) 2,168 24,497 36,179 Cash deposits held in margin account at GSAM 159 – – (6 ) 6 6 165 Sterling 79 – – – – 30 109 Foreign currency 80 – – (6 ) 6 (224 ) 56 3,074,256 621,942 33,000 (538,678 ) 240,963 (48,979 ) 3,382,504 Other investment balances Assets 24,408 13,347 Amounts receivable for sales of investments 18,687 8,082 Investment Income Due 5,721 5,265 Liabilities (4,787 ) (9,429 ) Amounts payable for purchase of investments (4,609 ) (9,281 ) Investment withholding tax payable (178 ) (148 ) Derivative pending foreign (27,286 ) (3,060 ) Assets 1,610 – Liabilities (28,896 ) (3,060 ) Net investments assets 3,066,591 3,383,362 page 56 Pension Fund Annual Report 2011-2012

9.4. Analysis of investments by asset type

31 March 2011 31 March 2012 £000 £000 226,019 Fixed interest securities 170,600 57,344 UK public sector quoted – 168,675 UK quoted 170,600 2,118,859 Equities 2,185,607 71,609 UK quoted 77,437 1,135,418 Overseas quoted 1,114,687 272,336 UK Unit trusts 291,304 639, 496 Oveseas Unit trusts 702,179 171,839 Index-linked securities 127,446 171,839 UK public sector quoted 127,446 382,208 Property 433,905 120,075 UK properties freehold 153,260 27,445 UK properties leasehold 42,780 234,688 Property unit trusts 237,865 126,264 Private Equity 154,424 629 UK unquoted 251 125,635 Overseas unquoted 154,173 65,914 Infrastructure 103,002 53,913 UK unquoted 66,762 12,001 Overseas unquoted 36,240 – Timber 28,181 – Overseas unquoted 28,181 58,341 Currency 25,676 58,341 Overseas unquoted 25,676 156,301 Other managed funds 163,410 151,913 UK unquoted 162,687 4,388 Overseas unquoted 723 (3,038) Derivative contracts 21,608 22 Assets 21,653 22 Derivative future contracts 21 – Derivative pending foreign currency contracts 21,632 (3,060) Liabilities (45) (3,060) Derivative pending foreign currency contracts (45) 76,737 Cash Deposits 68,868 76,572 Cash deposits held at custodian/other 68,539 40,393 Sterling 40,951 36,179 Foreign currency 27,588 165 Cash deposits held in margin account at GSAM 329 109 Sterling 276 56 Foreign currency 53 3,379,444 3,482,727 3,918 Other investment balances 3,474 13,347 Assets 8,085 8,082 Amounts receivable for sales of investments 2,591 5,265 Investment Income Due 5,494 (9,429) Liabilities (4,611) (9,281) Amounts payable for purchase of investments (4,484) (148) Investment withholding tax payable (127) 3,383,362 Net investment assets 3,486,201

page 57 9.5. Analysis of pooled investments representing 5% or more of net assets

The Fund holds the following investments in unit trusts/pooled vehicles at 31 March which are in excess of 5% of the value of the Fund:

31 March 2011 Investment Unit Trust/ 31 March 2012 £000 % Manager Pooled Vehicle £000 % 272,336 8.0 Legal & General UK Equity Index 291,304 8.3 213,791 6.3 Legal & General North America Index 236,344 6.7 217,569 6.4 Legal & General Europe (ex UK) Equity Index 224,240 6.4

9.6. Analysis of single investments representing 5% or more of any assets type

The Fund holds the following single investments at 31 March which are in excess of 5% of any asset class or type of security:

31 March 2011 Asset Type Asset Name 31 March 2012 £ ' 000 % £'000 % Equities – – UK quoted equities BP Plc 11,718 15.1 5,545 7.7 UK quoted equities Astrazeneca 6,354 8.2 6,395 8.9 UK quoted equities Vodafone Group 5,574 7.2 5,944 8.3 UK quoted equities Sabmiller plc 5,411 7.0 5,765 8.1 UK quoted equities Rio Tinto Index Linked Securities – – UK index-linked UK (Govt) Treasury IL Stock 2.5% 16 April 2020 8,156 6.4 – – UK index-linked UK (Govt) Treasury IL Stock 1.250% 22 Nov 2027 7,976 6.3 – – UK index-linked UK (Govt) Treasury IL Stock 1.875% 22 Nov 2022 7,870 6.2 – – UK index-linked UK (Govt) Treasury IL Stock 2.5% 17 July 2024 7,545 5.9 – – UK index-linked UK (Govt) Treasury IL Stock 1.250% 22 Nov 2055 6,740 5.3 – – UK index-linked UK (Govt) Treasury IL Stock 1.125% 22 Nov 2037 6,644 5.2 – – UK index-linked UK (Govt) Treasury IL Stock 1.250% 22 Nov 2032 6,621 5.2 – – UK index-linked UK (Govt) Treasury IL Stock 2.0% 26 Jan 2035 6,541 5.1 8,905 5.2 UK index-linked UK (Govt) Treasury IL Stock 2.5% 26 July 2016 – – Property – – Direct property 48/49 Chancery Lane, London 15,650 8.0 13 ,220 9.0 Direct property 55-57 Dean Street, London 13,425 6.8 – – Direct property 971 Great West Road, Brentford 11,400 5.6 – – Direct property 734-736 Seven Sisters Road 11,200 5.7 10 ,600 7.2 Direct property 74-82 Western Road 10,600 5.4 8,350 5.7 Direct property 32-36 High Street, Guildford – – 8,200 5.6 Direct property Redditch Abbey Retail Park – – 8,175 5.5 Direct property Cardiff Gate Business Park, Cardiff – – 7,800 5.3 Direct property 121 Dunmow Road, Bishop's Stortford – – 7,750 5.3 Direct property Stortford Hall, Bishop's Stortford – – 24 ,317 10.4 Property unit trusts Aviva Investors Property Fund 25,486 10.7 – – Property unit trusts Lothbury Property Fund 20,833 8.8

page 58 Pension Fund Annual Report 2011-2012

31 March 2011 Asset Type Asset Name 31 March 2012 £ ' 000 % £'000 % – – Property unit trusts Blackrock UK Property Fund 15,545 6.5 – – Property unit trusts Quercus Healthcare Property 14,107 5.9 – – Property unit trusts Threadneedle Investment Strategic Property Fund 12,356 5.2 Private Equity 12 ,851 10.2 Overseas private equity Warburg Pincus Private Equity VIII 12,439 8.0 11 ,359 9.0 Overseas private equity CVC European E P Tandem Fund 12,185 7.9 7,709 6.1 Overseas private equity OHA Strategic Credit Fund li (Offshore), L.P. 9,954 6.4 7,495 5.9 Overseas private equity Apollo Overseas Partners VIII 9,868 6.4 9,566 7.6 Overseas private equity Kohlberg TE Investment Strategic Property Fund 9,625 6.2 – – Overseas private equity New Mountain Partners 7,700 5.0 14 ,227 11.3 Overseas private equity Avenue Capital Group Infrastructure 53 ,913 81.8 UK infrastructure Infracapital Partners 66,762 64.8 12 ,001 18.2 Overseas infrastructure Partners Group Global Infrastructure 2009 S.C.C., SICAR 32,447 31.5 Timber – – Timber Stafford Timberland Limited 28,181 100.0 Active Currency 30 ,053 51.4 UK active currency Mellon Offshore Currency Opp Enhanced UK Equitized Fund 25,676 100.0 28,288 48.5 UK active currency Record Currency Alpha US Equitized Fund – – Other Managed Funds 144 ,375 92.4 UK other managed funds M&G Alpha Opportunities Fund 147,102 90.0 – – UK other managed funds M&G Financing Fund 13,861 8.5 Derivative Contracts – – Overseas derivative contracts S&P 500 Emini Index Futures Exp June 12 21 100.0 22 100.0 Overseas derivative contracts S&P 500 Emini Index Futures Exp June 11 – – Cash 20 ,658 26.9 UK cash deposits BNP Paribas Investment Partners GBP 35,060 50.9 22 ,347 29.1 Euro cash deposits BNY Mellon Euro Liquidity Fund 11,181 16.2 – – Euro cash deposits BNP Paribas Investments Partners EURO 5,724 8.3 17 ,924 23.4 UK cash deposits BNY Mellon Sterling Liquidity Fund 5,535 8.0 4,643 6.1 US dollar cash deposits BNP Paribas Investment Partners US$ – –

page 59 9.7. Analysis of derivatives

9.7.1 Objectives and policies for holding derivatives

Most of the holdings in derivatives are to hedge liabilities or hedge exposure to reduce risk in the Fund. Derivatives may be used to gain exposure to an asset more efficiently than holding the underlying asset. The use of derivatives is managed in line with the investment agreement between the Fund and the various investment managers.

9.7.2 Futures

A breakdown of outstanding exchange traded futures contracts are shown below.

31 March 2011 31 March 2012 Economic Market Economic Market Exposure Value Exposure Value £000 % £000 % Assets 948 22 Overseas equities futures - less than one year 1,211 21 22 Liabilities Overseas equities futures - less than one year – – 22 Net futures 21

9.7.3 Forward foreign currency

In order to maintain appropriate diversification and to take advantage of overseas investment returns,57 .9% (56.1% in 2010/11) of the Fund’s portfolio is in overseas stock markets as at 31 March 2012. To reduce the volatility associated with fluctuating currency rates (currency risk) the Fund has a passive currency programme in place which is managed by Legal and General Investment Management. The Fund hedges 50% of the US Dollar, Euro and Yen exposure within the portfolios managed by the growth managers.

page 60 Pension Fund Annual Report 2011-2012

9.7.4 Analysis of open forward currency contracts as at 31 March 2012

Settlement Currency Local Currency Local Asset Liability bought value sold value value value £000 £000 £000 £000 Settled within one month Up to one month GBP 10,375 AUD 15,796 134 Up to one month GBP 10,153 CAD 16,065 93 Up to one month GBP 13,994 CHF 20,586 (261 ) Up to one month GBP 88,451 EUR 105,658 381 Up to one month USD 186 EUR 140 – Up to one month AUD 15,796 GBP 10,335 (94 ) Up to one month CAD 16,065 GBP 10,145 (85 ) Up to one month CHF 20,586 GBP 14,324 (69 ) Up to one month EUR 65,728 GBP 55,151 (368 ) Up to one month JPY 5,878,158 GBP 44,523 182 Up to one month SEK 71,585 GBP 6,766 (14 ) Up to one month THB 534 GBP 11 – Up to one month USD 230,311 GBP 144,836 (688 ) Up to one month GBP 121 HKD 1,510 – Up to one month GBP 49,211 JPY 5,863,016 4,621 Up to one month GBP 6,676 SEK 71,585 (76 ) Up to one month GBP 149,224 USD 231,182 4,532 Up to one month GBP 15 KRW 27,142 15 Settled within one to six months One to six months GBP 33,115 AUD 50,017 910 One to six months GBP 33,584 CAD 53,174 315 One to six months GBP 48,998 CHF 70,164 347 One to six months GBP 185,092 EUR 220,197 1,407 One to six months CHF 2,259 GBP 1,568 (2 ) One to six months EUR 13,692 GBP 11,448 (26 ) One to six months GBP 169,190 JPY 21,466,224 5,751 One to six months GBP 24,025 SEK 254,232 97 One to six months GBP 442,244 USD 699,102 4,485 Forward currency contracts unsettled as at 31 March 2012 23,270 (1,683 ) Net forward currency contracts as at 31 March 2012 21,587

page 61 9.7.5 Analysis of open forward currency contracts as at 31 March 2011

Settlement Currency Local Currency Local Asset Liability bought value sold value value value £000 £000 £000 £000 Settled within one month Up to one month AUD 18,606 GBP 11,919 85 Up to one month AUD 81 USD 84 – Up to one month CAD 20,884 GBP 13,406 (13 ) Up to one month CHF 20,569 GBP 13,978 48 Up to one month CLP 31,773 GBP 43 (2 ) Up to one month DKK 280 GBP 33 – Up to one month EUR 77,234 GBP 68,064 311 Up to one month GBP 11,842 AUD 18,606 (161 ) Up to one month GBP 81 BRL 214 (1 ) Up to one month GBP 13,543 CAD 20,884 150 Up to one month GBP 13,847 CHF 20,569 (179 ) Up to one month GBP 3 DKK 26 – Up to one month GBP 65,830 EUR 78,290 (3,481 ) Up to one month GBP 52,841 JPY 6,808,141 1,595 Up to one month GBP 22 MYR 109 – Up to one month GBP 9,284 SEK 98,802 (487 ) Up to one month GBP 149,969 USD 232,133 5,153 Up to one month JPY 6,939,832 GBP 61,677 (413 ) Up to one month SGD 12 USD 10 – Up to one month TWD 229,540 GBP 143,711 (526 ) Settled within one to six months One to six months CHF 2,191 GBP 1,463 34 One to six months GBP 32,128 AUD 51,626 (927 ) One to six months GBP 36,902 CAD 58,216 (411 ) One to six months GBP 39,851 CHF 59,378 (696 ) One to six months GBP 198,874 EUR 229,910 (4,577 ) One to six months GBP 146,997 JPY 19,345,174 1,175 One to six months GBP 21,520 SEK 221,217 (293 ) One to six months GBP 429,392 USD 686,833 492 One to six months USD 11,639 GBP 7,205 64 Forward currency contracts unsettled as at 31 March 2011 9,107 (12,167 ) Net forward currency contracts as at 31 March 2011 (3,060 )

page 62 Pension Fund Annual Report 2011-2012

10. Taxation

The table below provides a breakdown of the taxes paid by the Fund in the UK and overseas.

2010/11 2011/12 £000 £000 435 UK withholding tax 493 1,697 Overseas withholding tax 1,968 2 Payment to HMRC in respect of returned contributions 2 2,134 Total 2,463

11. Investment Management Expenses

2010/11 2011/12 £000 £000 11,742 Management fees 13,377 391 Custody fees 471 54 Performance monitoring services 58 379 Advisory fees 464 994 Other 1,730 13,560 Total 16,100

12. Current Assets and Liabilities

Current Assets 12.1. Analysis of current assets

2010/11 2011/12 £000 £000 restated Cash Balances 540 Cash at bank 1,077 12,610 Cash on short term deposit < 3 months 9,008 13,150 10,085 Debtors 3,547 Contributions due - employees 3,470 14,033 Contributions due - employers 14,463 1,166 Sundry debtors 1,218 18,746 19,151 31,896 Total 29,236

In line with latest best practice guidelines, contributions due for 2010/11 have been restated to show the proportion due from employees and employers. In addition financial strain debtors have now been split between amounts due within 12 months and amounts due after 12 months.

page 63 12.2. Analysis of debtors

31 March 2011 31 March 2012 £000 £000 restated Debtors 1,618 Central government bodies 2,222 8,793 Other local authorities 13,949 – NHS bodies 38 1,440 Public corporations and trading funds 1,681 6,895 Other entities and individuals 1,261 18,746 Total 19,151

In line with latest best practice guidelines, contributions due for 2010/11 have been restated to show the proportion due from employees and employers. In addition financial strain debtors have now been split between amounts due within 12 months and amounts due after 12 months.

12.3. Analysis of long term debtors by duration

31 March 2011 31 March 2012 £000 £000 Long Term Debtors 1,128 Financial strain instalments due > 12 months 1,037 11,300 Other employer contributions due > 12 months 10,044 12,428 Total 11,081

Long term debtors for 2010/11 have been restated in line with new best practice. Financial strain debtors have now been split between amounts due within 12 months and amounts due after 12 months.

12.4. Analysis of long term debtors

31 March 2011 31 March 2012 £000 £000 Long Term Debtors 11,312 Central government bodies 10,152 1,082 Other local authorities 852 28 Public corporations and trading funds 77 6 Other entities and individuals – 12,428 Total 11,081

Long term debtors for 2010/11 have been restated in line with new best practice. Financial strain debtors have now been split between amounts due within 12 months and amounts due after 12 months.

12.5. Contingent assets

To protect the Fund from employer default the Funding Strategy sets out safeguards to be in place on all new admission agreements. These can include a guarantee from another Fund employer with sufficient covenant strength and a surety bond or other contingent asset.

page 64 Pension Fund Annual Report 2011-2012

Current Liabilities 12.6. Analysis of current liabilities

31 March 2011 31 March 2012 £000 £000 restated Creditors (64 ) Contributions due - employees (35 ) (520 ) Contributions due - employers (208 ) (4,533 ) Investment manager fees payable (3,133 ) (8,128 ) Benefits payable (2,525 ) (374 ) Other (970 ) (13,619 ) (6,871 ) (55 ) Receipts in advance – (13,674 ) Total (6,871 )

12.7. Analysis of creditors

31 March 2011 31 March 2012 £000 £000 restated Creditors (180 ) Central government bodies (333 ) (489 ) Other local authorities (1,093 ) (15 ) Public corporations and trading funds (197 ) (12,990 ) Other entities and individuals (5,248 ) (13,694 ) Total (6,871 )

12.8. Contingent Liabilities and Contractual Commitments

As at 31 March 2012 the Fund had a commitment to contribute a further £182m to its existing partnership investments, including private equity, infrastructure, timber and financing (£221m as at 31 March 2011). The amounts called by these funds are irregular in both size and timing over a period of between five to ten years from the date of each original commitment.

page 65 13. Additional Voluntary Contributions (AVC) Investments

AVC’s are not included in the accounts in accordance with section 4(2) (b) of the Local Government Pension Scheme (Management and Investments of Funds) Regulations 2009 but are disclosed as a note only.

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 below.

