West Yorkshire Pension Fund
Report and accounts
For the year ended 31 March 2009
Administered by City of Bradford Metropolitan District Council. Pension Schemes Registry number 10041078. 2 Contents
Foreword...... 4
Management structure...... 6
Pension administration review...... 8
Membership trends...... 12
Participating employers...... 14
Quality management...... 16
Policy statements...... 18
Investment report...... 20
Actuary’s report...... 38
Audit report...... 40
Accounts...... 42
Resolving complaints...... 56
Further information and contacts...... 58
3 1 Foreword
4 Foreword
he equity markets suffered Bob Prance, one of the external investment significantly during 2008/09 as a advisers to WYPF, announced his intention Tresult of the ongoing credit crunch to retire in April 2009 following six years as and unprecedented world banking adviser. I wish to record my sincere thanks crisis. The collapse of Lehman Brothers, to Bob for his excellent advice to the which was allowed to happen by the Investment Panel and for his contributions US Government, was the catalyst to the to the very good investment performance turmoil amongst banks. As a result of this, achieved by WYPF during this period. West Yorkshire Pension Fund (WYPF) had I am pleased to report that Mark Stevens an overall investment return of -18.1% in was appointed to replace Bob, and Mark 2008/09. In comparative terms the return took up his duties as external investment was reasonably good in the circumstances, adviser in October 2008. and is testimony to how well-diversified Finally I would like to thank WYPF’s the investment portfolio is. in-house investment and pension It is pleasing to report that due to the administration staff for their continued good judgement of the in-house team, excellent performance and hard work, WYPF had no exposure to Icelandic banks. and to thank all the external investment advisers for their investment advice On the investment portfolio itself, very to the Panel. little new money was invested in Equities, with the WYPF’s very strong positive I trust you will find WYPF’s Report and cash flow being invested in Bonds and Accounts interesting and informative. Alternative Investments, and towards the end of the financial year in Credit. During the year I personally became very concerned about the ‘political’ risk to the future of the Local Government Pension Scheme due to falling funding levels within pension funds. WYPF has a very strong positive cash flow, and will have for the next 20 years, so there is no financial crisis in the WYPF, or amongst local authority pension funds. In terms of the funding position, funds will be in deficit at present, but these deficits will Councillor Ian Greenwood be addressed when we see a return to Chair of West Yorkshire Pension positive returns on stockmarkets over Fund Investment Advisory Panel the longer term. and Joint Advisory Group.
5 2 Management structure
Members of the Investment Members of the West Yorkshire Advisory Panel Pension Fund Joint Advisory Group
Councillor C Greaves Councillor C Greaves (Deputy Chair) Bradford Councillor I Greenwood (Chair) Councillor I Greenwood (Chair) Councillor H Middleton Councillor H Middleton
Councillor A Feather Councillor A Feather Calderdale Councillor N Fekri Councillor B Metcalfe Councillor B Metcalfe
Councillor E Firth Councillor E Firth Kirklees Councillor B Smith One vacancy One vacancy
Councillor B Cleasby Councillor P Davey Leeds Councillor P Davey Councillor C Fox Councillor C Fox
Councillor B Denson Councillor D Dagger Wakefield Councillor G Stokes Councillor G Stokes Councillor C Tennant
Scheme Member Peter Meer Sarah Moses Representatives Robert Coleman Kenneth Sutcliffe
D Harper –UNISON D Harper –UNISON Trades Union S Morris – GMB S Morris – GMB Representatives T Pearson (Deputy Chair) – UNISON T Pearson – UNISON
External advisers
Noel Mills Robert Prance Mark Stevens
Director – West Yorkshire Pension Fund
Stuart Imeson
Director of Finance – Wakefield
Judith Badger
6 Management structure
Appointments made by the West Yorkshire Pension Fund in the administration of the Local Government Pension Scheme
Actuarial services Mercers Mercury Court Tithebarn Street Liverpool L2 2QH
AVC providers Equitable Life Assurance Society Scottish Widows P O Box 177 PO Box 17037 Walton Street 69 Morrison Street Aylesbury Edinburgh EH3 8WZ Buckinghamshire HP21 7YH
Appointed persons (IDRP procedure) Jo Miller – Deputy Chief Executive, to January 2009. Stuart Imeson Tony Reeves – Chief Executive, from February 2009. Director – West Yorkshire Pension Fund City of Bradford Metropolitan District Council City of Bradford Metropolitan District Council City Hall Britannia House Bradford BD1 1HY Hall Ings Bradford BD1 1HX
Auditors Audit Commission Kernel House Killingbeck Leeds LS14 6UF
Banking services HSBC PO Box 45 47 Market Street Bradford BD1 1LW
Computer services Heywood Comino plc 2 Victoria Street Vanguard House Altrincham Dewsbury Road Cheshire WA14 1ET Leeds LS11 5DD
Legal adviser Medical adviser (IDRP procedure) Suzan Hemingway Dr S McVittie, MFOM Assistant Director Corporate Services (City Solicitor) National Britannia Limited City of Bradford Metropolitan District Council Stratford Road City Hall Solihull Bradford BD1 1HY West Midlands B90 4JJ
