Essex Pension Fund Annual Report & Accounts 2014/15 Contents Introduction and overview 4 • Chairman’s Foreword 6 • Introduction 8 • Fund Trends and Financial Summary Section 1: Governance arrangements 9 • Who manages and runs the Essex Pension Fund 13 • Fund Management Stucture and Other Professional Organisations 15 • Business Plan 2014/15 and 2015/16 Section 2: Investments 25 • Investment Strategy Overview2014/15 27 • Investment Decisions 31 • Investment Performance 2014/15 Section 3: Administration 35 • Membership Summary 35 • Key Service Standards for Scheme Members 36 • Scheme Details 39 • Participating Employers of the Fund Section 4: Scheme actuary 50 • Statement by Consulting Actuary 2010 Actuarial Valuation 52 • Essex Pension Fund Contribution Rates Schedule – Actuarial Valuation 2010 62 • Statement by Consulting Actuary 2013 Actuarial Valuation 63 • Essex Pension Fund Contribution Rates Schedule – Actuarial Valuation 2013 80 • Addendum to Rates and Adjustment Certifi cate Section 5: Statement of accounts 90 • Responsibilities for the Statement of Accounts 91 • Fund Account 92 • Net Asset Statement 93 • Notes to the Accounts 141 • Statement by External Auditors Section 6: Other information 144 • Statement of Investment Principles 178 • Funding Strategy Statement 203 • Governance Policy and Compliance Statement 214 • Administration Strategy 220 • Essex Pension Fund Knowledge and Skills Compliance Strategy 227 • Communications Policy 235 • Glossary 240 • Contact Points Introduction and overview Chairman’s foreword April 2015. The Essex Pension Fund Board considered these requirements in detail and over the course of 2014/15 developed proposals which led to the establishment of Essex’s new LPB called the Essex Pension Fund Advisory Board in February 2015 ahead of the April 2015 deadline. The revised arrangements, which rename the Board as the Essex Pension Fund Strategy Board (PSB), are set out below: Essex Pension Fund Strategy Given that a series of key developments Board (PSB) were successfully implemented in a year when the Fund won two national Essex awards and achieved an investment Pension performance of 14.8%, 2014/15 can lay Fund claim to be the Essex Pension Fund’s Advisory most successful year to date. Board (PAB) One of the most signifi cant developments was Investment the establishment of the new Essex Pension Steering Fund Advisory Board. For a number of years, the Committee (ISC) governance of the Essex Pension Fund operated through two bodies: the Essex Pension Fund The Essex Pension Fund Advisory Board (PAB) Board and the Investment Steering Committee. is not a decision making body. However it is required to assist the Fund in compliance with Regulations and ensure that appropriate Essex Pension Fund Board governance is in place. In addition to these important roles, the Terms of Reference for the PAB also state that it will be a critical friend to both the PSB and the ISC. Details of the Investment Steering Committee membership of the PSB, ISC and new PAB are (ISC) set out in section 1. In May 2014 the Government launched As a result of the Public Service Pension Act a consultation on structural reform. This of 2013, and subsequent Local Government followed the previous years’ call for evidence Pension Scheme (LGPS) Regulations each and the analysis commissioned by DCLG and public sector pension fund has been required undertaken by Hymans Robertson on the to establish a Local Pension Board (LPB) from potential use of Collective Investment Vehicles 4 Pension Fund Annual Report 2014/15 and passive investment management. won “Public Sector Scheme of the Year 2014” The Board (PSB) response highlighted our at the Professional Pensions awards. This was concern that some of the proposals in the followed up in February 2015 by the “Defi ned consultation, if adopted, could result in: Benefi t Pension Scheme of the Year 2015” at • the mandatory collectivisation of all the Pensions Age awards. investments; and I would like to express my thanks to the • the end of active management in the LGPS Members, offi cers and all who have contributed for equities & bonds. to the Fund’s ongoing success throughout the Requiring LGPS Funds to collectivise year. all investments and / or ending active management of equities and bonds would In closing I would like to add a particular be radical steps. Each would take time, cost word of appreciation for the work of Keith money, introduce new risks and almost Neale. As County Treasurer from 1987, and certainly provoke unintended consequences. subsequently Independent Investment Adviser In the view of the Board, Collective Investment since 2002, Keith has been a longstanding Vehicles where required, need to be source of guidance and counsel to the fully understood and tested before