2010/11 2011/12 £000 £000 6,050 Value of AVC fund at beginning of year 5,996 421 Employee contributions 383 361 Investment income and change in market 307 (836 ) Benefits paid and transfers out (877 ) 5,996 5,809

14. Related Party Transactions

The Fund is required to disclose material transactions with bodies or individuals that have the potential to control or influence the Council, or to be controlled or influenced by the Council. The intention in making this disclosure is to make explicit the extent to which the Fund might have been constrained in its ability to operate independently, or might have secured the ability to limit another party’s ability to negotiate freely with the Fund. The Essex Pension Fund is administered by Essex County Council. The Council incurred costs of £1.299m (£1.182m in 2010/11) in relation to the administration of the Fund and was subsequently reimbursed by the Fund for these expenses. The Council is also the single largest employer of members of the Fund and contributed £53.696m to the Fund in 2011/12 (£55.855m in 2010/11). No significant amounts were owing to and due to be paid from the Fund in the year. As at 1 April 2010 the Fund put in place a separate bank account arrangement. Before this, the Pension Fund cash was aggregated with the County Council’s balance. Surplus cash is invested by the County Council treasury management team on the sterling money market, in accordance with the Essex Pension Fund treasury management policy and strategy as agreed by the Essex Pension Fund Board on 31 March 2010. This service is provided to the Fund at a cost of £0.025m (£0.022m in 2010/11). During the year to 31 March 2012, the Pension Fund had an average investment balance of £8.174m (£10.518m in 2010/11) earning £0.094m interest (£0.111m in 2010/11).

page 66 Pension Fund Annual Report 2011-2012

14.1. Governance

Under FRS 8 ‘Related Party Disclosures’ it is a requirement that material transactions with related parties, not disclosed elsewhere, should be included in a note to the financial statements. During the year each member of the Essex Pension Board and Investment Steering Committee is required to declare their interests at each meeting. None of the Essex Pension Board Members, Investment Steering Committee Members or Senior Officers undertook any material transactions with the Essex Pension Fund. There were no material contributions due from the employer bodies at the end of the year that remained outstanding after the due date for payment. Essex County Council administers the LGPS for its own employees and numerous other bodies. Under legislation introduced in 2003/04, Councillors are also entitled to join the Pension Fund. As at 31 March 2012 Keith Neale, independent adviser to the Investment Steering Committee (ISC) was in receipt of pension benefits from the Fund during the financial year. In addition the following members of the ISC and the Essex Pension Board made contributions to the Fund during the year:

County Councillors D.M. Finch N.J. Hume A. Jackson M.C. Lager T.C. Smith-Hughes B.A., A.C.I.B.

Representative of scheme members K. Blackburn

Representative of small admitted bodies J. Moore

Representative of the Essex Police Authority S. Walsh

The employees of Essex County Council who held key positions in the financial management of the Essex Pension Fund during 2011/12 were the Executive Director for Finance, the Head of Investments, the Pensions Services Manager and the Group Manager Investments. During 2011/12 approximately 3% of the Executive Director for Finance’s time was spent on the Pension Fund, with the other officers spending 100% of their time in this way. As a consequence the short term benefits (i.e. pay) associated with the time spent by these staff working on the Fund during 2011/12 was £160,125. The 2011/12 current service cost in respect of these personnel was £64,996. The current service cost is the increase in the value of the Fund’s future pension liabilities arising out of employees on-going membership of the Fund.

page 67 15. Actuarial Present Value of Promised Retirement Benefit

15.1. Actuarial Valuation 2010 An actuarial valuation of the Essex Pension Fund was carried out as at 31 March 2010 to determine the contribution rates from 1 April 2011 to 31 March 2014. On the basis of the assumptions adopted, the valuation revealed that the value of the Fund’s assets of £3,085m represented 71% of the Funding Target liabilities of £4,319m at the valuation date. The valuation also showed that a common rate of contribution of 12.2% of Pensionable Pay per annum was required from employers. The common rate is calculated as being sufficient, together with contributions paid by members, to meet all liabilities arising in respect of service after the valuation date. Adopting the same method and assumptions as used for assessing the Funding Target the deficit could be eliminated by an average additional contribution rate of 9.2% of Pensionable Pay for 20 years. This would imply an average employer contribution rate of 21.4% of Pensionable Pay in total. In practice, each individual employer’s position is assessed separately and the contributions required are set out on pages 37 to 41 of this publication. In addition to the certified contributions, payments to cover additional liabilities arising from early retirements (other than ill-health retirements) will be made to the Fund by the employers. The funding plan adopted in assessing the contributions for each individual employer is in accordance with the Funding Strategy Statement (FSS). Different approaches adopted in implementing contribution increases and deficit recovery periods are as determined through the FSS consultation process. The valuation was carried out using the projected unit actuarial method. Full details of the actuarial assumptions are contained within the full valuation report that is available from www.essexpensionfund.co.uk, but the main financial assumptions used for assessing the Funding Target and the common contribution rate were as follows:

For past For future service service liabilities liabilities (Common (Funding Target) Contribution Rate) per annum per annum Rate of Discount pre retirement 7.0% 6.75% post retirement 5.5% 6.75% Rate of pay increases 4.5% 4.5% Rate of increases in pensions in payment 3.0% 3.0% (in excess of Guaranteed Minimum Pension)

The assets were assessed at market value. The next triennial actuarial valuation of the Fund is due as at 31 March 2013. Based on the results of this valuation, the contributions payable by the individual employers will be revised with effect from 1 April 2014.

15.2. IAS 19 Actuarial present value of promised retirement benefits An actuarial valuation of the Fund is carried out every three years. This formally assesses the assets and liabilities of the employers within the Fund and determines the contributions each employer pays. This is for funding purposes. The assumptions and methodology used are set out in the Actuarial Valuation and Funding Strategy Statement, and are not determined by IAS 19. Separate to the Actuarial Valuation IAS 26 requires the present value of the Fund’s promised retirement benefits to be disclosed, and for this purpose the actuarial assumptions and methodology used should be based on IAS 19 rather than the assumptions and methodology used in the Actuarial Valuation for funding purposes. In order to assess the present value of the Fund’s obligation on this basis, the Actuary, allowing for the different financial assumptions required under IAS19 has used a roll forward approach in valuing the Fund’s liabilities which were last calculated at the triennial actuarial valuation as at 31 March 2010. The discount rate of 4.6% per annum for both before and after retirement has been used (5.5% as at 31 March 2011), rather than the rates as outlined above. The value of the Fund’s promised retirement benefits as at31 March 2012 was £5,918m (£5,009m as at 31 March 2011).

page 68 Pension Fund Annual Report 2011-2012

Similar calculations were carried out as per the last actuarial valuation date of 31 March 2010, using the same actuarial assumptions as those used for funding purposes at that date, other than the discount rate where a rate of 5.6% per annum both before and after retirement was used. On this basis, the value, for IAS 26 purposes, of the Fund’s promised retirement benefits at that date was 4£ ,720m.

16. Financial Instruments

Accounting policies describe how different asset classes of financial instruments are measured and how income and expenses, including fair value gains and losses, are recognised.

16.1. Classification of financial instruments

The following table analyses the carrying amounts of financial assets and liabilities by category and Net Asset Statement headings. No financial assets were reclassified during the accounting period.

31 March 2011 31 March 2012 Designated as fair value profit through and loss and Loans receivables Financial liabilities at amortised cost Designated as fair value profit through and loss and Loans receivables Financial liabilities at amortised cost £000 £000 £000 £000 £000 £000 Financial assets 226,019 Fixed interest securities 170,600 2 ,118,859 Equities 2,185,607 171,839 Index linked securities 127,446 234,688 Property unit trusts 237,865 126,264 Private equity 154,424 65,914 Infrastructure 99,208 – Timberland 28,181 58,341 Active currency 25,676 156,301 Other managed funds 163,410 22 Derivative contracts (A) 21,653 89,887 Cash 78,953 13,347 Other investment balances (A) 8,085 31,174 Debtors 30,232 3 ,171,594 121,061 – 3,222,155 109,185 – Financial liabilities (3,060 ) Derivative contracts (L) (45 ) (9,429 ) Other investments balances (L) (4,611 ) (13,674 ) Creditors (6,871) – Borrowing – (12,489 ) – (13,674 ) (4,656 ) – (6,871) 3,159,105 121,061 (13,674 ) Balance by classification at end of the eary 3,217,499 109,185 (6,871) 3,266,492 Total at end of year 3,319,813

page 69 16.2. Net gains and losses on financial instruments

31 March 2011 31 March 2012 £000 £000 Financial assets 233,041 Fair value through profit and loss 16,009 2,174 Loans and receivables 13,937 235,215 29,946 Financial liabilities – Fair value through profit and loss – – Loans and receivables – – Financial liabilities measured at amortised cost – – – 235,215 Total 29,946

16.3. Fair value of financial instruments and liabilities

31 March 2011 31 March 2012 Carrying Fair Carrying Fair Value Value Value Value £000 £000 £000 £000 Financial assets 3,171,594 3,171,594 Fair value through profit and loss 3,222,155 3,222,155 121,061 121,061 Loans and receivables 109,185 109,185 3,292,655 3,292,655 Total financial assets 3,331,340 3,331,340 Financial liabilities (12,489) (12,489) Fair value through profit and loss (4,656) (4,656) - - Loans and receivables - - (13,674) (13,674) Financial liabilities measured at amortised cost (6,871) (6,871) (26,163) (26,163) Total financial liabilities (11,527) (11,527) 3,266,492 3,266,492 Total net financial assets 3,319,813 3,319,813

16.4. Valuation of financial instruments carried at fair value

The valuation of financial instruments has been classified into three levels, according to the quality and reliability of information used to determine fair values.

16.4.1. Level 1

Financial instruments at Level 1 are those where the fair value is derived from unadjusted quoted prices in active markets for identical assets or liabilities. Assets classified as Level1 comprise of equities, quoted fixed securities, quoted index linked securities and unit trusts. Listed investments are shown at bid prices. The bid value of the investments is based on bid market quotation of the relevant stock exchange.

16.4.2. Level 2

Financial instruments at Level 2 are those where quoted market prices are not available, for example where an instrument is traded in a market that is not considered to be active, or where valuation techniques are used to determine fair value and where these techniques use inputs that are based significantly on observable market data.

page 70 Pension Fund Annual Report 2011-2012

16.4.3. Level 3

Financial instruments classified as Level3 are those where at least one input that could have significant effect on the instruments valuation is not based on observable market data.

Such instruments would include unquoted equity investments which are valued using various valuation techniques that require significant judgement in determining appropriate assumptions.

The value of the investment in private equity is based on valuations provided by the general partners to the private equity funds in which the Essex Pension Fund has invested.

These valuations are prepared in accordance with the International Private Equity and Venture Capital Valuation Guidelines, which follow the valuation principles of IRRS and US GAAP. Valuations are usually undertaken annually at the end of December with unaudited valuations provided by the general partner as at 31 March.

The valuations of infrastructure and timber are based on net asset value provided by the fund manager.

The following table provides an analysis of the financial assets and liabilities of the pension fund grouped into Level1 to 3 based on the level at which the fair value is observable.

Value as at 31 March 2011 Value as at 31 March 2012 Level 1 Level Quoted market prices 2 Level Using observable inputs 3 Level Significant unobservable inputs 1 Level Quoted market prices 2 Level Using observable inputs 3 Level Significant unobservable inputs £000 £000 £000 £000 £000 £000 Financial assets 2,530,086 449,330 192,178 Fair value through profit and loss 2,513,391 426,951 281,813 121,061 Loans and receivables 109,185 2 ,651,147 449,330 192,178 Total financial assets 2,622,576 426,951 281,813 Financial liabilities (12,489 ) Fair value through profit and loss (4,656 ) Loans and receivables (13,674 ) Financial liabilities measured at amortised cost (6,871 ) (26,163 ) – – Total financial liabilities (11,527 ) – – 2,624,984 449,330 192,178 Total net assets 2,611,049 426,951 281,813

page 71 17. Nature and extent of risks arising from financial instruments

17.1. Risk and risk management

The Fund’s primary long term risk is that the Fund assets will fall short of its liabilities i.e. promised benefits payable to members. Therefore the aim of investment risk management is to maximise the risk of an overall reduction in the value of the Fund and to maximise the opportunity for gains across the whole of the Fund’s investments. The Fund achieves this through asset diversification to reduce its exposure to a variety of financial risks: market risk; other price risk; currency risk; interest rate risk and credit risk to an acceptable level. In addition, the Fund manages its liquidity risk to ensure there is sufficient liquidity to meet the Fund’s forecast cashflows. The Council manages these investment risks as part of its overall pension fund risk management programme. Responsibility for the Fund’s risk management strategy rests with the Investment Steering Committee (ISC). Risk management policies are established to identify and analyse the risks faced by the Council’s pensions operations. Policies are reviewed regularly to reflect changes in activity and in market conditions.

17.2. Market risk

Market risk is the possibility that financial loss might occur as a result of fluctuations in equity and commodity prices, interest rates and foreign exchange. The level of risk exposure depends on market conditions, expectation of future price and yield movements and the asset mix.

Market risk is inherent in the investments that the Fund makes. To mitigate market risk the investments are made 31 March Percentage Value on Value on 31 March Percentage Value on Value on 2011 change increase decrease Asset type 2012 change increase decrease in a diversified pool of asset classes and investment £000 % £000 £000 £000 % £000 £000 approaches to ensure a risk adjusted balance between categories. The Fund takes formal advice from its 76,737 0.8% 77,351 76,123 Cash and equivalents 68,868 0.8% 69,419 68,317 institutional investment consultant (Hymans Robertson Investment portfolio assets LLP) along with two independent advisers and the portfolio 226,019 9.9% 248,395 203,643 UK bonds 170,600 9.9% 187,489 153,711 is split between a number of managers and investment strategies with different benchmarks and performance 343,945 18.5% 407,575 280,315 UK equities 368,741 18.5% 436,958 300,524 targets. Full details can be found in the Statement of 1,774,914 22.2% 2,168,945 1,380,883 Overseas equities 1,816,866 22.2% 2,220,210 1,413,522 Investment Principles shown in section 6 of this report and 171,839 7.8% 185,242 158,436 UK index linked bonds 127,446 7.8% 137,387 117,505 is also available from the website www.essexpensionfund. co.uk. Investment risk and strategy are regularly reviewed 234,688 14.5% 268,718 200,658 Pooled property unit trusts 237,865 14.5% 272,355 203,375 by the ISC. 126,264 29.6% 163,638 88,890 Private equity 154,424 29.6% 200,134 108,714 65,914 14.5% 75,472 56,356 Infrastructure 103,002 14.5% 117,937 88,067 17.3. Other price risk - 29.6% - - Timber 28,181 29.6% 36,523 19,839 Other price risk represents the risk that the value of a 58,341 22.2% 71,293 45,389 Active currency 25,676 22.2% 31,376 19,976 financial instrument will fluctuate as a result of changes in 156,301 14.5% 178,965 133,637 Other managed funds 163,410 14.5% 187,104 139,716 market prices (other than those arising from interest rate risk 147,520 14.5% 168,910 126,130 Property 196,040 14.5% 224,466 167,614 or foreign exchange risk) whether those changes are caused by factors specific to the individual instrument, its issuer or (3,038 ) - (3,038 ) (3,038 ) Net derivative assets 21,608 - 21,608 21,608 factors affecting all such instruments in the market. 5,265 - 5,265 5,265 Investment income due 5,494 - 5,494 5,494 (148 ) - (148 ) (148 ) WHT payable (4,484 ) - (4,484 ) (4,484 ) The Fund is exposed to share and derivative price risk. This arises from investments held by the Fund for which the 8,082 - 8,082 8,082 Amounts receivable for sales 2,591 - 2,591 2,591 future price is uncertain. All investments present a risk of (9,281 ) - (9,281 ) (9,281 ) Amounts payable for purchases (127 ) - (127 ) (127 ) loss of capital. The level of volatility will vary by asset class 3,383,362 4,015,383 2,751,341 Total assets available to pay benefits 3,486,201 4,146,440 2,825,962 and also over time. The Fund has some diversification in the asset classes in which it invests, which seeks to reduce the correlation of price movements between different asset types, while employing specialist investment managers to best deploy capital in line with the Funds overall strategy. The LGPS investment regulations also contain prescribed limits to avoid over-concentration in specific areas.

page 72 Pension Fund Annual Report 2011-2012

17.4. Other price risk sensitivity analysis Asset class 20 year return (% p.a.) UK bonds 9.9% In consultation with its institutional consultants, Hyman Robertson, an analysis of historical data UK equities 18.5% and expected return movements during the Overseas equities 22.2% accounting periods in question was undertaken. UK index linked bonds 7.8% The table below shows the potential price movements deemed possible for the accounting Pooled property unit trusts 14.5% period 2012/13. The percentages shown below Private equity 29.6% are broadly consistent with a movement of one Timber 29.6% standard deviation in the value of the Fund’s assets and assumes that all other variables in Infrastructure funds 14.5% particular foreign exchange rates and interest Property 14.5% rates remain unchanged. Cash 0.8% Active currency 22.2%

Had the market price of the Fund investments increased/ (decreased) in line with the above assumptions the change in the net assets available to pay benefits would have been as follows

31 March Percentage Value on Value on 31 March Percentage Value on Value on 2011 change increase decrease Asset type 2012 change increase decrease £000 % £000 £000 £000 % £000 £000 76,737 0.8% 77,351 76,123 Cash and equivalents 68,868 0.8% 69,419 68,317 Investment portfolio assets 226,019 9.9% 248,395 203,643 UK bonds 170,600 9.9% 187,489 153,711 343,945 18.5% 407,575 280,315 UK equities 368,741 18.5% 436,958 300,524 1,774,914 22.2% 2,168,945 1,380,883 Overseas equities 1,816,866 22.2% 2,220,210 1,413,522 171,839 7.8% 185,242 158,436 UK index linked bonds 127,446 7.8% 137,387 117,505 234,688 14.5% 268,718 200,658 Pooled property unit trusts 237,865 14.5% 272,355 203,375 126,264 29.6% 163,638 88,890 Private equity 154,424 29.6% 200,134 108,714 65,914 14.5% 75,472 56,356 Infrastructure 103,002 14.5% 117,937 88,067 - 29.6% - - Timber 28,181 29.6% 36,523 19,839 58,341 22.2% 71,293 45,389 Active currency 25,676 22.2% 31,376 19,976 156,301 14.5% 178,965 133,637 Other managed funds 163,410 14.5% 187,104 139,716 147,520 14.5% 168,910 126,130 Property 196,040 14.5% 224,466 167,614 (3,038 ) - (3,038 ) (3,038 ) Net derivative assets 21,608 - 21,608 21,608 5,265 - 5,265 5,265 Investment income due 5,494 - 5,494 5,494 (148 ) - (148 ) (148 ) WHT payable (4,484 ) - (4,484 ) (4,484 ) 8,082 - 8,082 8,082 Amounts receivable for sales 2,591 - 2,591 2,591 (9,281 ) - (9,281 ) (9,281 ) Amounts payable for purchases (127 ) - (127 ) (127 ) 3,383,362 4,015,383 2,751,341 Total assets available to pay benefits 3,486,201 4,146,440 2,825,962

page 73 17.5. Sensitivity of funding position to market conditions and investment performance When preparing the formal valuation the Actuary takes the assets of the Fund at market value on the valuation date. Volatility in investment performance as a result of market risk factors can have an immediate and tangible effect on the funding level and deficit. Less obvious is the effect of anticipated investment performance on the Fund’s liability to pay future pension benefits. Here, the returns available on government bonds (gilts) is important, as the discount rate that is used to place a value on liabilities is the gilt yield at the valuation date plus a margin of 2.5% per annum (pre retirement) and 1.0% per annum (post retirement). Effectively if the gilt yield rises the discount rate will increase and all other things being equal the value placed on liabilities will fall. If the Fund was invested entirely in gilts rather than potentially higher returning assets the discount rate would be lower as no margin for performance over gilts could be assumed.