7 Pension administration 3 review
Overview and legal status of West Yorkshire Pension Fund West Yorkshire Pension Fund (WYPF) is WYPF’s Pension Schemes Registry number part of the Local Government Pension is 10041078. Scheme (LGPS). Contributing members are contracted out The LGPS is a statutory scheme and the of the State Second Pension. benefits are paid under the provisions of the LGPS Regulations 1997, the LGPS HM Revenue and Customs (HMRC) has (Transitional Provisions) Regulations 1997, granted the scheme ‘exempt approval’ the LGPS Regulations 2008, and other for the purposes of the Income and applicable overriding legislation. The Corporation Taxes Act 1988. The scheme Government issues the pension scheme became a Registered Pension Scheme Regulations through the Communities under Part 4 of Chapter 2 of the Finance and Local Government (formerly the Act 2004 with effect from 6 April 2006. Office of the Deputy Prime Minister). The Regulations have the force of law. City of Bradford Metropolitan District Council is the administering authority for WYPF. Bradford Council’s administering authority responsibilities are met by WYPF’s in-house pensions administration and investment teams.
8 Pension administration review
Achievements during the year this was replaced by a new arrangement with South Yorkshire Fire and Rescue WYPF won the ‘Large Scheme of the Year Authority for WYPF to administer the Fire (assets over £500m)’ award at the Pensions Service Pension Scheme. and Investments UK Scheme Awards in October 2008. Training and development WYPF also won the ‘Fund of the Year (large WYPF continued its commitment to the funds above £2 billion)’ award at the LGC training and development of all members Finance Awards in November 2008. of its staff, and to all representatives on In selecting WYPF for the awards the the Investment Advisory Panel and Joint judges cited the Fund’s excellent standards Advisory Group. both in terms of investment performance During the year WYPF supported a number and the service provided to customers. of staff with their studies for vocational qualifications. These included: Eighth annual meeting held WYPF held its eighth annual meeting • Pensions Management Institute (APMI) for scheme members at the Cedar Court Four students continued to make progress Hotel in Wakefield in October 2008. with the qualification throughout the Guest speaker was Robin Ellison – Head year. Two members of staff are now fully of Strategy, Pensions at law firm Pinsent qualified APMI members. Masons. • Institute of Payroll Professionals As usual the meeting was chaired by (IPP) Diploma Councillor Ian Greenwood, Chair of WYPF’s Two students successfully completed the Investment Panel and Joint Advisory qualification this year and another three Group. There were also presentations from students are making progress with the Stuart Imeson, WYPF’s Director, and from two‑year qualification. the Fund’s external investment advisers, Noel Mills and Robert Prance. • Qualification in Public Sector Pensions Administration (QPSPA) Customer Services Week Five members of staff have now completed Between 6th and 10th October, WYPF this Vocationally Related Qualification took part in the National Customer (VRQ) and another 17 are making progress Services Week, with a series of charity towards completion. coffee mornings held in the Fund’s Contact Centre. In addition to the vocational training a number of other different training Visitors to our Contact Centre during opportunities were provided to develop the week were invited to take part in staff’s management and leadership, a customer survey which showed that pensions, technical and overriding visitors were extremely happy with the legislation and IT knowledge. level of service they got. They commented that our representatives were ‘a pleasure to Members of the Investment Advisory deal with’. Panel and Joint Advisory Group were offered the opportunity to attend the The charity coffee mornings raised £40 in Local Government Employers’ three-day aid of Help the Aged. training course on ‘Trustee Fundamentals’ and a one-day bespoke training event was Partnership arrangements also provided. During 2008/2009 WYPF’s partnership working arrangement with North Yorkshire County Council came to an end. However,
9 Employer workshops £28.16 per scheme member. During the year WYPF established a rolling WYPF has been using the Civica Pensions 4 series of free one-day and half-day workshop Document Imaging and Workflow system sessions for employers. Four different since 2002, and the system has been workshops were launched: upgraded to an Electronic Document Management (EDM) for Pensions. The EDM • Introduction to West Yorkshire Pension product has inherent Work Management Fund (full day) capabilities designed to automate the • Complete Guide to Administration (half distribution to appropriate staff or teams and day) to monitor the status of such work, including • Your Responsibilities (half day) providing management reporting. • Contributions and Year-end data (half day). During the year WYPF worked hard on The workshops are delivered by WYPF staff the new-look LGPS which was introduced and are designed to give the employers a in April 2008. Among other things, work good