wider Investment Steering Committee, and has made implementation. It remains our strong view a signifi cant contribution to the development that local pension committees should have and success of the Fund’s investment strategy. the opportunity to employ both active and Keith stepped down from his adviser role in July passive strategies. I understand that a further 2015 with our best wishes and will be followed consultation is expected later in 2015. by Mark Stevens. I am particularly delighted to be able to report Cllr Rodney L Bass that the Fund’s efforts have been yet again Chairman of the Essex Pension Fund Strategy recognised externally. In May 2014 the Fund Board and Investment Steering Commitee Pension Fund Annual Report 2014/15 5 Introduction LGPS 2014 On 1 April 2014, the benefi t structure for those LGPS members working for admitted Fund employers changed from fi nal salary to career average (CARE). This change was part of a wider programme of revisions to public sector pensions in general. What remains unaltered is: highest level of assurance from Internal Audit • benefi ts accrued up to 31 March 2013 will across all aspects of its operation. still be on a Final Salary basis; and • the LGPS is still a Defi ned Benefi t pension New employer contributions scheme in nature. April 2014 also saw the commencement of new employer contributions following the outcomes The move to CARE represented an of the 2013 Actuarial Valuation. Building unprecedented alteration. The pension on dialogue during the consultation with receivable by any employee who retired on or employers, the 2014 Funding Strategy (which after 1 April 2014 requires both fi nal salary and frames the results of the 2013 Valuation) CARE calculations. This principle underlines included a new innovation for the payment of the fact that LGPS Funds are now required defi cit. For the fi rst time employers were given to administer pensions under two different the opportunity to pay the annual defi cit due benefi t structures (this rises to three different at the start of the fi nancial year rather than in benefi t structures if you also take into account twelve monthly instalments. the revised Final Salary scheme introduced from April 2008). This additional option aligns the annual defi cit payment with the receipt of funding by local As highlighted in last years’ annual report, authorities. This initiative proved popular one of the diffi culties faced in implementing with a number of tax raising bodies, some of the new CARE arrangements was the delay in whom opted to pay three years’ at the start release of Regulations. Transitional Regulations of the Actuarial cycle. The early receipt of were fi nalised in March 2014 which meant monies enable the Fund’s Actuary Barnett that, in common with all other LGPS Funds in Waddingham to refl ect revised assumptions in England & Wales, Essex did not have not have the calculation of how much was payable. Full suffi cient time to implement the necessary details are included within the Actuarial report system changes prior to 1 April 2014. which can be found in Section 4 of this report. As a consequence we began 2014/15 with a Migration to new administration greater reliance on manual processes in the software calculation of pension benefi ts. This issue was Following last year’s Board decision to migrate highlighted to the Pension Strategy Board, and to new UPM software (by CIVICA) Fund offi cers colleagues from Internal Audit included this on the system and administration teams joined within the scope of their work during the year. together to implement the biggest undertaking It is therefore particularly pleasing to be able in the Fund’s history. to report that the Fund continues to receive the 6 Pension Fund Annual Report 2014/15 The project team oversaw data cuts, data Margaret Lee cleansing and extensive testing. Go live was on Executive Director for Corporate & Customer 5 November 2014 which allowed seven weeks Services. of “dual running” before the usage of the Section 151 Offi cer for Essex County Council legacy system AXIS ceased. This meant that and Essex Pension Fund the Essex Pension Fund was the fi rst of Civica’s new clients to go live on the UPM standard Kevin McDonald product. Director for Essex Pension Fund A considerable effort on behalf of many Fund Jody Evans offi cers has resulted in successful delivery Head of Essex Pension Fund of this new system, and we would therefore like to record our thanks to all involved in this signifi cant achievement. Work is currently underway on a second stage of developments which will make greater use of online interaction with both scheme employers and individual members. Pension Fund Annual Report 2014/15 7 Fund trends A summary of the Fund’s key trends is shown below: 2010/11