17.6. Interest rate risk The Fund invests in financial assets for the primary purpose of obtaining a return on investments. These investments are subject to interest rate risks, which represent the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk primarily impacts on the valuation of the Funds’ bond holdings and to a lesser degree the return it receives on cash held. The Fund has three bond mandates, one passive bond mandate with Legal & General and two bond mandates with M&G Investments (M&G) and Goldman Sachs Asset Management (GSAM) in which exposure is actively managed. The Fund’s direct exposure to interest rate movements as at 31 March 2012 and 31 March 2011 are shown below. The underlying assets are shown at their fair value.

31 March 2011 Asset Type 31 March 2012 £000 £000 76,737 Cash and cash equivalents 68,868 13,150 Cash balances 10,085 226,019 Fixed interest securities 170,600 171,839 Index-linked securities 127,446 487,745 Total 376,999

17.7. Interest rate sensitivity analysis Interest rates over the last 24 months have remained constant but this is not always the case and can vary. As a result any variation in interest rates affects the level of income achievable and the value of the net assets of the Fund to pay benefits. The Fund’s institutional consultants, Hymans Robertson have undertaken a sensitivity analysis and advised that it is reasonable in today’s climate that a movement increase/(decrease) of not more than 100 basis points on a year to year basis is possible based on past experience. The table below shows the effect in the year on the net assets available to pay benefits of an increase/(decrease) of 100 basis points change in interest rates assuming all other factors remain unchanged.

Carrying Change in year in Carrying Change in year in Amount the net assets to Amount the net assets to as at pay benefits as at pay benefits 31 March 31 March 2011 +100 BPS -100 BPS Asset Type 2012 +100 BPS -100 BPS £000 £000 £000 £000 £000 £000 76,737 767 (767 ) Cash and cash equivalents 68,868 689 (689 ) 13,150 132 (132 ) Cash balances 10,085 101 (101 ) 226,019 2,260 (2,260 ) Fixed interest securities 170,600 1,706 (1,706 ) 171,839 1,718 (1,718 ) Index-linked securities 127,446 1,274 (1,274 ) 487,745 4,877 (4,877 ) Total change in assets available 376,999 3,770 (3,770 )

page 74 Pension Fund Annual Report 2011-2012

17.8. Currency risk Currency risk is the extent to which the fair value of future cash flows of a financial asset/liability will fluctuate due to changes in exchange rates. The Fund is exposed to currency risk on all assets that are denominated in any currency other than sterling, its reporting currency. To reduce the volatility associated with fluctuating currency rates the ISC has put in place a passive currency overlay programme which is managed by Legal and General Investment Management. The Fund hedges 50% of the US Dollar, Euro and Yen exposure within the portfolios managed by the growth managers.

The following table summaries the Fund’s currency exposure as at 31 March 2012 and prior year:

Asset value Currency exposure Asset value as at - asset type as at 31 Mar 2011 31 Mar 2012 £'000 £'000 1,135,418 Overseas equities quoted 1,114,687 639,496 Overseas unit trusts 702,179 125,635 Overseas private equity 154,173 12,001 Overseas infrastructure 36,240 – Overseas timber 28,181 4,388 Overseas managed funds unquoted 723 1,916,938 Total overseas assets 2,036,183

17.9. Currency risk sensitivity analysis In consultation with the Fund’s institutional consultant, Hymans Robertson the Fund considers the likely volatility associated with exchange rate movements to be in the region of 12% (approximately one standard deviation) assuming other factors remain constant.

The table below shows the effect of a 12% strengthening/weakening of the pound against the investments the Fund holds in various other currencies. The increase/ (decrease) on the net assets of the Fund are as follows:

Change in year in Change in year in the net assets to the net assets to pay benefits pay benefits 31 March 31 March 2011 +12% -12% Asset Type 2012 +12% -12% £000 £000 £000 £000 £000 £000 1,135,418 1,271,668 999,168 Overseas equities quoted 1,114,687 1,248,449 980,925 639,496 716,236 562,756 Overseas unit trusts 702,179 786,440 617,918 125,635 140,711 110,559 Overseas private equity 154,173 172,674 135,672 12,001 13,441 10,561 Overseas infrastructure 36,240 40,589 31,891 - - - Overseas timber 28,181 31,563 24,799 4,388 4,915 3,861 Overseas managed funds unquoted 723 810 636 1,916,938 2,146,971 1,686,905 Total change in assets available 2,036,183 2,280,525 1,791,841

page 75 17.10. Credit risk Credit risk is the possibility that the counterparty to a transaction or a financial instrument might fail in its obligation to pay amounts due to the Pension Fund resulting in a financial loss. The market value of investments reflects an assessment of credit in their pricing and consequently the risk of loss is implicitly provided for in the carrying value of the Fund’s financial assets and liabilities. The Fund is exposed to credit risk in all its operational activities through forward currency contracts, derivative positions (futures) and treasury management activities. However, the selection of high quality counterparties, brokers and financial institutions minimises credit risk that may occur through the failure to settle a transaction in a timely manner.

17.11. Commercial Commercial credit risk also arises with those organisations that pay monies over to the Fund (debtors) as part of the administration function, principally contributions from employers and transfers in from other registered pension schemes. Except in certain bulk transfer cases, the Fund does not apply service credits in respect of transfers in until cash settlement is made. Monthly receipt of contributions is closely monitored by the Contributions team. In addition, member records are updated throughout the year by Pensions Services with any new information provided to them. At the end of the financial year employers are required to provide Pensions Services with an annual return which is used to reconcile both member information and the contributions paid over in the year by both the employee and the employer. The Funding Strategy Statement requires safeguards to be in place on all new admission agreements to protect the Fund from an employer default, including through a guarantee from a tax backed scheme employer for any new body. An analysis of debtor balances at 31 March 2012 is provided in Note 12.

17.12. Foreign currency contracts Forward currency contracts are undertaken by Legal & General for the passive currency overlay programme and by the Fund’s appointed fund managers. The largest single contracts are entered into for the overseas equity passive currency overlay; the counterparties on these contracts as at 31 March 2012 are shown in the table below. The counterparty on contracts entered into by other investment managers is at the discretion of those managers. All parties entering into forward contracts on behalf of the Fund are FSA regulated and meet the requirements of the LGPS (Management & Investment of Funds) Regulations 2009. Further details of forward foreign exchange contracts are provided in note 9.

31 March 2011 Counterparty 31 March 2012 Total Exposure Total Exposure £000 % £000 % 49,525 3.3 Barclays Capital 157,422 10.5 122,149 8.2 BNP Paribas Capital Markets 87,791 5.9 – – Citigroup 137,641 9.2 104,757 7.0 Australian Commonwealth Bank 185,608 12.4 164,726 11.0 Credit Suisse AG 223,750 15.0 132,522 8.9 Deutsche Bank AG 143,588 9.6 147,100 9.9 HSBC 51,781 3.5 251,447 16.9 J P Morgan Securities 212,285 14.2 100,227 6.7 RBS 114,075 7.6 57,722 3.9 Royal Bank of Canada 78,739 5.3 – – SEB 9,840 0.7 205,032 13.7 SG Securities – – 119,070 8.0 UBS 87,944 5.9 37,052 2.5 Westpac Bank Corp 3,593 0.2 1,491,329 100.0 Total 1,494,057 100.0

page 76 Pension Fund Annual Report 2011-2012

17.13. Futures Futures contracts entered into by the Fund are all exchange traded. As a consequence, credit risk is minimised as counterparties are recognised financial institutions with acceptable credit ratings determined by a recognised rating agency. At 31 March 2012 the contracts in place were all traded in the US on the Chicago Mercantile Exchange (CME). Further details of these futures contracts are provided in Note 9. In these transactions the clearing broker, Goldman Sachs, acts as counterparty to both sides of the contract (buyer and seller). The clearing broker requires both parties to put up an initial amount of cash (variation margin). All positions are then marked to market daily, with margins required to be posted and maintained at all times. This minimises the risk of default by either party. In the event that a client does default, FSA rules state that the broker must make good the position to the extent that it is able, primarily through accessing the other party’s variation margin. The ultimate default risk therefore lies with Goldman Sachs and their balance sheet strength but is underpinned by the contractual requirement for variation margin. Goldman Sachs is a registered deposit taking institution and, therefore, monies posted to it are held under banking regulation rather than in accordance with FSA client money rules.

17.14. Bonds Credit risk will also be considered by the Fund’s bond managers in their portfolio construction. A bond is a saleable debt instrument issued by a corporation, government or other entity, the instrument may be purchased direct from the issuer or in the secondary market. In addition to passive manager, Legal & General, the Fund has two active bond managers M&G and GSAM. The former also manage a financing fund. Both M&G and GSAM manage pooled assets against a LIBOR plus benchmark. At 31 March 2012, the average credit quality of the M&G bond mandate was A- rated (A+ rated as at 31 March 2011) and the portfolio had suffered 4 defaults since inception. None have been experienced in the financial year ended31 March 2012. The average credit rating of the financing fund was BB rated as at31 March 2012 (BB rated as at 31 March 2011) and the portfolio has not suffered any defaults since inception. The portfolio managed by GSAM as at 31 March 2012 had an average credit quality of AA+ (AA- rated as at 31 March 2011) and has suffered two defaults since inception, both occurring 2011/12.

17.15. Cash held on deposit and current accounts Cash managed internally The Fund has operated a separate bank account since 1 April 2010 with Lloyds TSB Bank plc, which is also banker to the Administering Authority. The bank holds an A (A+ in 2010/11) long term credit rating with Standard and Poors. Cash is not invested with Lloyds TSB but is placed with institutions on the Administering Authority’s approved counter-party list. The management of cash is carried out by the Treasury Management function of the Administering Authority in accordance with the treasury management policy and strategy approved by the Essex Pension Board. The Board have approved the management of cash in accordance with the policies and practices followed by the Administering Authority for its own investments as outlined in the CIPFA Code of Practice for Treasury Management in the Public Services. The Authority sets detailed credit criteria having taken independent advice and has maximum exposure limits to any single institution. Details of such are shown in the tables below. At 31 March 2012, £10.085m (£13.150m as at 31 March 2011) was under management by the Administering Authority’s Treasury Management Team. Over the last five financial years the Pension Fund has no experience of default or uncollectible deposits.

page 77 Cash managed externally The majority of the cash held by the Fund’s custodian, the Bank of New York Mellon (BNY Mellon) is swept overnight to one of two AAA rated money market funds. The historical experience of default from AAA rated entities detailed in the table below is nil. As at 31 March 2012, the total balance held in Sterling, US dollar and Euro AAA money market funds was £58.716m with a smaller balance of £9.761m held in the BNY Mellon current account (£69.944m and £6.477m as at 31 March 2011 respectively). The use of money market funds provides an underlying diversification of counter-party and avoids exposure to a single institutional balance sheet, in this case the custodian. The table below provides a breakdown of where the Pension Fund cash is managed:

31 March Rating Cash Balances Rating 31 March 2011 2012 £000 £000 Cash managed externally Cash held on deposit 28,825 AAA BNP Paribas Investment Partners AAA 40,851 41,119 AAA BNY Mellon Liquidity Fund AAA 17,865 69,944 58,716 Cash held in current account 6,477 AA The Bank of New York Mellon AA 9,761 151 AA Barclays plc A+ 62 6,628 9,823 Cash held in a margin account 165 A Goldman Sachs A- 329 76,737 Total cash managed externally 68,868 Cash managed Internally Cash held on deposit 7,000 AA Barclays Bank A+ 3,002 5,000 A- Royal Bank of Scotland Group A 3,004 610 AA+ Santander UK A+ - Svenska Handelsbanken AA- 3,001 12,610 9,007 Cash held in current account 540 A+ Lloyds TSB Bank plc A 1,078 13,150 Total cash managed internally 10,085 89,887 Total 78,953

The following table summarises the maximum exposure to credit risk of the cash internally held with the Administering Authority’s treasury management team and externally with the Bank of New York Mellon and other financial institutions.

page 78 Pension Fund Annual Report 2011-2012

31 March 31 March Maximum Historical Estimated 2011 2012 limit per risk of maximum financial default default & institution uncollect- ible £000 £000 £000 % £000 Cash managed externally Deposit with bank and other financial institutions 69,944 AAA rated 58,716 60,000 – – 6,628 AA rated 9,761 – 0.03% 3 165 A rated 391 – 0.08% 0 76,737 Total cash managed externally 68,868 3 Cash managed Internally Deposit with bank and other financial institutions 7,610 AA rated 3,001 10,000 0.03% 1 5,540 A rated 7,084 5,000 0.08% 6 13,150 Total cash managed internally 10,085 7 89,887 Total cash 78,953 10

17.16. Liquidity risk

Liquidity risk is the possibility that the Fund might not have adequate cash resources available to meet its financial commitments as they full due.

The ISC reviews its strategy on a yearly basis and where necessary takes steps to ensure that the Fund has adequate readily realisable resources to meet its financial commitments. The majority of the Fund’s investments are quoted on major stock markets and are in readily realisable form. The Fund’s allocation to alternative investments, which are relatively illiquid, was as a result of a review of strategic asset allocation on 22 February 2012, 27.0% of the Fund’s assets. The Fund is relatively immature with almost as many contributors as pensioners, dependants and deferred pensioners. In consequence the Fund has a positive cash flow and is able to pay benefits from contributions received. As the Fund is not in the position of a forced seller, i.e. it does not need to sell assets in order to pay benefits, it is considered appropriate to hold such illiquid investments to increase diversification, minimise risk and improve long- term investment performance.

The Fund as at 31 March 2012 had immediate access to its pension fund cash holdings held internally and externally of £78.953m (£89.887m as at 31 March 2011). These monies are in primarily invested on an over night basis on the money market.

Officers of the Fund prepare periodic cashflow forecasts to understand and manage the timing of the Fund's cashflows. The Statement of Investment Principles outlines the appropriate strategic level of cash balances that the Fund can hold. More detail can be found in Section 6. In consultation with its institutional consultants, Hymans Robertson, the Fund is currently preparing a future cashflow forecast modelling tool which will incorporate the affects of the potential regulatory changes to the future of the scheme which is due to take effect in 2014/15.

17.17. Refinancing risk

Refinancing risk is the risk of the Fund replenishing a significant proportion of its financial assets at a time of unfavourable interest rates. The Fund is not subject to this particular risk as it does not hold any assets that would require refinancing in the future.

page 79 17.18. Custody

In 2006 the Fund appointed BNY Mellon as its global custodian with responsibility for safeguarding the assets of the Fund. As at 31 March 2012 BNY Mellon had $26.6 trillion of assets under custody, making it the world’s largest global custodian and had a credit rating of AA-. During 2011/12 the Fund underwent a retender process in respect of its custody services. BNY Mellon was unsuccessful in retaining the contract. The new custodian’s contract will commence from October 2012. Monthly reconciliations are performed between the underlying records of the custodian and all investment managers and partnerships of the Fund.

17.19. Investment management

The Fund has appointed a number of segregated and pooled fund managers to manage portions of the Fund. An Investment Management Agreement is in place for each relationship. All appointments meet the requirements set out in the LGPS (Management and Investment of Funds) Regulations 2009. Reports on manager performance are monitored by the ISC on a quarterly basis. The Fund makes use of a third party performance measurement service, BNY Mellon Performance & Risk Analytics Europe Limited. In addition to presenting to the ISC, managers also meet with Fund officers and advisers to review progress on an annual basis.

page 80 Pension Fund Annual Report 2011-2012

page 81 Independent auditor’s report to the Members of Essex County Council

Opinion on the pension fund financial statements

I have audited the pension fund financial statements for the year ended 31 March 2012 under the Audit Commission Act 1998. The pension fund financial statements comprise the Fund Account, the Net Assets Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2011/12.

This report is made solely to the members of Essex County Council in accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph 48 of the Statement of Responsibilities of Auditors and of Audited Bodies published by the Audit Commission in March 2010.

Respective responsibilities of the Executive Director for Finance and auditor As explained more fully in the Statement of the Executive Director for Finance’s Responsibilities, the Executive Director for Finance is responsible for the preparation of the pension fund’s financial statements and for being satisfied that they give a true and fair view. My responsibility is to audit and express an Scope of the audit of the opinion on the financial statements in accordance financial statements with applicable law and International Standards on Auditing (UK and Ireland). Those standards require me An audit involves obtaining evidence about the to comply with the Auditing Practices Board’s Ethical amounts and disclosures in the financial statements Standards for Auditors. sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the fund’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Executive Director for Finance; and the overall presentation of the financial statements. In addition, I read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If I become aware of any apparent material misstatements or inconsistencies I consider the implications for my report.

page 82 Pension Fund Annual Report 2011-2012

Opinion on financial statements In my opinion the pension fund’s financial statements:

• give a true and fair view of the financial transactions of the pension fund during the year ended 31 March 2012 and the amount and disposition of the fund’s assets and liabilities as at 31 March 2012; and

• have been prepared properly in accordance with Opinion on other matters the CIPFA/LASAAC Code of Practice on Local In my opinion, the information given in the annual Authority Accounting in the United Kingdom report for the financial year for which the financial 2011/12. statements are prepared is consistent with the financial statements.

Matters on which I report by exception I report to you if, in my opinion the governance compliance statement does not reflect compliance with the Local Government Pension Scheme (Administration) Regulations 2008 and related guidance. I have nothing to report in this respect.

Rob Murray District Auditor

3rd Floor, Eastbrook Shaftesbury Road Cambridge, CB2 8BF

27 September 2012

page 83 Section 6 Additional information

page 84 Pension Fund Annual Report 2011-2012

Statement of Investment Principles

Introduction

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 “SOC” 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. The version shown below was agreed by the ISC on 13 June 2012.