understanding of the pension scheme. included applying two software upgrades to our pension administration systems, rigorous Changes in benefits testing of the different benefit calculations, reviewing the documentation and letters Each year, WYPF pensioners receive an WYPF sends out to its members, reviewing annual increase in accordance with pension working instructions for staff to use, and increase legislation. The increase is linked we also produced newsletters to inform our to movements in the Retail Prices Index. members about the changes to the scheme. The increase also applies to members who have left the scheme but who have ‘deferred benefits’ in WYPF for payment later, usually at normal retirement age. This year the increase was applied on 7 April 2008 and, for those who met the qualifying conditions, the basic increase was 3.9%.
Pension Administration Section As in previous years, the workload of the Pension Administration Section continued to expand, with an increase in the number of scheme members participating in the WYPF. Service delivery continues to be underpinned by WYPF’s accreditation to ISO 9001:2000, the Quality Management System. WYPF staff are committed to providing the best possible service to customers, and will continue to work to ensure that WYPF’s service represents Best Value to all its stakeholders. The cost of the Pensions Administration Service in WYPF, when compared with all other local authority pension funds, shows it to be well below national averages. In 2007/08 (latest published data), the cost for WYPF equated to £25.57 per scheme member, and compared with the average for all local authority pension funds of
10 Pension administration review
LGPS review • Survivor benefits payable for life to spouses, civil partners and nominated dependent Since July 2001 the framework of the Local partners at a 1/160th accrual rate. Government Pension Scheme has been under review. The main areas that were • A three-tier ill-health retirement package covered included simplification, flexibility, to provide different levels of benefits sustainability, benefits and administration. depending on how long the incapacity is expected to last. Phase one of the review was introduced to the Scheme with effect from 1 April 2004 • Tiered contribution rates starting with 5.5% by the Local Government Pension Scheme and a maximum 7.5% of pensionable salary, Amendment Regulations 2004. with the earnings bands being increased each April in line with inflation. The main purpose of phase two was to remove the 85-year rule from the Scheme. This Another provision of the new Scheme was achieved with effect from 1 October 2006, was that CLG was committed to the however members of the Scheme as at 30 introduction of a cost-sharing mechanism September 2006 were given protection to 31 by 31 March 2009. This process started with March 2008 and older members were given the issue of an informal consultation on further protections. 19 February 2008, followed by consultation on draft Regulations issued in November 2008 The final phase of the review of the scheme and finally the amendment Regulations were commenced on 30 June 2006 when CLG laid before Parliament on 23 April 2009. The published its consultation document cost-sharing arrangements involve a national ‘Where Next? – Options for a new-look Local model fund being established which will Government Pension Scheme in England and be the tool used to benchmark the Scheme Wales’. The new Local Government Pension costs relative to future service accrual, and Scheme came into force on 1 April 2008. The will require Administering Authorities to main provisions of the Scheme are: supply certain data to CLG within specified • An accrual rate of 1/60th for members’ time limits. The cost-sharing arrangements benefits built up after 1 April 2008. Benefits are intended to both inform and take account accrued for service up to 31 March 2008 will of future actuarial valuation exercises for the still provide a 1/80th pension and 3/80th Scheme and for individual fund actuaries lump sum. to consider when setting new employer contribution rates following each fund’s • A flexible option to commute pension at valuation. The results of the cost sharing could the rate of £1 of annual pension for £12 of also influence the future design of the overall lump sum up to a maximum tax-free lump benefit package or cost which members sum of 25% of the capital value of accrued may be required to bear in providing an benefits at the date of retirement. affordable and viable defined-benefit pension arrangement going forward. • A Normal Pension Age of 65 for release of unreduced benefits. During 2008/09 CLG issued a number of Amendments to the Regulations. These have • The earliest age of release of pension been primarily to tidy up the Regulations. benefits is age 55 for new members and for They have also issued Statutory Guidance on: members of the Scheme at 31 March 2008 it will rise from age 50 to 55 from 1 April 2010, • Governance Compliance Statements; and except on the grounds of ill health. • Application of the ill health Regulations. • Flexible Retirement for new members aged 55 or over and age 50 and over for members of the Scheme at 31 March 2008, increasing to 55 from 1 April 2010.
