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A Leader in Pension Services

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A Leader in Pension Services A Leader in Pension Services [email protected] Annual Report 020 7369 6000 2016 –2017 About us Key facts Chairman’s welcome Strategy and Chief Executive’s statement 5 business review LPP business model 6 Strategy 6 Business structure 7 People and culture 8 Business operation 9 Liability management 9 Pension administration 9 Investment management 10 Responsible investment and stewardship 11 Key performance indicators 12 Looking forward to 2017–2018 13 Risk management 14 Corporate Corporate governance framework and responsibilities 17 governance Board of directors 18 Corporate governance report 22 Board and committee reports 23 Directors’ report 25 Statement of directors’ responsibilities 25 Independent auditor’s report 27 Financial Consolidated income statement 29 statements Consolidated statement of comprehensive income 30 Consolidated statement of financial position 31 Company statement of financial position 32 Consolidated statement of cash flows 33 Consolidated and company statement of changes in equity 34 Notes to the financial statements 35 Offices and contact Offices and contact information 51 information Annual Report 2016-2017 Local Pensions Partnership LPP is a pension services business operating on a ‘not‑for‑profit’ philosophy. LPP aims to help clients improve investment outcomes, reduce risks, costs and pension deficits, and achieve stable employer contribution rates. localpensionspartnership.org.uk Please visit localpensionspartnership.org.uk for more information About us Local Pensions Partnership Ltd (LPP) started operation in April 2016 following the coming together of two local government pension scheme (LGPS) funds – Lancashire County Pension Fund (LCPF) and London Pensions Fund Authority (LPFA). Deliver wider Improve Reduce Lower social benefit through investment deficits costs continuing investments returns in infrastructure and housing Both funds recognised an LPP’s founders set out to This is the start of the journey opportunity to fulfil their create a pension services and LPP has spent the first responsibilities more effectively business, delivering a year embedding its business and efficiently by working comprehensive range of processes. We have already together, and to provide a services across liability and exceeded all the objectives set pension services organisation risk management, pension in year one and are confident for wider collaboration administration and investment that we will continue to across the pensions industry. management, which would demonstrate that collaboration In particular, there was a operate to the highest and best in class governance is shared objective to reduce standards of governance, the key to a secure retirement pension deficits for the benefit be a regulated investment for the members of our of our clients, members business authorised by the client pension funds. We are and employers. Financial Conduct Authority confident that there are more (FCA), and deliver the resulting benefits in the years to come. benefits of scale to members and employers. Annual Report 2016-2017 Local Pensions Partnership 1 Key facts Assets under management Provided pension administration services to £12.5bn 7 LGPS funds Group employees 245 7 emergency service pension schemes, representing approximately of which investment and risk professionals 23 1,2 0 0 employers, with over 517,000 members as at 31 March 2017 2 Local Pensions Partnership Annual Report 2016-2017 Our first year has been one of monumental effort and change Chairman’s welcome Much of my career has been spent in and support and hard work. My personal and around pensions, from academic life and special thanks to Councillor David Borrow, the Organisation for Economic Co-operation former Deputy Leader of Lancashire County and Development (OECD) to The Pensions Council, who is stepping down from the Regulator. In this time, I’ve learnt that for Board, for being instrumental in supporting pension funds to be successful for their the development and launch of LPP. We are members, they need to focus on deficit delivering in line with our business strategy reduction, risk management and look at and our full-service clients have already both sides of the balance sheet, not just identified a reduction in costs on the pre- the assets. When I learned about the pooling position. We are building LPP into formation of LPP, a new organisation which a successful pension services business and encapsulated these beliefs, I wanted to I look forward to what we will achieve in the be involved. coming years. LPP is a unique proposition: a pension I’m delighted to present services business operating on a ‘not-for-profit’ philosophy, and offering a LPP’s first Annual Report. full suite of industry-leading pension services This report represents our covering liability and risk management, first full year of operation, pension administration and investment having launched in April management. Through aggregating assets and expertise, refining governance, and Michael O’Higgins 2016, and I’m pleased to sharing costs, we can help our clients improve Chairman report on a successful year. investment outcomes, reduce risks, costs and pension deficits, and achieve stable employer contribution rates. We operate within the wider context of Government’s reform agenda for pension funds. We share and support the Government’s vision and objectives on the pooling of public sector pension fund assets, infrastructure investing, improved risk management and private sector consolidation. Amongst the LGPS, LPP has taken a lead on infrastructure investing and it is positive to see pension fund assets being put to good use while also generating returns for members. We have allocated c.9.5% of LPP’s assets under management to global infrastructure investments. These include historical allocations of infrastructure assets by our full-service clients – LCPF and LPFA. Exposure to direct UK infrastructure investments is made via GLIL Infrastructure, a £1.3 billion infrastructure investment joint-venture between Greater Manchester Pension Fund, LCPF, LPFA, Merseyside Pension Fund and West Yorkshire Pension Fund. 517,000 Our first year has been one of monumental members effort and change. I would like to thank my Board colleagues and the staff for their Annual Report 2016-2017 Local Pensions Partnership 3 Strategy and business review 4 Local Pensions Partnership Annual Report 2016-2017 LPP’s first year of operation provides a solid foundation for growing our business Chief Executive’s statement We provide to clients our in-house investment as part of its review of private sector capabilities, risk management and pension pension arrangements. administration service. From day one, we have set ourselves an ambitious business Like all good businesses, the key to our plan to deliver improved returns, effective success is our people. As part of our strategic liability and risk management, and savings business plan, we have significantly increased in investment management and pension resources in key functions, including administration costs for our clients. finance, governance, legal, compliance and investment operations. This has been In our initial business planning, we estimated possible due in part to reduced fees paid to an on-going reduction in investment external fund managers, and an increased fees of £6 million per annum for our two allocation to internally managed funds. full-service clients. We now expect to deliver an on-going reduction in investment fees As we enter our second phase of of approximately £7.5 million per annum in development, we look forward to delivering LPP’s first year of operation our global equities pooled fund. We expect on the challenges we have set ourselves. this level of reduction to increase in the We have a comprehensive three-year has been one of positive future once all pooling vehicles and target business plan taking us to 2020. change and provides a solid operating models are established. It is Delivery of benefits for our clients and their important to note that these fee reductions foundation for growing our members and employers is our key objective. have not been sought at the expense of business. We have continued Growth opportunities will be pursued in performance. We have increased our assets order to achieve additional reduction in to build on the successes under management from £10.5 billion to deficit levels, access to a broader range of our two full‑service clients £12.5 billion, and worked with other LPGS investment opportunities, or dilution of funds to expand the GLIL infrastructure joint achieved in running in‑house overheads for the benefit of all stakeholders. venture to enable a wider collaboration and investment portfolios, It will play an important role and we will scale in infrastructure investing. risk management and maximise the advantages it provides. LPP is much more than an investment pension administration. I would like to thank our clients for their trust pool – we are aiming to deliver broader and confidence in us, and our staff for their improvements across liability and risk dedication and hard work. management, employer and member pension administration. The creation of LPP gives us a unique opportunity. Through aligning administration, investment and risk operations we have created an organisation which serves approximately 1,200 employers with more than 517,000 members across seven LGPS funds and seven emergency service pension schemes. The scale, the Susan Martin structure, the wealth
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