Background Objectives Essex County Council is the 1. The underlying aim of the Fund is to ensure that employers’ contribution administering authority “the rates are set at a level to attain 100% funding, as certified by the Fund’s Authority” for the Fund under the Actuary, whilst keeping the employers’ contribution rates as stable as Regulations. Responsibilities for possible. With regard to the investments of the Fund the objective is to its investment functions have maximise returns within an acceptable risk profile. been delegated to the Investment Steering Committee “ISC” and 2. The ISC regularly reviews and sets down its core investments beliefs. the Executive Director for Finance These are reproduced in full at Appendix A. They also regularly review “the EDF”. The ISC is composed of the Fund’s asset allocation and investment management structure to 6 county councillors and 2 non- ensure that the target structure remains in line with their core investment voting observers, one appointed beliefs. The current target structure, reflecting changes made up to12 annually by the Essex Borough & October 2011, is set out below with more detail provided in Appendix B. District Leaders’ / Chief Executives’ Meeting and representing all 3. Hymans Robertson have provided an updated assessment of the long Fund Employers and the other by term investment returns that the Fund might expect from its target UNISON and representing all Fund structure. The following is a summary of their findings: Members. The ISC is provided with investment advice by Hymans Expected strategic return on assets Robertson LLP, two independent At December 2011, Hymans Robertson’s assumptions with regard to the investment advisers and the EDF. long term returns on asset classes were: From 1 August 2012 the number of independent investment advisers Asset class 20 year return (% p.a.) will reduce to one. UK Equity 6.2 The Regulations specify that, in Overseas / Global Equity 5.9 investing the Fund’s money, regard Private Equity 7.4 must be given to the need for diversification and to proper advice Fixed Interest Gilts 3.0 obtained at reasonable intervals. External investment managers have Index-linked Gilts 2.3 been appointed to make the day-to- Corporate Bonds 3.8 day investment decisions. LIBOR+ 3.4 Set out opposite are the key Property 4.2 investment principles that have been adopted by the Fund. Infrastructure 4.2

page 85 Given the Fund’s long term strategic allocation of assets at that time (re‑weighting for Private equity) of:

% 6.2 UK Equity 5.9 Overseas / Global Equity 4.0 Private equity 2.5 Fixed Interest Gilts 12.5 LIBOR + (including Company Loans and Currency) 15.0 Property 6.0 Infrastructure and Timber this would imply a long term strategic expected return of 5.3% p.a. on an arithmetic weighted average of these individual returns. This does not take account of any expected return from active management (including currency) or the benefit we might expect from diversification (which we expect to come through as 'bonuses'). Using Hymans Robertson’s internal asset model (which, in this case, also does not take account of active management, but does allow for the benefits of diversification) some analysis was performed with respect to various expected returns and the probability of achieving that return. The model (based on the current 4 . The risks in terms of volatility structure) calculates a central expected return of 6.1% p.a. The overall of funding levels and expected return on a portfolio of assets does not solely reflect the arithmetic employers’ contribution weighted average of the returns on the individual asset classes. This is due rates have been considered to diversification i.e. when you combine a portfolio of assets which are not in depth by the ISC and the fully correlated to each other, the expected portfolio return is greater than strategic asset allocation the arithmetic combination of the individual returns. This reflects the lower has been set consistent with volatility of the portfolio compared to the volatility of the sum of the parts. the liabilities in the Fund, This is sometimes referred to as 'volatility drag'. taking full account of the risks involved following the detailed It should be noted that the 6.1% p.a. expected return from the assets consideration of an asset is below the ‘normal cost’ assumption in the 2010 Actuarial Valuation liability modelling exercise. of 6.75% p.a. Whilst this suggests that the current asset allocation will This was formulated to take generate insufficient return to meet the assumptions underlying the account of the ISC’s attitude funding position for the Fund, this is a symptom of the current unusual to risk. The strategic asset market conditions where gilt yields are at very low levels. The Fund and allocation, the customised its Investment Consultant and Actuary expect that gilt yields will return to benchmark and the tolerances more normal levels (i.e. increase) over time, which other things being equal set on investment managers’ is expected to lead to a fall in the assessed value of the liability which will performance are the means by assist in closing the funding gap in relative terms. In addition the funding of which the ISC aims to achieve the Fund will be reassessed during 2013 as part of the triennial valuation. the overall fund objective.

The probability of achieving particular levels of out-performance over a 1 5. Risk associated with year period relative to the liabilities is as follows: investments will be controlled Probability of achieving liabilities + 1.0% p.a.= 60% by the diversification of Probability of achieving liabilities + 2.5% p.a.= 57% investments over asset classes Probability of achieving liabilities + 3.5% p.a.= 54% and the use of a number of investment managers. Regular reports will be made to the ISC.

page 86 Pension Fund Annual Report 2011-2012

6 . The majority of the Fund’s investments are quoted on major stock markets and are in readily realisable form. The Fund’s strategic allocation to property and partnership investments, which are relatively illiquid, is currently 26.0% of the Fund’s assets. The Fund has a positive cash flow and is able to pay benefits from contributions received. As the Fund is not in the position of a forced seller, i.e. it does not need to sell assets in order to pay benefits, it is considered appropriate to hold such investments to increase diversification, reduce risk and improve long- term investment performance. The ISC has also considered the potential impact of the proposed changes to the LGPS from the Hutton review and the impact that might have on the Fund.

Strategic Asset Allocation

The Fund’s strategic asset allocation as agreed on 23 February 2011 and subsequently amended on 12 October 2011, is as follows:

% UK Equities 8.5 Global Equities 28.0 Overseas Equities 23.5 Private Equity 4.0 UK index-linked 2.5 LIBOR+ 10.5 Infrastructure 4.0 Timber 2.0 Property 15.0 Company Loans 1.0 Currency 1.0 Total 100.0 More detail is provided at Appendix B.

page 87 Investment Managers The Fund’s investment management Investment arrangements now consist of one Management Strategy passive balanced “swing” manager (who also manages a passive currency The investment management hedge), four active global equity strategy is to appoint expert managers, one active emerging investment managers with a clear market equity manager, two active performance benchmark and bond managers, one private equity place maximum accountability manager, one property manager, one for performance against that active currency manager and holdings benchmark on the investment in infrastructure, timber and company manager. The Fund has recently loans. (See Appendix B for asset adopted a equity/bonds/ allocation and Appendix C for details alternatives structure, allocating of individual investment managers’ 67% of its assets to asset mandates). Managers' performance ISC Responsibilities classes (equities, private equity, against their agreed targets will be 1. To approve and annually review activism) that are expected to monitored and reviewed each quarter. the content of the SIP. grow at levels significantly in In addition a detailed review of their excess of bonds in the long term performance will be carried out on an 2. To appoint and review and therefore reduce the cost of annual basis. investment managers, providing pension provision and custodian and advisers. 33% of assets to income sectors 1. Managers are required to (bonds, property, infrastructure submit quarterly reports on their 3. To assess the quality and company loans) to control performance, their asset holding and performance of each overall volatility and provide cash and their future intentions together investment manager annually income to the Fund. with any changes they are planning in conjunction with investment to make to their portfolios. A advisers and the EDF. statement of their compliance with the SIP is also to be included. 4. To set the investment parameters within which the 2. Managers are required to attend investment managers can meetings as requested with officers operate and review these and advisers and/or the ISC to annually. discuss their performance and future intentions. 5. To monitor compliance of the investment arrangements with 3. Managers must comply with all the SIP. legitimate instructions given to them by the Authority. In the event 6. To assess the risks assumed by of any perceived conflict with the Fund at a global level as well the law, rules, regulations or the as on a manager by manager agreement between the manager basis. and the Authority, the manager must consult with the Authority in 7. To approve and review the asset order to resolve the conflict. allocation benchmark for the Fund. 4. Managers must not enter into soft commission arrangements in 8. To submit quarterly reports respect of the funds they manage on its activities to the Essex on behalf of the Fund unless those Pension Fund Board “the arrangements have been approved Board”. by the Authority.

5. The Authority must be able to terminate the appointment of any manager by giving not more than one months notice.

page 88 Pension Fund Annual Report 2011-2012

Custodian External Advisers Responsibilities Institutional Investment Consultant 1. To safeguard all segregated assets (excluding direct property 1. To provide advice to the Fund holdings, unitised holdings and on investment strategy, asset cash held separately with either allocation, benchmark selection the Authority or investment and design, investment managers) within the Fund management structure, and ensure that all associated legislative changes impacting on income is collected, including the Fund and current emerging dividends and tax reclaims. Also issues. to ensure that corporate actions Executive Director affecting the securities are dealt 2. To prepare and present a report, for Finance with, including rights issues, based on information supplied Responsibilities bonus issues and acquisitions. by the Fund’s independent 1. To manage the Pension Fund performance monitoring including the power to seek 2. To provide regular statements of provider, on the annual professional advice and to transactions, corporate actions, investment performance of the devolve day-to-day handling income and asset valuations as Fund. of the Fund to professional required by the Authority. advisers within the scope of the 3. To carry out on behalf of the Pensions Regulations. 3. To report to the ISC in person Fund, when required, the 2. To provide a training plan for on the assets of the Fund if functions of manager selection the members of the ISC (and the required. and manager monitoring. Board). 4. To inform the Fund of any 4. To carry out asset/liability areas of concern which arise modelling studies when in its dealings with investment required. managers. 5. To provide expert commentary on the economy and investment market.

6. To attend and advise at all meetings of the ISC and all meetings arranged between its officers, advisers and managers.

7. To assist the ISC in its annual review of asset allocation, investment management structure, SIP and Funding Strategy Statement “FSS”.

page 89 Independent Investment Adviser 1. To assist the officers of the Fund in the determination of agendas and papers for the meetings of the ISC.

2. In consultation with the officers of the Fund, to identify investment issues of strategic importance to the Fund and arrange for their consideration by the ISC e.g. asset allocation and investment management structure.

3. In conjunction with the officers of the Fund, to keep under review the individual investment managers and where necessary put forward proposals for their management, including where appropriate their dismissal.

4. To assist the officers of the Fund, where requested, in manager searches and other Fund procurement exercises.

5. To assist the ISC in keeping under review its statutory publications e.g. the SIP, the SOC and the FSS.

6. When requested by the officers, to attend and participate in monitoring, reviewing and briefing meetings arranged with investment managers, limited partners etc.

page 90 Pension Fund Annual Report 2011-2012

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

page 91 Investment Limits The overriding limits that apply for the different types of pension fund investments are set out in the Regulations. These regulations allow an administering authority to increase some of those limits up to specified amounts. When deciding to increase or review limits, the administering authority must:

• take account of proper advice and of the factors in Regulation 9 (3) of the Regulations (the advisability of investing fund money in a wide variety of investments and the suitability of particular investments and types of investments); and • the decision must specify certain matters and those matters must be published in a revised Statement of Investment Principles before they can take effect.

Having taken proper advice, from both external investment advisers and its own officers, and having taken account of the factors in Regulation11 (2) of the Regulations, the ISC has decided to increase the following investment limits as set out below:

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

b. the limit on limit increased limit increased from 25% of the the amount of from 2% of total from 5% of total total fund to 35% the investment fund to 3% of fund to 15% of of the total fund total fund total fund

c. the reason for to permit up to to permit to permit the decision 3% of the additional additional total fund to investment in investment in the be invested private equity, pooled funds of in a single infrastructure, the Fund’s infrastructure shareholder passive index fund organised activism and tracking manager as a partnership property partnerships

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

The above decisions comply with the Regulations.

page 92 Pension Fund Annual Report 2011-2012

General Fund Investment Restrictions The Fund is subject to the overall restrictions specified in the Regulations, modified in certain instances by the Administering Authority as set out above. In addition the Council has determined that the following restrictions should be applied:-

A. For the Fund as a whole 1. Asset allocation benchmarks will be set by the ISC to ensure that the Fund’s assets are adequately diversified. 2. Cash held in house by the Authority on behalf of the Fund shall not normally exceed £5 million unless in line with investment policy. 3. The cash holdings of individual investment managers will be monitored and reported upon.

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

page 93 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 Socially Responsible strategy. The amount invested in Investments any single partnership at the time 1. The ISC does not place of commitment must not exceed restrictions on investment 3% of the Fund. Total investment managers in choosing Corporate Governance in all partnerships at the time of investments in quoted The Fund fully supports the UK commitment must not exceed 15% companies except in limiting the Stewardship Code and requires of the Fund. size of single investments. We those of its investment managers expect the companies in which who hold shares on its behalf to we invest to adopt and pursue comply with it or to provide the socially responsible business ISC with an explanation of why it practices. is not appropriate to do so, in the exercise of the mandate that they 2. The ISC will intervene if have been given, and how they will investments are made in instead achieve and demonstrate companies whose behaviour is the same level of responsible share seen as unacceptable because ownership. of environmental considerations and other social implications. Intervention is likely to be extremely rare as companies are aware of the increasing Stock Lending sensitivity of investors. 1. Segregated Investments The Fund does not participate in stock lending schemes nor allow its stock to be lent.

2. Pooled Investments In regard to the Fund’s pooled investments, where the Fund is buying units in a pooled vehicle, stock lending is outside the control of the Fund and undertaken at the discretion of the pooled fund manager.

page 94 Pension Fund Annual Report 2011-2012 APPENDIX A

Essex Pension Fund Investment Although historically the UK may have benefited from Steering Committee better corporate governance, and therefore a higher Core Investment Beliefs return, increasingly the rest of the world is catching up and UK equities are not expected to outperform 1. Long term approach overseas equities over the long term. Given the a. Local authority funds take a long term view of concerns over market concentration in the UK market investment strategy and an increased opportunity set overseas a move This is largely based on covenant. Unlike the private towards increased overseas allocation relative to the UK sector, the covenant underlying the Fund is effectively seems appropriate. Concerns about currency risk can be gilt-edged. This means that short term volatility of addressed by a separate currency hedging programme. returns can be acceptable in the pursuit of long term d. Benchmarks gain. Whilst there is a need to consider stability of Where appropriate, benchmarks should represent the contributions, at current maturity levels and with full opportunity set. deficits spread over a maximum of30 years, it is largely For example, for a global equity mandate, a market the future service rate which is expected to drive capitalisation (“market cap”) weighted benchmark instability. One of the best ways to avoid this is to build reflects a passive allocation to the market (analogous to in margins over the long term. investing in a passive equity mandate and investing in b. Over the long term, equities are expected to outperform each stock according to its size). It therefore reflects the other liquid asset classes, particularly bonds investable universe of stocks available and represents Given 1. a. above, there is a preference for a significant the starting point for an equity benchmark. allocation to equities in the Fund as over the long- e. To some extent market cap weighted indices reflect term as they are expected (but not guaranteed) to past winners, so should be treated with caution outperform other asset classes. The regional exposures in the World Index are a c. Allocations to asset classes other than equities and function of the relative market cap of the regional bonds expose the Fund to other forms of risk premium stockmarkets. In turn, these are a function of the size Investors with a long term investment horizon and of the economy as a whole and how well companies little need for immediate liquidity can use this to their have performed in that economy. One measure of the benefit as it offers the ability to capture the illiquidity size of the economy could be its overall contribution premium on many asset classes, such as private equity to global GDP. However, as has been seen in the UK, and infrastructure. many companies in the market have little exposure to the domestic economy and, again, this should not be 2. Diversification adhered to too slavishly. At the total fund level a fixed a. Diversification into alternative asset classes (including weights regional benchmark is therefore preferred in property) is also expected to reduce overall volatility of order to maintain an appropriate level of diversification the Fund’s funding level across markets. This is particularly the case when Given that the returns from different asset classes are the allocations are maintained by a passive “swing” expected to be delivered in different cycles (i.e. not manager. be directly correlated with equity returns), the use of f. Emerging market economies may be expected to alternative assets can reduce overall volatility in the outperform over the long term as the economy delivery of Fund returns without leading to a significant develops and the risk premium falls reduction in overall expected return, therefore As emerging markets develop both politically and increasing efficiency. economically, become more robust and less dependent b. In the context of LA funds (open, long duration, not on the fortunes of a small number of developed maturing quickly and with high equity content), an economies (such as the US), the risk of investing in allocation to bonds does not offer a match to liabilities, these countries should decrease. The return demanded but additional diversification. by investors for investing in these ‘riskier’ countries Where bonds are not used for liability matching will therefore fall reflecting the increased security. purposes, an allocation to these assets can be beneficial This reduction in required return would tend to lead from an overall risk/return perspective improving the to a systematic increase in stock prices. As a result, a overall efficiency of the Fund. The corollary to this is that strategic allocation to emerging markets of at least the bond benchmarks do not necessarily have to reflect the market cap weight if not slightly above is favoured. nature and duration of the liabilities (see benchmark g. Bond benchmarks do not need to reflect the nature and section below), but should be set to provide managers duration of the liabilities with the sufficient scope to add value. As discussed in the diversification section above, if c. The overweight to UK equities in most UK pension funds bonds are not held for liability matching purposes, is historic and loosely based on currency exposures, benchmarks should be set in order to maximise the rather than a preference for the UK market scope for adding value.