11 4 Membership trends
12 Membership trends
Almost 216,000 members and beneficiaries, employed by 190 separate organisations, participate in the WYPF. The numbers shown for 31 March 2008 have been re-stated to reflect changes after the 2007/08 financial statements were finalised. The number of active and pensioner members in WYPF continues to grow.
31 March 2009 31 March 2008
Active members 95,115 94,332 Beneficiaries Current pensioners (including widows’ 60,278 58,051 and children’s pensions in payment) Deferred members Deferred pensioners 54,792 51,496 Undecided leavers 2,213 1,683 Frozen refunds 3,598 6,806 Totals 215,996 212,368
Admissions to the Fund Employees joining the Fund were as follows.
2008/2009 2007/2008 Employees/councillors joining with no previous service 10,394 13,230 Employees with transfers from: other local government funds 44 100 other pension schemes 204 264 Totals 10,642 13,594
Withdrawals from the Fund Benefits awarded to members leaving employment were as follows.
2008/2009 2007/2008 Members awarded immediate retirement benefits 2,337 2,487 Benefits awarded on death in service 88 109 Members leaving with entitlement to deferred benefits, 7,470 8,951 transfer of pension rights or a refund. Totals 9,895 11,547
13 Participating employers
At 31 March 2009 WYPF had 190 participating employers as detailed below. 5 New employers who joined WYPF during 2008/09 are shown in bold.
A Calderdale Colleges Corporation G Careers Bradford Limited Greenhead Sixth Form College Ackworth Parish Council Carr-Gomm Society Greenvale Homes Limited Aire Valley Homes Leeds Castle Hall School Groundwork Leeds All Saints C.E. J.I. School Catholic Care (Diocese of Leeds) Groundwork Wakefield Amey Community City of Bradford Metropolitan Limited IT Services District Council H Amey Community City of Wakefield Metropolitan Halifax Opportunities Trust Limited FM Services District Council Hanson School Amey Infrastructure Services Clayton Parish Council HBS Business Services Limited (Calderdale) Coalfields Regeneration Trust Group Limited Amey Infrastructure Services Commission for Social Hebden Royd Town Council Limited (Wakefield) Care Inspection Heckmondwike Grammar School Aqumen Services Limited Community Accord Hemsworth Town Council Arts Council England Compass Contract Services Hill Top First School Aspire (UK) Limited Hipperholme & Lightcliffe Craft Centre & Design Gallery High School B Hochtief Facility Barnardos Creative Management Services Ltd Crossley Heath School Management UK Ltd Bell Isle Tenant Management Hollingwood Primary School Organisation D Holly Bank Trust Bingley Grammar School David Young Community Academy Holme Valley Parish Council Bradford Academy Dearne Valley Leisure Trust Holy Trinity C.E. Senior School Bradford City Centre URC Limited Denby Dale Parish Council Huddersfield New College Bradford College Dine Hospitality Ltd Bradford District Care Trust Dixons City Academy I Bradford District Credit IGEN Union Limited E Ilkley Parish Council Bradford Trident Limited East North East Homes Leeds Incommunities Brighouse High School Education Bradford Initial Catering Services Limited Brooksbank School Education Leeds Interserve Project Services Bullough Contract Services Limited English Basketball Association Bullough Contract Services Enterprise Managed J (Guiseley School) Ltd Services Limited Joseph Priestley College Bullough Contract Services (Ilkley Grammar) Ltd F Burley Parish Council First (Development Agency Wakefield MDC) Ltd C First West Yorkshire Limited CAFCASS FOCSA Services (UK) Ltd Calderdale & Kirklees Careers Foundation Housing – Leeds Service Partnership Limited Foxhill Primary School
14 Participating employers