page 95 3. Active versus passive management in a more timely fashion. This highlights the importance a. Passive management is appropriate for obtaining a low of not unnecessarily constraining active managers and cost allocation to efficient markets providing them with appropriate scope. Where markets offer little scope for adding value g. The assessment of active management performance through active management (such as individual should be taken with a long-term view and take allocations to UK equities, US equities and gilts) account of the market environment in which returns are passive management is preferred as a low cost way of delivered accessing the market. This does not include emerging Active management is cyclical and periods of markets where the risk inherent in the market (although underperformance from investment managers should improving as stated above) and inefficiency of the be expected so the structure should be such that when market lends itself to active management. the market cycle is unfavourable for some managers it b. Active management is appropriate where a market is is favourable for others and vice versa. This is expected relatively inefficient offering opportunities for active to deliver added value over the long-term whilst managers to add value smoothing the overall performance at the total Fund Where markets offer substantial scope for added value level. Churning of managers leads to additional costs; active management would seem appropriate as a way however, where the ISC no longer views an investment of increasing overall expected return (after fees) without manager’s prospects as positive over the long-term, significantly increasing the overall level of volatility in action should be implemented as soon as possible due the funding level. to the potential downside risk. c. Constraints on active managers reduce their ability to add value Active managers should not be unnecessarily constrained (within appropriate risk limits) and should be given the maximum scope to implement their active views. There is therefore a preference for unconstrained mandates e.g. unconstrained global equity mandates and unconstrained bond mandates such as M & G’s LIBOR plus approach. This also suggests that, within reason, managers’ requests for additional scope should be acceded to. d. A degree of diversification of managers improves the efficiency of the overall structure (i.e. improves the expected return per unit of risk) Active manager performance is expected to be cyclical and therefore by appointing a number of managers the delivery of returns is expected to be less volatile. However, too much diversification can lead to expensive index tracking. e. A rigorous approach to active manager selection improves the chance of appointing an active manager who will add value over the long-term An active manager must outperform their benchmark after fees to add value. The selection of an active manager must assess more than just past performance and look into the infrastructure supporting the performance including; business and ownership, philosophy and process, people, risk controls and fees. f. The Fund does not have the governance structure in place to take tactical views and market timing is very difficult Both timing investments into the market and taking tactical views are very difficult given the governance structure in place and the time taken to agree and implement decisions. Where possible these decisions are left to professional investment managers who are closer to the market and can implement tactical views

page 96 Pension Fund Annual Report 2011-2012 APPENDIX B

Private Equity 4.0 100.0 100.0

Timber 2.0 100.0 100.0

Infra– 100.0 4.0

structure 100.0 100.0

Currency 1.0 Alternatives 100.0 100.0 100.0

Company 100.0 Loans 1.0 100.0 100.0 100.0

100.0

Property

15.0

100.0 100.0 100.0

M&G 5.0 100.0 100.0 100.0

Bonds

GSAM 5.5 100.0 100.0 100.0

First State 4.0

100.0 100.0 100.0

Alliance Bernstein 7.0 100.0 100.0 100.0

Baillie Gifford 7.0 100.0 100.0 100.0

Equities

Marathon 7.0 100.0 100.0 100.0

Fidelity 7.0 100.0 100.0

0.0 100.0 7.3 8.0 L&G 8.0 30.5 27.6 21.2 92.0 14.7 (swing) Passive 100.0 Balanced

.0 .4 21.2 .0 .0 .0 .0 Effective .0 5.0 8.5 1 6 6.4 2.2 2.5 0.0 0 4.0 100.0 4.5 2 1 4 4 1 28.0 27.0 60.0 10.5 Benchmark 13.0 100.0 100.0

markets

equity

equities

alternatives Equities bonds

Weighting

index linked Gilts Corps Fund Property UK equities Global Currency Total Europe Total North America Japan Pacific ex-Japan Emerging Total UK UK UK Libor+ Total Timber Private Company loans Infrastructure Essex Pension Fund – Target Structure as at 12 October 2011 12 October at as Structure Target Fund – Pension Essex

page 97 APPENDIX C

Mandates: Performance Objectives

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

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

3 3 5 5 3 3 3 3 3 year periods 3 - 5 years. Period for measurement Ongoing Ongoing Rolling periods Rolling Rolling Rolling Full market cycle* Note 5 Rolling Investment cycle* Note 6 Rolling Rolling Rolling % % 0 0 . . 3 4 cycle – Rolling – projected possible range of future returns market cycle – A rising and a falling market taken together. An ex-post average market cycle is Full Investment

After fees Benchmark + To exceed the benchmark Benchmark + 4 : 5 : 6 : % % % % % 0 % 0 0 0 0 5 . . . % . . *Note *Note *Note 2 3 3 2 1 Performance Target Before fees To track the index* Note 3 To track the index* Note 3 Benchmark + Benchmark + Benchmark + Benchmark + per annum Benchmark + 2 Benchmark + Benchmark + 24 .

Note 2

months LIBOR One-month sterling LIBOR MSCI AC World Index MSCI AC World Index MSCI AC World Index MSCI World Index MSCI Emerging Markets Free Index Unhedged (in UK Sterling) 3 One-month sterling LIBOR Multi-index* Indices Multi-index* Note 2 Multi-index * MSCI World Index Benchmark Note 2

Mandate Type Passive Equities Swing Passive Bonds Swing Global Equities Global Equities – segregated Global Equities – pooled Global Equities Global Equities Emerging Markets Equities Bonds Bonds Property Active Currency - a separate index is applied to each sub-asset class and

tracking error - the range of returns likely in the portfolio

track the index - Seeks to attain performance equal to the specified

Target relative to its benchmark/index Multi-index total performance is a composite To index returns. Invest in the same shares and in the same proportions as those in the index being tracked

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

page 98 Pension Fund Annual Report 2011-2012 APPENDIX D

Investment Decision Making and Disclosure in the LGPS Statement of Compliance

Not Partially Fully Principle Compliant Compliant Compliant 1. Effective Decision Making 3 Areas of non compliance and explanation Board members’ handbooks are temporarily not being issued due to an electronic alternative currently being procured. The Fund’s administration strategy is currently in draft form, subject to consultation with employers.

Action to be taken • Electronic version of handbook to be implemented. • The administration strategy will be resubmitted to the Board for approval once consultation has taken place.

2. Clear Objectives 3 Comment/justification Fully compliant. The Fund reviews the need and appetite for sub funds with different investment objectives from time to time and intend to canvass the views of employers again in the coming year

Action to be taken None

3. Risk and Liabilities 3 Comment/justification Fully compliant

Action to be taken None

4. Performance Assessment 3 Areas of non compliance and explanation The fund recently tendered its contract for actuarial services. A formal performance framework against which to measure the cost, quality and consistency of advice received from its actuaries will be put in place. Other adviser appointments are retendered on a regular basis at which stage a detailed assessment of cost, quality and advice is performed. Ongoing assessment is more informal, although a more formal process and framework is being considered.

Action to be taken • An appropriate performance measurement framework will be built into the new actuarial services arrangement. • Consider a more formal process and framework.

page 99 Not Partially Fully Principle Compliant Compliant Compliant 5. Responsible Ownership 3 Comment/justification Fully compliant

Action to be taken None

6. Transparency and Reporting 3 Comment/justification The Fund’s Statement of Investment Principles sets out in detail the mandates given to all advisers and managers. It does not however provide the level of detail, particularly on fees, recommended in the principle because to include everything would make the SIP even longer and reduce its readability, but also because some of the information is deemed to be commercially sensitive and not in the Fund’s interest to publish.

Action to be taken None

page 100 Pension Fund Annual Report 2011-2012 Funding Strategy Statement 2011

As at 31 March 2011

This Statement has been prepared by Essex County Council (the Administering Authority) to set out the funding strategy for the Essex County Council Pension Fund (the Fund), in accordance with Regulation 35 of the Local Government Pension Scheme (Administration) Regulations 2008 (as amended) and the guidance paper issued in March 2004 by the Chartered Institute of Public Finance and Accountancy (CIPFA) Pensions Panel.

1. Introduction The Local Government Pension Scheme (Administration) Regulations 2008 (as Employer contributions are amended) (“the Administration Regulations”) replaced the Local Government determined in accordance with Pension Scheme Regulations 1997 (as amended) providing the statutory the Regulations (principally framework from which the Administering Authority is required to prepare a Administration Regulation 36) which Funding Strategy Statement (FSS). The key requirements for preparing the FSS require that an actuarial valuation can be summarised as follows: is completed every three years by • After consultation with all relevant interested parties involved with the Fund the Actuary appointed by the Fund, the Administering Authority will prepare and publish their funding strategy; including a rates and adjustments • In preparing the FSS, the Administering Authority must have regard to:- certificate. Contributions to the Fund • the guidance issued by CIPFA for this purpose; and should be set so as to “secure its • the Statement of Investment Principles (SIP) for the Fund published under solvency”, whilst the Actuary must Regulation 12 of the Local Government Pension Scheme (Management and also have regard to the desirability Investment of Funds) Regulations 2009; of maintaining as nearly constant a • The FSS must be revised and published whenever there is a material rate of contribution as possible. The change in the policy on the matters set out in either the FSS or the SIP. Actuary must have regard to the FSS in carrying out the valuation. Benefits payable under the Local Government Pension Scheme (the Scheme) are guaranteed by statute and therefore the pensions promise is secure. The FSS addresses the issue of managing the need to fund those benefits over the long term, whilst at the same time, facilitating scrutiny and accountability through improved transparency and disclosure.

The Scheme is a defined benefit final salary scheme under which the benefits are specified in the governing legislation (the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations2007 (as amended) (“the BMC Regulations”). The required levels of employee contributions are also specified in the Regulations.

page 101 2. Purpose of the FSS in policy terms Funding is defined as the making of advance provision to meet the cost of accruing benefit promises. Decisions taken regarding the approach to funding will therefore 3. Funding Objectives determine the rate or pace at which and purpose of the this advance provision is made. Fund Although the Regulations specify the fundamental principles on The funding objectives of the Fund which funding contributions should are: be assessed, implementation • Achieve and then maintain assets of the funding strategy is the equal to 100% of liabilities within responsibility of the Administering reasonable risk parameters Authority, acting on the • To determine employer professional advice provided by the contribution requirements Actuary. recognising the desirability of maintaining as nearly constant The purpose of this FSS is: employer contributions as • to establish a clear and possible transparent fund-specific • To have consistency between the strategy which will identify how investment strategy and funding employers’ pension liabilities are strategy best met going forward; • To manage employers’ liabilities • to support the regulatory effectively by the adoption requirement to maintain as nearly of employer specific funding constant employer contribution objectives rates as possible; and • Maintain liquidity in order to meet • to take a prudent longer-term projected net cash-flow outgoings view of funding those liabilities. • Minimise unrecoverable debt on termination of employer The intention is for this strategy participation to be both cohesive and comprehensive for the Fund as a The purpose of the Fund is to: whole, recognising that there will • receive monies in respect of be conflicting objectives that need contributions, transfer values and to be balanced and reconciled. investment income; and Whilst the position of individual • pay out monies in respect of employers must be reflected in the scheme benefits, transfer values, statement, it must remain a single costs, charges and expenses, strategy for the Administering Authority to implement and as defined in the Local Government maintain. Pension Scheme (Administration) Regulations 2008 (as amended), the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 (as amended) and in the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 (as amended).

page 102 Pension Fund Annual Report 2011-2012

4. Responsibilities of the key parties Although a number of parties, The Fund Actuary should: including investment fund managers, • prepare valuations, including the investment advisers and external setting of employers’ contribution auditors, have responsibilities to the rates, after agreeing assumptions Fund, the key parties for the strategy with the Administering Authority are seen as the Administering and having regard to the FSS; Authority, each individual employer • prepare advice and calculations in and the Fund Actuary. connection with bulk transfers and individual benefit-related matters; The Administering Authority should: and • collect employer and employee • advise on funding strategy, the contributions; preparation of the FSS, and the • invest surplus monies in inter-relationship between the FSS accordance with the Regulations; and the SIP. • ensure that cash is available to meet liabilities as and when they fall due; • manage the valuation process in consultation with the Fund Actuary; • prepare and maintain an FSS and a SIP, both after due consultation with interested parties; and • monitor all aspects of the Fund’s performance and funding and amend the FSS/SIP when necessary. The Individual Employer should: • deduct contributions from employees’ pay correctly after determining the appropriate employee contribution rate (in accordance with BMC Regulation 3) • pay over all contributions, including their own as determined by the Fund Actuary, promptly by the due date; • exercise discretions within the regulatory framework; • make additional contributions in accordance with agreed arrangements in respect of, for example, augmentation of scheme benefits and early retirement strain; and • notify the Administering Authority promptly of all changes to membership or, other changes proposed, which affect future funding.

page 103 5. Solvency issues and target funding levels To meet the requirements of the The effective date of the current financial stability of the grouped Administration Regulations the actuarial valuation of the Fund is employers; Administering Authority’s long-term 31 March 2010. The results of the • schools, including former grant funding objective is to achieve and valuation indicate that overall the maintained schools, will be then maintain assets equal to 100% assets of the Fund represented 71% treated as part of the local of projected accrued liabilities, of projected accrued liabilities at the authority within whose area of assessed on an ongoing basis valuation date. responsibility they fall for the including allowance for projected purpose of setting contribution final pay. The actuarial assumptions The Administering Authority after rates and deficit recovery to be used in the calculation of the due consideration of all of the periods; any discretions in funding target are set out in the information available to it including respect of these matters will fall Appendix on pages 114 to 116. consultation with the Fund Actuary to the local authority; schools and other interested parties, has that opt to become academies The key assumptions making up the adopted the following objectives to become stand-alone employers funding strategy and as adopted for achieve the funding target: in their own right but inherit the 2010 actuarial valuation are that: • we will set employers’ contribution responsibility for the share of • our long-term aim is to achieve rates to achieve 100% funding of scheme deficit attributable to the 100% funding of pension liabilities in the long term; former school(s) from which they liabilities; • employer contribution rates will were formed and that share of • the Scheme is expected to be made up of two separate scheme deficit will then be taken continue for the foreseeable elements: into account in calculating their future; – an ongoing rate to recover the separate contribution rate. • favourable investment costs of future service; and • we will set standard and performance can play a valuable – a deficit recovery contribution to maximum deficit recovery periods role in achieving adequate funding recover the shortfall revealed by for the remaining employers but over the longer term; the actuarial valuation; will leave them the freedom to • we wish to minimise fluctuations we will for the purpose of our decide to repay their share of in employers’ contributions in administration, the calculation of the deficit over a shorter period order to assist them with their contribution rates and for the setting should they so choose; financial planning and to meet of maximum deficit recovery periods, – the standard deficit recovery their financial responsibilities to deal with town and parish councils periods will be set at levels that the Fund; (T&PC) as a group; safeguard the interests of the Fund • the Fund is relatively immature • the small admitted bodies group by having regard to the Fund’s in terms of its membership (SABG) will be wound up with judgement of the strength of profile with a high proportion of effect from 1 April 2011. From covenant and the financial stability contributors and we can therefore that date each former member of individual employers; take advantage of that fact in of the group will be treated as – individual employers will, at the setting our investment strategy; a standalone employer in the discretion of the Fund, be able • we have a large number of Fund. As an interim measure, the to increase their deficit recovery employing bodies with different contributions for the period 1 period up to the maximum characteristics including size and April 2011 to 31 March 2014 will deficit recovery period subject to strength of covenant. be calculated on a grouped basis providing assurance of greater under the previous group rules of strength of covenant and financial operation; stability. (e.g. transferor Scheme • we will set deficit recovery periods employer consent, provision of a for the T&PC and former SABG that: bond, a deposit, a parent company – as far as possible are likely to guarantee or other surety); reduce the level of deficit during – no reduction in the level of an the inter-valuation period if all of employer’s contributions will be the Actuary’s assumptions prove allowed unless the deficit recovery correct; and period adopted by that employer is – safeguard the interests of the equal to or less than the standard Fund by having regard to the deficit recovery period. strength of covenant and the

page 104 Pension Fund Annual Report 2011-2012

• The deficit recovery periods for the following employers will be as follows:

Employer Category Deficit Recovery Period Town and parish councils 30 years (20 year period for purpose of any possible contribution reductions) Small admission bodies The average remaining working life of the small admission bodies’ group work-forces as at 1 April 2010

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

Employer Category Standard Deficit Maximum Deficit Recovery Period Recovery Period Scheme employers 20 years 30 years Arms length management 20 years 30 years organisations of scheme employers Care trusts 20 years 30 years Admission bodies working on The period that the 30 years contracts for scheme employers contract still has to run Other admission bodies The average remaining 30 years working life of the employer’s work-force as at 1 April 2010

• that the former small admitted risk” basis of assessment of a bodies group employers deficit termination payment will apply for recovery contributions and ongoing all admission bodies, except where rate contributions will be phased a successor or guarantor body in, in steps, over the 6 year period inherits ongoing responsibility for 2011/12 to 2016/17; the orphan liabilities arising on • that the T&PC employers will be cessation of the admission. given the opportunity to phase in • In certain instances, and in the increase in their contributions particular for Fund employers which in steps over the 3 year period are considered by the Administering 2011/12 to 2013/14; Authority to provide a high level • On the cessation of an employer’s of covenant, an allowance may be participation in the Scheme, the made as part of the recovery plan actuary will be asked to make for investment performance at a a termination assessment. Any higher level than that assumed for deficit in the Scheme in respect assessment of the funding target. of the employer would be due This higher level of return assumed to the Scheme as a termination will, in particular, reflect the actual contribution, unless it was agreed investment strategy of the Fund, by the administering authority and on the basis that this is to be the other parties involved that the maintained over the entire recovery assets and liabilities relating to period. The assumptions to be used the employer would be transferred in these Recovery Plan calculations within the Scheme to another are set out in the Appendix on pages participating employer. The “least 114 to 116.

page 105 • All transferee admission bodies • Community admission bodies will • In the case where a contractor (i.e. “best value” contractors be accepted for participation in the wishes to offer a broadly delivering services to scheme Fund, or otherwise, on a case by comparable scheme, rather than employers) should be accepted for case consideration of the merits apply to become an admitted body admission into the Fund so long of admission and the associated of the Fund, standardised bulk as all the necessary regulatory risks to the Fund. In general, a transfer terms will be offered via requirements for admission are guarantee or alternative surety the Actuary’s Letter. The letter will satisfied. will be required for all community be structured so as to target an No special conditions or admission body cases, with this asset transfer to the contractor’s requirements will apply for requirement waived at the Fund’s Broadly Comparable scheme such transferee admission bodies given discretion on an exceptions basis. that it is equivalent to 100% of the their ultimately close links with For community admission past service liabilities reserved the Scheme Employer, although bodies the Fund will consider for by the Fund in respect of the the Fund retains the right to seek application of special conditions transferring members’ accrued special terms or conditions if or requirements as deemed service as at the date of transfer. these are considered warranted in appropriate. Examples of such The Fund will only agree to any specific cases. conditions are: variations in the standard in In the case of a transferee – a guarantee from another Fund exceptional circumstances and admission body, or any employer with sufficient covenant with the prior agreement of the participating employer acting strength; transferring scheme employer. as guarantor in the case of non- – a surety bond or other contingent In determining the deficit recovery transferee admission bodies, asset; and period(s) the Administering implementation of an alternative – an independent review of Authority has had regard to: funding basis or approach covenant, including the possibility • the responses made to the (including on termination) will of a parent guarantee. consultation with employers on be subject to agreement from All community admission bodies the FSS principles; the relevant guarantor body/ will be allowed flexibility to elect to • the need to balance a desire scheme employer. Any special adopt a funding approach prior to to attain the target as soon funding arrangements between the termination in line with the “least as possible against the major scheme employer and transferee risk” exit debt basis, if that is their increases in the level of employers’ admission body should be covered preference. contributions which a shorter by the commercial arrangements, period would require; and i.e. outside the Fund and not part • The Administering Authority’s of the admission agreement. views on the strength of the participating employers’ covenants in achieving the objective.

page 106 Pension Fund Annual Report 2011-2012

6. Link to investment policy set out in the SIP The results of the 2010 valuation show If, at the valuation date, the Fund the liabilities to be 71 % covered by had been invested in this portfolio, the current assets, with the funding then in carrying out the valuation it deficit of29 % being covered by future would not be appropriate to make deficit contributions. any allowance for out-performance of the investments. On this basis of In assessing the value of the Fund’s assessment, the assessed value of the liabilities in the valuation, allowance Fund’s liabilities at the 2010 valuation has been made for asset out- would have been significantly higher performance as described in Section and the declared funding level would 5, taking into account the investment have been correspondingly reduced, strategy adopted by the Fund, as set to approximately 54%. out in the SIP. Departure from a least risk investment It is not possible to construct a strategy, in particular to include equity portfolio of investments that produces investments, gives the prospect that a stream of income exactly matching out-performance by the assets will, the expected liability payment stream. over time, reduce the contribution However, it is possible to construct requirements or at the minimum a portfolio that closely matches the contribute to offsetting increases in liabilities and represents the least risk contributions arising from issues such investment position. Such a portfolio as increased longevity. The funding would consist of a mixture of long-term target might in practice therefore be index-linked and fixed interest gilts. achieved by a range of combinations of funding plan, investment strategy Investment of the Fund’s assets and investment performance. in line with the least risk portfolio would minimise fluctuations in the The current benchmark investment Fund’s ongoing funding level between strategy, as set out in the SIP, is: successive actuarial valuations.

In preparation for the 2010 valuation process, the Fund’s investment consultants, Hymans Robertson, were asked to update the investment expectations for the Fund. The following is a summary of their findings which will in due course be reflected in an updated version of the SIP to be considered by the ISC later in the year:

Expected strategic return on assets At 31 March 2010, Hymans Robertson’s assumptions with regard to the long term returns on asset classes were: Asset class 20 year return (% p.a.) UK Equity 7.9% Overseas / Global Equity 7.6% Private Equity 9.0% Fixed Interest Gilts 4.7% Index-linked Gilts 4.5% Corporate Bonds 5.5% LIBOR+ 5.0% Property 5.8% Infrastructure 5.8%

page 107 Given the Fund’s long term strategic allocation of assets at that time (re-weighting for Private equity) of:

% 10.0 UK Equity 53.0 Overseas / Global Equity 6.0 Private equity (including activism) 1.2 Fixed Interest Gilts 3.8 Index-Linked Gilts 5.5 Corporate Bonds 6.0 LIBOR + (including Company Loans) 12.0 Property 2.5 Infrastructure

this would imply a long term strategic expected return of 7.0% p.a. on an arithmetic weighted average of these individual returns. This does not take account of any expected return from active management (including currency) or the benefit we might expect from diversification (which we expect to come through as ‘bonuses’). Using Hymans Robertson’s internal asset model (which, in this case, also does not take account of active management, but does allow for the benefits of diversification) some analysis was performed with respect to various expected returns and the probability of achieving that return. The model (based on the current structure) calculates a central expected return of 7.9% 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 you combine a portfolio of assets which are not fully correlated to each other, the expected portfolio return is greater than the arithmetic combination of the individual returns. This reflects the lower volatility of the portfolio compared to the volatility of the sum of the parts. This is sometimes referred to as ‘volatility drag’.

The probability of achieving particular levels of out-performance relative to the liabilities is as follows:

1 year 3 years 20 years Probability of achieving liabilities + 1.0% p.a 57% 63% 77% Probability of achieving liabilities + 2.5% p.a 53% 56% 62% Probability of achieving liabilities + 3.5% p.a 50% 52% 51%

The Actuary’s current market related assumptions in Given the above assumptions as to fixed interest gilt regard to the 2010 valuation are: yields and inflation these give the following assumed investment return requirements for the fund relative to % conditions as at 31 March 2010: A liability based fixed interest gilt yield of: 4.5 % A liability based index linked gilt real yield of: 0.7 Past service liabilities =4.5% + 1.9% = 6.40 Adjustment for inflation risk premium and CPI: 0.8 Future service liabilities =3.0% + 3.75% = 6.75 Therefore implied inflation of: 3.0

Examination of the Fund Returns expected by Hymans His asset out performance assumptions, consistent with Robertson shows a long term strategic expected return previous actuarial valuations are: (for the individual asset classes) of 7.0% and a long term strategic expectation for the whole fund allowing Past service liabilities for the benefit of diversification of7 .9%. Pre-retirement = gilts + 2.5% Post – retirement = gilts +1% It will be seen that there is a margin between the Total fund = gilts + 1.9% valuation assumptions required to meet the funding target and the long term investment return expected for Future service liabilities = Inflation +3.75 % the Fund. This gives a degree of comfort in the funding plan, providing a buffer to assist the Fund in riding out periods of adverse experience or other events.

page 108 Pension Fund Annual Report 2011-2012

7. Identification of risks and counter-measures

Awareness of the risks that may impact on the funding strategy and expectations of future solvency is crucial to determining the appropriate measures to mitigate those risks.

The funding of defined benefits is by its nature uncertain. The funding strategy is based on both financial and demographic assumptions. These assumptions are specified in the actuarial valuation report. When actual experience is not in line with the assumptions adopted a surplus or shortfall will emerge at the next actuarial valuation and beyond. This may require a subsequent contribution adjustment to bring the funding back into line with the target.

The chart below shows a “funnel of doubt” funding level graph, which illustrates the range and uncertainty in the future progression of the funding level, relative to the funding target adopted at the valuation. Using a simplified model, the chart shows the probability of exceeding a certain funding level over a 10 year period from the valuation date. For example, the top line shows the 95th percentile level (i.e. there is a 5% chance of the funding level at each point in time being better than the funding level shown, and a 95% chance of the funding level being lower).

160% 95th Percentile 75th Percentile 140% 50th Percentile 25th Percentile 120% 5th Percentile

100%

80%

60%

40% 31/03/2010 31/03/2012 31/03/2014 31/03/2016 31/03/2018 31/03/2020

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.

The resultant risk assessment is attached to this FSS as Schedule A.

page 109 8. Monitoring and Review

The Administering Authority has taken advice from the Fund Actuary in preparing this Statement, and has also consulted with its institutional investment advisers Hymans Robertson, its independent investment advisers Keith Neale and Tony Hardy and the Pension Fund’s Investment Steering Committee.

A full review of this Statement will occur no 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.

The Administering Authority will monitor the progress of the funding strategy between 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; • if there have been changes to the circumstances of any of the employing authorities to such an extent that they impact on or warrant a change in the funding strategy; and • if there have been any significant special contributions paid into the Fund.

page 110 Pension Fund Annual Report 2011-2012 Schedule A

Essex County Council Pension Fund Funding Strategy Risk Analysis

Objectives Objective at Risk Description of Risk of not Possible Actions Area at Risk Achieving the Objectives

Funding Achieve and then Investment markets perform below Use of a diversified portfolio which is maintain assets equal actuarial assumptions resulting in regularly monitored against targets and to 100% of liabilities reduced assets, reduced solvency reallocated appropriately. At each triennial within reasonable risk levels and increased employer valuation assess funding position and parameters contributions progress made to full funding. Full annual interim reviews which allow consideration of the position.

Funding Achieve and then Market yields move at variance Full annual interim reviews which allow maintain assets equal with actuarial assumptions consideration of the position and the to 100% of liabilities resulting in increases in liabilities, continued appropriateness of the within reasonable risk reduced solvency levels and funding/investment strategies and to parameters increased employer contributions monitor the exposure to unrewarded risks.

Funding Achieve and then Investment managers fail to Diversified investment structure and maintain assets equal achieve performance targets frequent monitoring against targets with to 100% of liabilities (i.e. ensure funding target potential for a change of managers where within reasonable risk assumptions are consistent considered appropriate. parameters with funding objectives) which reduces solvency levels and increases required in employers’ contributions

Funding Achieve and then Mortality rates continue to Monitoring of mortality experience factors maintain assets equal improve, in excess of the being exhibited by the Fund members by to 100% of liabilities allowances built into the evidence Fund Actuary and consequent variation within reasonable risk based actuarial assumptions, of the actuarial assumptions based on parameters resulting in increased liabilities, evidential analysis. reduced solvency levels and increased employer contributions

Funding Achieve and then Frequency of early retirements Employers required to pay capital sums to maintain assets equal increases to levels in excess of the fund costs for non-ill health cases. Regular to 100% of liabilities actuarial assumptions adopted monitoring of early retirement (including within reasonable risk resulting in increases required in on the grounds of ill health) experience parameters employers’ contributions being exhibited by the Fund members by Fund Actuary and consequent variation of the actuarial assumptions based on evidential analysis. Ensure that employers are made aware of consequences of their decisions and that they are financially responsible.

Funding To determine Failure to apply and demonstrate At each triennial actuarial valuation an employer contribution fairness in the differentiated analysis is carried out to assess covenant requirements treatment of different fund and affordbaility on a proportional basis. recognising the employers by reference to their Dialogue with employers wherever desirability of own circumstances and covenant possible. maintaining as nearly constant employer contributions as possible

page 111 Objectives Objective at Risk Description of Risk of not Possible Actions Area at Risk Achieving the Objectives

Funding To determine employer Mismatch in asset returns and Diversified investment structure and contribution requirements liability movements result in frequent monitoring against targets to recognising the increased employer contributions adjust funding plans accordingly through desirability of maintaining the FSS. Employers are kept informed as as nearly constant appropriate. employer contributions as possible

Funding To determine Pay and consumer price inflation At each triennial actuarial valuation an employer contribution significantly different from analysis is carried to ensure that the requirements recognising actuarial assumptions resulting in assumptions adopted are appropriate and the desirability of increases required in employers’ monitor actual experience. Discussions maintaining as nearly contributions with employers over expected progression constant employer of pay in the short and long term. contributions as possible

Funding To determine Potential for significant increases Risk profile analysis performed with a view employer contribution in contributions to levels which on the strength of individual employer’s requirements recognising are unaffordable. Ultimate risk is covenant being formed when setting the desirability of the possibility of the employers terms of admission agreement (inc bonds) maintaining as nearly defaulting on their contributions and in setting term of deficit recovery constant employer whilst attempting to keep employers’ contributions as possible contributions as stable and affordable as possible. Pursue a policy of positive engagement with a view to strengthening employer covenants wherever possible.

Funding To determine Adverse changes to LGPS Ensuring that Fund concerns are employer contribution regulations resulting in considered by the Officers/Board as requirements recognising increases required in employers’ appropriate and raised in consultation the desirability of contributions or Fund cashflow process with decision makers lobbied. maintaining as nearly requirements Employers and interested parties to be constant employer kept informed. Monitor potential impact contributions as possible for employers in conjunction with Actuary.

Funding To manage employers’ Administering authority unaware Ensure that employers are reminded of liabilities effectively by of structural changes in an their responsibilities, monitor and send the adoption of employer employer’s membership, or not reminders of employers responsibilities specific funding being advised of an employer re this where appropriate, investigate the objectives closing to new entrants, meaning adoption of an administration strategy that the individual employer’s to clarify employer responsibilities. Risk contribution level becomes profile analysis and officer dialogue inappropriate requiring review and with employers concerned (including increase guarantors as appropriate).

Funding To manage employers’ Not recognising opportunities At each triennial valuation pursue a liabilities effectively by from changing market, economic policy of positive engagement with a view the adoption of employer or other circumstances (e.g. to strengthening employer covenants specific funding de-risking or strengthening of wherever possible. objectives covenant)

Funding To manage employers’ Adoption of either an At each triennial actuarial valuation an liabilities effectively by inappropriately slow or rapid analysis is carried out to assess covenant the adoption of employer pace of funding in the specific and affordability on a proportional basis. specific funding circumstances for any particular Dialogue with employers wherever objectives employer possible.

page 112 Pension Fund Annual Report 2011-2012

Objectives Objective at Risk Description of Risk of not Possible Actions Area at Risk Achieving the Objectives

Funding To manage employers’ Failure to ensure appropriate Follow the standardised approach to bulk liabilities effectively transfer is paid to protect transfers of liabilities as part of admission by the adoption of the solvency of the Fund and policy framework, complying with any employer specific equivalent rights are acquired statutory requirements and protecting funding objectives for transferring members in the interests of the Fund’s employers by accordance with the regulations measuring the solvency of the Fund and relevant employers before and after transfer.

Funding To have consistency Over or under cautious Measurement will look at expected return between the investment determination of employer funding projections vs actuarial assumptions in strategy and funding requirements due to inconsistent order to test the continued appropriateness strategy approach or failing to recognise and consistency between the funding and the impact of the investment investment strategy. strategy on funding

Funding Maintain liquidity in Illiquidity of certain markets and Holding liquid assets and maintain positive order to meet projected asset classes and difficulty in cashflows. Reviews performed to monitor net cash-flow outgoings realising investments and paying cashflow requirements. benefits as they fall due

Funding Maintain liquidity in Unanticipated onset of cash-flow Holding liquid assets and maintain positive order to meet projected negative position, potentially cashflows. Reviews performed to monitor net cash-flow outgoings requiring ad hoc repositioning of cashflow requirements. assets

Funding Minimise unrecoverable An employer ceasing to exist with Assess the strength of individual debt on termination of insufficient funding, adequacy of employer’s covenant and/or require a employer participation bond or guarantee. In the absence guarantee when setting terms of admission of all of these, the shortfall will be agreement (inc bonds) and in setting term attributed to the Fund as a whole of deficit recovery. Annual monitoring with increases being required in all of risk profiles and officer dialogue with other employers’ contributions employers concerned (including guarantors as appropriate) through traffic light analysis. Positive dialogue with employers with a view to strengthening employer covenants wherever possible.

Assess the strength of individual Funding Minimise unrecoverable Failure to monitor leading to employer’s covenant in conjunction with debt on termination of inappropriate funding strategy and the Actuary and/or require a guarantee employer participation unrecovered debt on cessation of when setting terms of admission agreement participation in the fund (inc bonds) and in setting term of deficit recovery. Annual monitoring of risk profiles and officer dialogue with employers concerned (including guarantors as appropriate) through traffic light analysis. Positive dialogue with employers with a view to strengthening employer covenants wherever possible.

page 113 Appendix

Actuarial Valuation as at 31 March 2010 Method and assumptions used in Inflation calculating the funding target The inflation assumption will be taken to be the Method investment market’s expectation for RPI inflation as The actuarial method to be used in the calculation of indicated by the difference between yields derived from the funding target is the Projected Unit method, under market instruments, principally conventional and index- which the salary increases assumed for each member are linked UK Government gilts as at the valuation date, projected until that member is assumed to leave active reflecting the profile and duration of the Scheme’s accrued service by death, retirement or withdrawal from service. liabilities, but subject to the following two adjustments: This method implicitly allows for new entrants to the • an allowance for supply/demand distortions in the bond scheme on the basis that the overall age profile of the market is incorporated, and active membership will remain stable. As a result, for those • an allowance for retirement pensions being increased employers which are closed to new entrants, an alternative annually by the change in the Consumer Price Index method is adopted (The Attained Age method), which rather than the Retail Price Index, as announced in June makes advance allowance for the anticipated future aging 2010. This change will apply from April 2011 and the and decline of the current closed membership group. assumptions make due allowance for this revision as advised by the Actuary. Financial assumptions The overall reduction to the market’s expectation for long Investment return (discount rate) term RPI inflation at the valuation date is0 .8% per annum. A yield based on market returns on UK Government gilt stocks and other instruments which reflects a market consistent discount rate for the profile and duration Salary increases The assumption for real salary increases (salary increases of the Scheme’s accrued liabilities, plus an Asset Out- in excess of price inflation) will be determined by an performance Assumption (“AOA”) of 2.5% p.a. for the allowance of 1.5% p.a. over the inflation assumption as period pre-retirement and 1% p.a. post-retirement. described above. This includes allowance for promotional increases. The asset out-performance assumptions represent the allowance made, in calculating the funding target, for the long term additional investment performance on the Pension increases Increases to pensions are assumed to be in line with assets of the Fund relative to the yields available on long the inflation (CPI) assumption described above. This is dated gilt stocks as at the valuation date. The allowance for modified appropriately to reflect any benefits which are this out-performance is based on the liability profile of the not fully indexed in line with the CPI (e.g. Guaranteed Scheme, with a higher assumption in respect of the “pre- Minimum Pensions in respect of service prior to April retirement” (i.e. active and deferred pensioner) liabilities 1997). than for the “post-retirement” (i.e. pensioner) liabilities. This approach thereby allows for a gradual shift in the overall equity/bond weighting of the Fund as the liability Mortality profile of the membership matures over time. The mortality assumptions will be based on the most up-to-date information in relation to self-administered Individual Employers pension schemes published by the Continuous Mortality Having determined the AOAs as above for the Fund overall, Investigation (CMI) Bureau, making allowance for future it is important to consider how the financial assumptions improvements in longevity and the characteristics of the in particular impact on individual participating employers. scheme. The mortality tables used are set out below, As employers in the Fund will have different mixes of with an adjustment reflecting the specific characteristics active, deferred and pensioner members, adopting a of the EPF membership. The derivation of the mortality different pre/post retirement investment return approach assumption is set out in a separate paper as supplied by is equivalent to hypothecating a different equity/bond the Actuary. mix investment strategy for each employer. Such an approach would be inconsistent with the Fund practice, as Members who retire on the grounds of ill heath are set out in the FSS, of allocating investment performance assumed to exhibit average mortality equivalent to that pro rata across all employers based on a “mirror image” for a good health retiree at an age 3 years older. For all investment strategy to the whole Fund. In completing the members, it is assumed that the accelerated trend in calculations for individual employers therefore, a single, longevity seen in recent years will continue in the longer composite, pre and post retirement asset out-performance term and as such, the assumptions build in longevity assumption of 1.5% pa has been calculated which, for the ‘improvements’ year on year in the future in line with the Fund as a whole, gives the same value of the funding target CMI projections, allowing for longer term improvements to as the separate pre and post retirement AOAs. be 1% per annum. page 114 Pension Fund Annual Report 2011-2012

Method and assumptions used in Summary of key whole Fund financial calculating the cost of future assumptions used for calculating accrual funding target and cost of future The cost of future accrual (normal cost) will be calculated accrual (the “normal cost”) for the using the same actuarial method and assumptions as used 2010 actuarial valuation to calculate the funding target except that the financial assumptions adopted will be as described below. Long-term gilt yields The financial assumptions for assessing the future service contribution rate should take account of the following Fixed interest 4.5% p.a. points: Index linked 0.7% p.a. • contributions will be invested in market conditions applying at future dates, which are unknown at the Adjustment for CPI and IRP 0.8% p.a. effective date of the valuation, and which are not directly Implied CPI price inflation 3.0% p.a. linked to market conditions at the valuation date; and • the future service liabilities for which these contributions will be paid have a longer average duration than the past Past service Funding Target financial assumptions service liabilities. Investment return pre-retirement 7.0% p.a. The financial assumptions in relation to future service (i.e. Investment return post-retirement 5.5% p.a. the normal cost) are not specifically linked to investment conditions as at the valuation date itself, and are based on Salary increases 4.5% p.a. an overall assumed real return (i.e. return in excess of price Pension increases 3.0% p.a. inflation) of3 .75% per annum, with a long term average assumption for price inflation of3 .0% per annum. These two assumptions give rise to an overall discount rate of Future service accrual financial assumptions 6.75% p.a. Investment return 6.75% p.a. Adopting this approach the future service rate is not CPI price inflation 3.0% p.a. subject to variation solely due to different market conditions applying at each successive valuation, which Salary increases 4.5% p.a. reflects the requirement in the Regulations for stability in Pension increases 3.0% p.a. the “Common Rate” of contributions. In market conditions at the effective date of the 2010 valuation this approach gives rise to a more optimistic stance in relation to the cost of accrual of future benefits compared to the market related basis used for the assessment of the funding target. At each valuation the cost of the benefits accrued since the previous valuation will become a past service liability. At that time any mismatch against gilt yields and the asset out-performance assumptions used for the funding target is fully taken into account in assessing the funding position.

page 115 Demographic assumptions The mortality tables adopted for this valuation are as follows:

Table Adjustment Males normal health pensioners S1PMA CMI_2009_M [1%] 91% Female normal health pensioners S1PFA CMI_2009_F [1%] 85% Males ill health pensioners As for male normal health pensioners +3 years Female ill health pensioners As for female normal health pensioners +3 years Male dependants S1PMA CMI_2009_M [1%] 110% Female dependants S1DFA CMI_2009_F [1%] 93% Male future dependants S1PMA CMI_2009_M [1%] 96% Female future dependants S1DFA CMI_2009_F [1%] 89%

Other demographic assumptions are noted below:

Withdrawal As for 2007 valuation Other demographics Based on LG scheme specific experience.

Assumptions used in calculating contributions payable under the recovery plan The contributions payable under the recovery plan are calculated using the same assumptions as those used to calculate the funding target, with the exception that, for certain employers, the required contributions are adjusted to allow for the following variation in assumptions during the period of the recovery plan:

Investment return on existing assets and future contributions An overall additional return of 3.0% pa above the liabilities consistent gilt yield (4.5% pa effective as at the valuation date) reflecting the underlying investment strategy of the scheme and, in particular, including the assets of the scheme that underlie the pensioner as well as the non-pensioner liabilities. This is equivalent to a total rate of investment return of 7.5% pa effective as at the 2010 valuation date.

The investment return assumed for the contributions under the recovery plan is taken to apply throughout the recovery period. As a result, any change in investment strategy which would act to reduce the expected future investment returns could invalidate these assumptions and therefore the funding strategy.

The above variation to assumptions in relation to the recovery plan can only be applied for those employers which the Administering Authority deems to be of sufficiently high covenant to support the anticipation of investment returns, based on the current investment strategy, over the entire duration of the recovery period. No such variation in the assumptions will apply in any case to any employer which does not have a funding deficit at the valuation (and therefore for which no recovery plan is applicable). Where the variation in the assumptions does apply, the resultant total contributions implemented following the 2010 valuation will be subject to a minimum of both: • the contributions originally planned for 2011/12 onwards based on the 2007 actuarial valuation, and • the normal future service contribution rate for the employer concerned.

page 116 Pension Fund Annual Report 2011-2012 Governance Policy and Compliance Statement 2011

As at 29 June 2011

Introduction

This Policy and Compliance Statement outlines the governance arrangements for the Essex Pension Fund, maintained by Essex County Council, as required by regulation 31 of the Local Government Pension Scheme (Administration) Regulations 2008 (as amended).

Under that provision all LGPS Funds in England and Each administering authority is required to: Wales are required to produce a Governance Compliance a. keep the statement under review; Statement, revise it following any material change in their b. make such revisions as are appropriate following delegation arrangements and publish it. The statement is a material change in respect of any of the matters required to set out: mentioned in paragraph (3); and a. whether the administering authority delegates c. if revisions are made— their function or part of their function in relation to i. publish the statement as revised, and maintaining a pension fund to a committee, a sub- ii. send a copy of it to the Secretary of State. committee or an officer of the authority; b. if they do so In reviewing and making revisions to the statement, i. the terms, structure and operational procedures of the authority must consult such persons as it considers the delegation; appropriate. ii. the frequency of any committee or sub-committee meetings; This Policy and Statement was made and approved by the iii. whether such a committee or sub-committee Essex Pension Fund Board on 29 June 2011, taking into includes representatives of employing authorities account decisions made by Essex County Council on 10 (including authorities which are not Scheme May 2011 regarding the structure of the Board. employers) or members, and if so, whether those representatives have voting rights. c. the extent to which a delegation, or the absence of a delegation, complies with guidance given by the Secretary of State and, to the extent that it does not so comply, the reasons for not complying.

page 117 About The Essex Pension Fund Under the Local Government Pension Scheme (Administration) Regulations 2008, Essex County Council is required to maintain a pension fund (the Fund) for its employees and those of other Provisional Scheduled Bodies within its area. Membership Summary as The Fund is also empowered to 31 March 2011 admit the employees of certain other bodies. Active Members 43,636 Essex County Council therefore Benefits are prescribed by, and administers the Fund for its own the Fund is invested in accordance Pensioner/Dependants 30,764 with, the provisions of the following employees and those of the 14 Deferred Members 34,737 District/Borough/Unitary Councils regulations (all as amended): and numerous other bodies. In Total 109,137 total there are over 400 separate • The Local Government Pension employing bodies in the Fund. Scheme (Benefits, Membership The Fund excludes provision for and Contributions) Regulations * Deferred pensioners are former teachers, fire-fighters and police 2007 employees who have chosen not to officers, for whom separate • The Local Government Pension transfer their pension rights. arrangements exist. Scheme (Administration) Regulations 2008 At the last triennial valuation of • The Local Government Pension the Fund as at 31 March 2010 Fund Scheme (Transitional Provisions) assets were £3.085 billion, which Regulations 2008 represented 71% of the Fund’s • The Local Government Pension liabilities. Employers are responsible Scheme (Management and for paying employer contributions at Investment of Funds) Regulations rates determined by the fund actuary 2009 at each triennial valuation.

and other saved provisions from previous sets of LGPS regulations.

With effect from 1 April 2008 employee contributions have been banded according to employees’ whole time equivalent annual pensionable pay. The rates payable vary from 5.5% to 7.5% of annual pensionable pay.

page 118 Pension Fund Annual Report 2011-2012

Governance Structure The Essex Pension Fund governance structure is illustrated below. This structure relates to administering authority responsibilities only. Essex County Council is also an employer within the Essex Pension Fund. A separate governance structure and Scheme of Delegation is in place in relation to Essex County Council’s employer responsibilities:

Essex County Council

8 members: 14 members (all voting): – 6 Essex County Council (voting) – 6 Essex County Council Essex Investment – 1 scheme member representative – 1 scheme member representative Pension Fund Steering (observer) – 7 employer representatives Board Committee – 1 employer representative (observer)

Essex Pension Fund Executive Board: Director for Task and Finish Groups Finance (as required) (S151 Officer) Assistant Director – Financial Strategy

Pensions Manager Head of Investments and and Pension Services Investment Team Team

page 119 Scheme of delegations for the Essex Pension Fund Essex County Council has delegated its functions in relation to the maintenance of the Essex Pension Fund as follows: 1. To the Essex Pension Fund Board: 3. To the Executive Director of Finance: i. To exercise on behalf of the Council all of the i. To exercise the functions of the Council in powers and duties of the Council in relation to its relation to pensions as specified in Schedule1 H functions as Administering Authority of the Essex of the Regulations 2000. Pension Fund except where they have been ii. Subject to the agreement of the Chief Executive specifically delegated by the Council to another in any case involving a Tier 1 Officer, the County Committee or to an officer; this will include the Solicitor, the Monitoring Officer or the Executive following specific functions: Director for Finance, to exercise discretion under ii. To monitor and oversee the work of the the Local Government Pensions Regulations, Investment Steering Committee through its the Local Government (Early Termination of quarterly reports. Employment) (Discretionary Compensation) iii. To monitor the administration of the Pension (England and Wales) Regulations 2000 and the Scheme, including the benefit regulations Teachers Pension Regulations or any regulations and payment of pensions and their day to day replacing or amending the same. administration including the Internal Disputes iii. To manage the Pension Fund including the power Resolution Procedures, and ensure that it to seek professional advice and to devolve delivers best value and complies with best day-to-day handling of the Fund to professional practice guidance where considered appropriate. advisers within the scope of the Pensions iv. To exercise Pension Fund discretions on behalf Regulations. of the Administering Authority. v. To determine Pension Fund policy in regard to Note 1: The Executive Director for Finance is not employer admission arrangements. empowered to change the managers of the Pension vi. To determine the Pension Fund’s Funding Fund. Strategy and approve its Funding Strategy Statement. Note 2: The operational procedures related to these vii. To receive periodic actuarial valuation reports functions are carried out by the Pensions Team from the Actuary. comprising Pensions Services and the Investments Team. viii. To coordinate Administering Authority responses to consultations by Central Government, 4. To the County Solicitor: professional and other bodies. To act as the administering authority for the purposes of ix. To consider any views expressed by employing the pensions complaints procedure. organisations and staff representatives.

2. To the Investment Steering Committee: i. To approve and annually review the content of the Statement of Investment Principles. ii. To appoint and review investment Managers, Custodian and Advisors. iii. To assess the quality and performance of each Investment Manager annually in conjunction with investment advisers and the Section 151 Officer. iv. To set the investment parameters within which the Investment Managers can operate and review these annually. v. To monitor compliance of the investment arrangements with the Statement of Investment Principles. vi. To assess the risks assumed by the Fund at a global level as well as on a manager by manager basis. vii. To approve and review the asset allocation benchmark for the Fund. viii. To submit quarterly reports on its activities to the Essex Pension Fund Board.

page 120 Pension Fund Annual Report 2011-2012

The Pension Board The Pension Board is composed as follows: Representing No Term of Office Comments Essex County Council 6 4 years (from 16.06.09 until 2013 County Council Elections)

District/Borough Councils 2 4 years (from May 2011 until 2015 Nominated by Essex Borough and District in Essex District/Borough Council elections) Leaders/“Chief Executives” Meeting

Unitary Councils in Essex 2 4 years (from May 2011 until 2015 One each for Southend-on-Sea and Unitary Authority elections) Thurrock Councils

Essex Police Authority 1 4 years, from June 2011 until end June 2015

Essex Fire Authority 1 4 years, from June 2011 until end June 2015

Scheme Members 1 4 years from date of appointment Nominated by UNISON, currently vacant Smaller Employing Bodies 1 2 years, from Employer Forum 2011 To be nominated following voting by eligible until Employer Forum 2013 employers attending the Employer Forum

Total 14

All members and representative have equal voting rights.

The Pension Board is supported in the execution of its responsibilities by staff from the Authority’s Finance Directorate as well as an Independent Governance and Administration Adviser and other advisers as considered necessary (e.g. the Fund Actuary).

The Board meets quarterly though additional Task and Finish Groups can meet as necessary to consider and report to it on matters that require further consideration.

The Investment Steering Committee The Investment Steering Committee is composed as follows:

Representing No Term of Office Comments Essex County Council 6 4 years (from 16.06.09 until 2013 County Council Elections)

Employer representative 1 4 years (from May 2011 until 2015 Nominated by Essex Borough and District (observer) District/Borough Council elections) Leaders‟/Chief Executives‟ Meeting

Scheme Members 1 4 years from date of appointment Nominated by UNISON, currently vacant (observer)

Total 8

The Investment Steering Committee is supported in the execution of its responsibilities by three investment advisers (two independent and one institutional) and staff from the Authority’s Finance Directorate.

The Committee meets routinely on six occasions each year generally in October or November, December, February, March, June and July. Four of those meetings are primarily to meet with investment managers in order to review their performance but two meetings each year in February and July are set aside for the consideration of investment strategy.

In addition special meetings of the Committee are held when required for the discharge of its functions in regard to such matters as the selection and appointment of investment managers.

page 121 Governance Compliance Statement As can be seen, Essex Pension Fund governance arrangements are fully compliant with the latest guidance issued by the Secretary of State for Communities and Local Government.

Not Partially Fully Principle Compliant Compliant Compliant A. Structure (a) the Management of the administration of benefits and strategic management of fund assets clearly rests with the main committee established by the appointing Council. 3 (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 underpin the work of the main committee. 3 (c) that where a secondary committee or panel has been established, the structure ensures effective communication across both levels. 3 (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 secondary committee or panel. 3 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, e.g. admitted bodies) 3 (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, with or without voting rights. 3 C. Selection and Role of Lay Members (a) that committee or panel members are made fully aware of the status, role and function they are required to perform on either a main or secondary committee. 3 D. Voting (a) the policy of individual administering authorities on voting rights is clear and transparent, including the justification for not extending voting rights to each body or group represented on main LGPS committees. 3 E. Training/ Facility Time/ Expenses (a) that in relation to the way in which statutory and related decisions are taken by the administering authority, there is a clear policy on training, facility time and reimbursement of expenses in respect of members involved in the decision-making process. 3 (b) that where such a policy exists, it applies equally to all members of committees, sub-committees, advisory panels or any other form of secondary forum. 3

page 122 Pension Fund Annual Report 2011-2012

Not Partially Fully Principle Compliant Compliant Compliant F. Meetings – Frequency (a) that an administering authority’s main committee or committees meet at least quarterly. 3 (b) that an administering authority’s secondary committee or panel meet at least twice a year and is synchronised with the dates when the main committee sits. 3 (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 represented. N/A 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 papers, documents and advice that falls to be considered at meetings of the main committee. 3 H. Scope (a) that administering authorities have taken steps to bring wider scheme issues within the scope of their governance arrangements. 3 I. Publicity (a) that administering authorities have published details of their governance arrangements in such a way that stakeholders with an interest in the way in which the scheme is governed can express an interest in wanting to be part of those arrangements. 3

page 123 Communications Policy Statement 2012

Legal Requirements

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.

Key Objectives

To ensure that we are communicating with our audiences and we enhance the service we currently offer, we have set the following objectives:

• Communicate in a friendly, expert and direct way to our stakeholders, treating all our stakeholders equally. • Ensure our communications are simple, relevant and have impact. • Deliver information in a way that suits all types of stakeholder. • Aim for full appreciation of the pension scheme benefits and changes to the Scheme by all scheme members, prospective scheme members and employers.

Measuring success

To monitor our success against our objectives we will:

• Achieve a year on year increase in the response rate to our Satisfaction Surveys to each of our audiences. • Achieve 95% of positive responses in our Satisfaction Surveys to each of our audiences. • Have a supporting communications calendar that is adapted, where necessary, to each of our audiences.

page 124 Pension Fund Annual Report 2011-2012

Introduction

This Communication Policy has been prepared by the Essex Pension Fund (the Fund) and is effective from March 2012. The Communication Policy has been designed to meet the legislative requirements and in addition, meet the Funds objectives that are outlined within this Policy. This policy will be reviewed and updated by March 2013.

This Policy should be read in conjunction with the supporting Communication Calendar’ which is detailed in Appendix 1 of this document.

The Communication Arrangements of the Essex Pension Fund

Achieving success Our principles when delivering our communication will • We will adapt our communication where possible be to: following feedback from our audiences. • We will consider how to make the service available to 1. Improve member understanding and gain all audiences and be accessible to everyone. appreciation: • We will actively promote our service through our To ensure that our communications support member existing communication channels where appropriate. understanding we will: For example, employer roadshows and meetings. • Tailor our communication to the audiences needs. • Make our messages clear, consistent and use the right 3. Give our communication a clear purpose language. Each of the communications we send will have a clear • Provide contact information for people to find out more purpose and fit into our overall communications plan. information. This will ensure each item is part of our overall policy and • Be consistent with our key messages throughout our cost effective. communication. • We will continually review all of our communication and • Use the most appropriate delivery methods to reach to ensure that it is fit for purpose. our audiences and make communication accessible to everyone. 4. Give our communication impact through visual • Provide good quality communications that meets the identity: expectations of the audience. Pension schemes with their own style and brand result in communications that are instantly recognisable as 2. Plan our communication and deliver by the most pension related. A visual identity will be developed appropriate method: alongside the Councils existing brand. • We will use the most appropriate communication channel for the audience.

page 125 Our key messages There are a number of key messages to each of our audiences but through all of our communication the messages to the majority of audiences will be:

1 Your pension is a valuable benefit 2 It is important that you understand how the LGPS works now and in the future 3 Make sure that you are saving enough for retirement

A summary of the key messages to each audience is below:

Audience Key message

Active members • It is important that you understand the impact of any changes in legislation: Pension Reform, Automatic enrolment, Lifetime allowance /Automatic enrolment. • Your employer pays in to help you save for your retirement. • Remember you have other benefits with your pension.

New / potential joiners and opt outs • It is important to understand the impact of any changes in legislation: Pension Reform and auto enrolment. • The LGPS pension is a good way to save for your retirement. • Remember you have other benefits with your pension.

Deferreds • Keep your details up to date. • You need to understand how the fund worked when you left. • It is important to understand the impact of any changes in legislation • The pension will be different if you come back into the Scheme. • Understand the implications of transferring out of the Scheme. • We will tell you if anything changes.

Pensioners • Keep your details up to date. • We are here to help with any questions you might have. • You will continue to get your pension no matter what changes happen. • Remember to phone the tax office with any tax queries you have. • Remember you have other benefits with your pension.

Employers • You have a responsibility to provide employees with information about the LGPS. • You need to understand how the Scheme works and the effect of any changes in legislation. • The LGPS is a valuable benefit for members and you need to help educate members to understand the changes and the impact. • You have a responsibility to inform the Fund of any changes to scheme members circumstances.

page 126 Pension Fund Annual Report 2011-2012

Communication deliverables

Media, tools and channels of our communication

The communication tools we will use will incorporate our existing communication channels for efficiency. The tools we use may adapt as we receive feedback from each of audiences. The tools we will use for each of our audiences are outlined below:

Scheme members – Active, deferred and pensioner members

• Internet – The Fund has established an extensive website essexpensionfund.co.uk containing Scheme details, leaflets, guides and forms etc. There are also news items and links to other organisations relevant to Scheme members • ‘Prime’ newsletter – We will issue a newsletter to members of the Fund at least once a year, the contents of which will cover current pension topics within the LGPS and the pensions industry in general plus important repeated messages • Deferred newsletter – We will issue a newsletter to deferred members of the fund, where a current address is known. This will consist of the key messages, plus any topical issues such as changes affecting deferred members and will normally be sent with the annual benefit statement. • Benefit statements – An annual benefit statement is sent directly to the home address of all members who are contributing to the Fund at the previous financial year end. Benefit statements are sent direct to the home address of deferred members where a current address is known • Scheme literature – A range of Scheme literature is produced by the Fund and is supplied to employing bodies and Scheme members directly. Copies of this Scheme literature form part of the Fund’s website www.essexpensionfund.co.uk • Pay advices – The Fund issues pay advices to Scheme pensioners in April and May and if there is a change to the member’s net pension of more than £1.00. • Correspondence –The Fund uses both surface mail and e-mail to receive and send correspondence. • Telephone helpline – A dedicated telephone helpline is provided for Scheme members and is widely publicised in Scheme literature. • Pensions roadshow – The Fund stages a number of pension roadshows where it visits the buildings of main employers in the Fund. Additionally, satellite roadshows and surgeries are held at outlying sites, particularly when there may be organisational changes occurring which have pensions implications • ‘Your Time’ – The Fund issues an annual newsletter, ‘Your Time’ to its Pensioner members

page 127 Scheme employers To assist employers participating • Employer meetings or other ad organisations relevant to Scheme in the LGPS, the Fund has a range hoc meetings – The Fund holds members of communication materials and a number of employer meetings • ‘Prime’ newsletter- We will issue a methods that aims to increase at the offices of main employers newsletter to members of the Fund their understanding of pension in the Fund to which all Fund at least once a year, the contents issues and help them fulfil their Employers are invited. The Fund of which will cover current pension responsibilities as Scheme also attends meetings with topics within the LGPS and the Employers. By working together we employers either at the request of pensions industry in general. are able to provide a better service the employer or if it has identified Employers are encouraged to to our members. a need. These are usually to keep make the newsletter available to Employers up-to-date with LGPS all of their eligible staff regardless • Employers website – The Essex developments and to offer training of whether they are currently Pension Fund website has a and assistance to the employer contributing to the scheme. section for Scheme Employers. to help them to carry out their • Pensions Roadshow – The Fund This is used to distribute forms pension obligations stages a number of pension used by employers to notify the • An employer forum – The Fund roadshows at the offices of main fund of certain material events hold an employer forum each year employers in the Fund to which the and holds resources such as which focuses on administrative employees of all Fund employers the Employers’ guide, Scheme aspects of the fund and any are invited. These events are not Employer newsletters and links developments in the scheme just aimed at Scheme members to LGE circulars and bulletins. including identifying the likely but also at eligible employees who Employers are requested to impact of scheme changes. are not currently contributing to download the forms as and when Workshops will be held on specific the scheme. required to ensure up-to-date relevant pension topics at least documentation is always used once a year. The Fund invites all • Employer guide – The Fund has Scheme employers to the forum produced and maintains an • Employer Training – The Fund Employer guide to assist Scheme offers training to all Scheme employers to understand their Employers on the LGPS and their role. The guide is a key resource role in administering the Scheme. and explains the statutory Training covers the full range of requirements of the Employer with administrative and Regulatory regards to the scheme. All Scheme activities and is tailored to the employers have been sent a hard needs of the particular employer Prospective Scheme copy and electronic copy of the Prospective Scheme members – employers guide and the latest version is Including opt-outs also made available on the Fund’s • Scheme information / guide – All The Fund provides information website prospective Scheme Members to prospective Employers to • Scheme employer newsletter – must be given basic information ensure they understand the LGPS The Fund produces a newsletter about the LGPS. The Fund Regulations, their implications and for Scheme employers covering requires Employers to provide the role of a Scheme Employer. current issues, scheme changes all employees information about The Fund will provide information and administration issues. This is the scheme and to provide required to facilitate a smooth sent to employers electronically by either a hard copy of the short transition in respect of prospective Email, usually twice a year scheme guide or direct them Employers to which LGPS Members • Contributions newsletter – The to an electronic version, when may TUPE transfer, such as Fund produces a newsletter for they become eligible to join the contractors providing a service to a Scheme employers, which focuses scheme. The Fund’s website Scheme Employer. solely on contribution issues. has a section ‘I am thinking of This is usually sent to employers joining’ which summarises the electronically by Email twice a year. main benefits provided by the • Report and Accounts – The Report LGPS • Internet – The Fund has and Accounts are produced established an extensive website annually and an electronic copy is www.essexpensionfund.co.uk sent to all Scheme employers. It is containing Scheme details, also made available on the Fund’s leaflets, guides and forms etc. website There are also links to other

page 128 Pension Fund Annual Report 2011-2012 APPENDIX 1

Communication Calendar

The following communication calendar outlines the ACT Active members communication to each of the key audiences and PEN Pensioners will be implemented to ensure that communication is regular and efficient. Each communication will OPT Opt outs include the key messages for each audience. The EMP Employers communication calendar will be reviewed annually, DEF Deferreds and updated as necessary.

Month Activity Media/Purpose

April ACT Employee Roadshow Drop-in Session OPT PEN Pay advices PEN Pension Increase letters EMP Employer Presentation/Meeting

May ACT Employee Roadshow Drop-in Session OPT EMP Employer Presentation/Meeting PEN Pay advices/P60s DEF Annual Benefit Statements

June ACT Employee Roadshow Drop-in Session OPT ACT 'Prime' newsletter OPT EMP Employer Presentation/Meeting

July ACT Employee Roadshow Drop-in Session OPT EMP Employer Presentation/Meeting EMP Employer Guide update EMP Report and Accounts Electronic only

August ACT

page 129 Communication Calendar continued ACT Active members PEN Pensioners OPT Opt outs EMP Employers DEF Deferreds

Month Activity Media/Purpose

September ACT Annual Benefit Statement ACT Employee Roadshow Drop-in Session OPT EMP Employer Presentation/Meeting PEN Payslips (full payroll run) For National Fraud Initiative (NFI)

October PEN 'Your Time' newsletter E-newsletter ACT Employee Roadshow Drop-in Session OPT EMP Employer Presentation/Meeting EMP 'Scheme Employer' newsletter E-newsletter EMP Contributions newsletter DEF Deferred newsletter

November ACT Employee Roadshow Drop-in Session OPT EMP Employer Presentation/Meeting

December ACT

January ACT Review Scheme literature ACT Employee Roadshow Drop-in Session OPT EMP Employer Forum

February ACT Employee Roadshow Drop-in Session OPT ACT Review Scheme Literature EMP Employer Presentation/Meeting

March ACT Employee Roadshow Drop-in Session OPT EMP Employer Presentation/Meeting EMP 'Scheme Employer' newsletter E-newsletter EMP Contributions newsletter page 130 Pension Fund Annual Report 2011-2012

Knowledge and Skills Statement

Introduction In 2011, CIPFA published their Code sector pension scheme finance accordance with the organisation’s or Practice on Public Sector Pensions knowledge and skills for those policy statement, and, where he/ Knowledge and Skills. Included in in the organisation responsible she is a CIPFA member, with CIPFA this is the recommendation that all for financial administration and Standards of Professional Practice Funds adopt a statement as follows: decision-making. (where relevant).” 4 These policies and practices “1 This organisation adopts the key will be guided by reference to The Essex Pension Fund Board have recommendations of the Code of a comprehensive framework of previously confirmed that they wish Practice on Public Sector Pensions knowledge and skills requirements to follow the principles of the Code Finance Knowledge and Skills. such as that set down in the CIPFA and, as such, it is good practice for 2 This organisation recognises that Pensions Finance Knowledge and a statement as described in part 5 effective financial administration Skills Frameworks. above to be included in the annual and decision making can only be 5 This organisation will report on an report and accounts. achieved where those involved annual basis how these policies have the requisite knowledge and have been put into practice At the March 2010 Board meeting skills. throughout the financial year. it was agreed that the Board would 3 Accordingly this organisation 6 This organisation has work towards compliance with will ensure that it has formal delegated the responsibility the CIPFA Knowledge and Skills and comprehensive objectives, for the implementation of the Framework and in September 2011 policies and practices, strategies requirements of the CIPFA Code they acknowledged the Compliance and reporting arrangements for of Practice to the Group Manager Statement within the CIPFA Code of the effective acquisition and Investments and the Pension Practice. retention of the relevant public Services Manager who will act in

Training of Pension Board members The 2011/12 training plan was agreed • General constitutional framework During the latter half of 2011/12, by the Essex Pension Board in March - Awareness of the role and statutory Pension Board members were 2011. This training plan included responsibilities of the treasurer asked to complete a Training Needs particular focus on the following and monitoring officer. Analysis to assist in the creation of areas (which were considered to be • Pension scheme governance the training plan for 2012/13. Two the main areas covered by the CIPFA - An awareness of some of the LGPS Training Needs Analyses were used Framework where training had not features for this purpose: recently been provided): In addition, to supplement their • An introductory analysis to identify • Pensions legislative and knowledge and skills, Board high level training requirements, governance context: members were: and - A general awareness of the • encouraged to attend specific • A comprehensive analysis pension’s legislative framework in conferences, and considered to fully meet and the UK. • provided with access to an on-line perhaps exceed the requirements - An awareness of the LGPS knowledge centre. of the CIPFA Framework Regulations and their main The Pension Board reviews a The results of the analyses have features. scorecard at each of its quarterly indicated continued training needs • Pensions regulators and advisors meetings. The scorecard contains across all areas of the Framework. - An understanding of how the measures for each Fund objective. The Board has already received roles and powers of the Pensions At the March 2012 meeting of further training in some of these Regulator, the Pensions Advisory the Pension Board, the scorecard areas since the Analyses were Service and the Pensions reported that for the 12 months to completed and an ongoing training Ombudsman relate to the workings December 2011, Board member programme has also been agreed. of the scheme. attendance at training was 75%.

page 131 Training of Officers To date, training for officers has In addition to the above, the been identified through the “My Pension Services Manager and Performance” scheme. This staff the Group Manager Investments appraisal system requires each have assessed the Training Needs employee to discuss and agree Analysis for officers, with a view to its a set of individual performance application to: objectives each year that stem from the objectives and business plan for • staff within Pensions Services and agreed by the Pension Fund Board. the Investment Team, and As part of the setting of objectives • the Executive Director for Finance and review of performance, training (who is the Chief Financial Officer) needs are identified, and actions put and the Assistant Director for in place to address specific needs. Financial Strategy, both of whom have pension responsibilities. Depending on the role of the officer this training can be in a number of in accordance with the CIPFA separate areas including the latest Pensions Finance Knowledge and developments within the LGPS, Skills Frameworks on Public Sector auto enrolment, administration of Pensions. benefits, actuarial requirements, investments and accounting The “My Performance” scheme for Finance Professional Services at Essex County Council is recognised by CIPFA as a means of evidencing Continuing Professional Development (CPD) for CIPFA members at Essex County Council.

page 132 Pension Fund Annual Report 2011-2012 Glossary

Accrued Interest – Interest earned on Bond – A certificate of debt issued Emerging Equity Markets – There a bond since the last interest payment by a company, government, or other are about 80 stock markets around date. If the stock is sold, the accrued institutions. A bondholder is a creditor the world of which 22 markets are interest is paid (gross of tax) to the of the issuer and usually receives generally considered to be mature, the seller at the time of the transaction interest at a fixed rate. Also referred to rest are classified under the heading in addition to the clean price of the as fixed interest securities. of emerging markets. stock. Cash – Cash is defined as cash Equities – Ordinary shares in UK Active Management – A style of instruments (e.g. money market and Overseas companies traded investment management where the deposits) and cash in bank and at hand. on a stock exchange. Shareholders fund manager aims to outperform have an interest in the profits of the a benchmark by superior asset Convertible Stock – Stock which company and are entitled to vote at allocation, market timing or stock gives the holder the right, but not the shareholders’ meetings. selection (or a combination of these). obligation, to convert all or part of the holding into another stock or stocks Exchange Traded – Contract traded Actuary – An independent consultant on specified dates and on specified on a regulated exchange where the who advises the County Council on terms. contract terms are standardised by the financial position of the fund. the exchange so that the underlying Every three years the actuary reviews Corporate Governance – This is the asset, quantity, expiration date and the assets and liabilities, of the fund system by which companies are run, strike price are known in advance. and produces the actuarial valuation and the means by which they are which recommends the employers responsive to their shareholders, Fixed Interest Securities – contribution rates. employees and society. Investments in mainly government stocks, which guarantee a fixed rate Additional Voluntary Contributions Custody – Safe-keeping of securities of interest. The securities represent (AVC) – An option available to by a financial institution. The custodian loans which are repayable at a future individuals to secure additional keeps a record of a client’s investments date but which can be traded on a pension benefits by making regular and may also collect income, process recognised stock exchange in the payments in addition to the basic tax reclaims and provide other services, meantime. employee contribution payable. according to the clients instructions. Futures – Contracts to buy or sell Admission Bodies – Bodies whose Currency Trading – Buying and specific quantities of a commodity staff can become members of Selling world currencies. or financial instrument at a specified the Pension Fund by virtue of an price with delivery set at a specified admission agreement made between Deferred Pension – The pension time in the future. the Authority and relevant body. benefit payable from normal retirement age to a member of the Gilts, Gilt-edged Securities – The Annualised Return – The rate of return Fund who has ceased to contribute familiar name given to sterling, for any given period expressed as the as a result of leaving employment or marketable, securities (or bonds) equivalent average return per year. opting out of the pension scheme issued by the British Government. before the normal retirement age. Asset Allocation – The Income Distribution – Usually apportionment of a fund’s assets Derivatives – Are financial referred to unit trusts, the distribution between asset classes and/or world instruments whose value derives from of income to unit holders in strict markets. The long-term strategic asset an underlying asset. Futures/Forwards proportion to the number of units held allocation of a fund will reflect the are among the most common. at the ex-dividend date (units brought fund’s investment objectives. In the after this date will not generate a short term, the fund manager can aim Dividend – The part of a company’s dividend). to add value through tactical asset after tax earning which is distributed allocation decisions. to the shareholders in the form of Index Linked – Bonds on which cash or shares. The directors of the the interest and ultimate capital Benchmark – A yardstick against company decide how much dividend repayment are recalculated on the which the investment policy or is to be paid and when. The dividend basis of changes in the Retail Price performance of a fund manager can is neither automatic nor guaranteed Index. be compared. for ordinary shareholders.

page 133 Glossary

Listing – For shares (or bonds) to Property unit trusts (PUTS) – Unit Trust – A pooled fund in which be traded officially on a stockmarket Pooled investment vehicles that investors can buy and sell units on an they need to be listed. Essentially, this enable investors to hold a stake in a on-going basis. is an endorsement from the market diversified portfolio of properties. authorities that the securities and Unquoted Securities – Shares which their issuer meet certain criteria. Resolution Bodies – Scheme are dealt in the market but which are employers with the power to decide if not subject to any listing requirements Margin Account – When a futures an employee or group of employees and are given no official status. contract is first opened, an initial can belong to the scheme. margin payment is made into an Unrealised Gains/(losses) – The account held by the Clearing House. Retirement under the “Rule of 85” – increase/(decrease) at year-end in This is intended to represent the Where an employer consents to the the market value of investments held maximum gain or loss on the contract, early payment of retirement benefits by the fund since the date of their based on current market volatility after age 55, the member’s age and purchase. Each subsequent day, every open pensionable service totalling at least contract is valued to reflect the 85, and where other reasons for market movements, the scheme may retirement do not apply. be required to make an additional payment or receive a repayment. Return – The total gain from holding an investment over a given period, Mandate – The agreement between a including income and increase client and investment manager laying (decrease) in market value. down how the fund is to be managed. May include performance targets by Scheme Employers – Local reference to a benchmark. Authorities and other similar bodies whose staff automatically qualify to Market Value – The price at which an become members of the pension fund. investment can be bought or sold at a given date. Specialist Management – A fund management arrangement whereby a Mature Equity Markets – Countries number of managers each concentrate which include the United Kingdom, on a different asset class. A specialist United States and Japan are fund manager is concerned primarily commonly referred to as having with stock selection within the mature markets. These markets specialist asset class. Asset allocation have an established economy and decisions are taken by the trustees, knowledge is freely available. their consultants or a specialist tactical asset allocation manager. Maturity – End of the life of a fixed interest security at which point it is Transaction Costs – Those costs repaid. associated with managing a portfolio, notably brokerage costs and taxes. Ordinary shares – Securities, which represent an ownership interest in a Transferee Admission Bodies – An company. external body contracted to provide services or assets in connection with Over the Counter Contracts – Two the exercise of a function of the Local parties agree to exchange two Authority. currencies on a specified future date at an agreed rate of exchange. Transfers to/from other schemes – These are sums paid to or received Passive Management – A style of from other pension schemes and investment management that seeks to relate to the current value of past attain performance equal to market or contributions which transfer with a index returns. member when changing employment.

page 134 Pension Fund Annual Report 2011-2012

page 135 This information is issued by Essex County Council For more information about the scheme and publications that are available please go to the Pension Fund website at: www.essexpensionfund.co.uk Alternatively For further information on issues relating to Fund Investments and Accounts please contact:

Martin Quinn Head of Investments, Investments Team Phone: (01245) 431412 Email: [email protected] If you have any queries relating to membership of the LGPS please contact:

Jody Evans Pensions Services Manager, Pensions Services Phone: (01245) 431912 Email: [email protected] Or you can write to us at: Essex County Council Essex Pension Fund 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 2012. 2671

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