K Advice Bureau St Chad’s C of E Primary School Keelham Primary School Northern School of St John’s C of E Primary School Keighley Town Council Contemporary Dance St John’s CE (VA) Primary School Kier Support Services Northorpe Hall Trust St John’s Hostel Ltd (North West) Notre Dame Sixth Form College St Michael & All Angels Kier Support Services Ltd (South) NPS (North East) Ltd C of E School Killinghall Primary School Kirkburton Parish Council O T Kirklees Active Leisure Oakbank School Taylor Shaw Kirklees College Oakworth Primary School Taylor Shaw Ltd – Kirklees Metropolitan Council OFSTED Bradford Academy Kirklees Neighbourhood Open College Network West The Anah Project Housing Limited and North Yorkshire Limited Thornton Grammar School Otley Town Council Todmorden Town Council L Trinity and All Saints College Lady Elizabeth Hastings School P Laisterdyke High School Pennine Housing 2000 Limited U Leeds Citizens Advice Bureau People in Action (Leeds) Limited University of Bradford Leeds City Council Pinnacle University of Huddersfield UPP Leeds Metropolitan University Leeds College of Art & Design R Leeds College of Building RM Education plc W Leeds College of Music Rastrick High School Wakefield & District Housing Leeds Grand Theatre & Rentokil Initial Management Wakefield College Opera House Limited Services West North West Homes Leeds Leeds Housing Concern Rentokil Pest Control West Vale Primary School Leeds M.I.N.D. Ripon Diocesan C of E West Yorkshire Fire & Civil Leeds Metropolitan University Council For Social Aid Defence Authority Leeds Racial Equality Council Ripon House West Yorkshire Police Authority Leeds Society for Deaf Royds Community Association West Yorkshire Probation Service & Blind People Russell Hall First School West Yorkshire PTA Lightcliffe C.E. Primary School Ryburn Valley High School West Yorkshire PTE Longroyde Junior School Ryhill & Havercroft Joint West Yorkshire Valuation M Recreation Ground Committee Tribunal Service Mellors Catering Service Ryhill Parish Council Wetherby Town Council William Henry Smith School Meltham Town Council S Metropolitan Borough Wilsden Parish Council Salterlee Primary School Woodhouse Grove School of Calderdale Schools Linking Network Micklefield Parish Council Sea Fish Industry Authority Y Mirfield Free Grammar School SERCO Ltd Yorkshire and Humberside Local Mitie Cleaning (North) Limited Shipley College Authorities Employers’ Forum Mitie PFI Ltd Skills for Care Limited Yorkshire Community Morley Town Council Society for the Blind Dewsbury, Housing Limited Myrtle Park Primary School Batley and District Yorkshire Forward N South Elmsall Town Council Yorkshire Museums Libraries National Assembly for Wales South Hiendley Parish Council and Archives Council National Coal Mining Southern Electric Yorkshire Purchasing Organisation Museum For England Contracting Limited New College, Pontefract Southern Pennines Rural Normanton Town Council Regeneration Company Limited North Halifax Grammar School St Anne’s Community Services North Kirklees Citizens St Catherine’s Catholic High School
15 6 Quality management
WYPF achieved accreditation under the • monitoring how quickly we complete ISO 9001:2000 in July 2006, and has now our processes, including calculation and had accreditation to a quality standard paying pensions, so improvements can for over thirteen years. (WYPF gained be identified; accreditation back in 1994 to BS5750 and • surveying customers about their then ISO 9002 prior to ISO 9001:2000). experience of our service; and The next 3 yearly reaccreditation will be • holding regular Management Review carried out in April 2009 against the new meetings to review quality issues. standards introduced recently. As part of the Quality Management Key Performance Indicators System, several systems and procedures Within Bradford Council, services have to have been put in place to ensure the set Key Performance Indicators against service provided is continually improved. which improvements in service can be measured. A process is also in place to These include: collect and record detailed data relating to • having procedures in place for dealing Corporate Performance Indicators relating with complaints and faults ensuring the to Customer Service. appropriate corrective and preventative actions are taken; • conducting internal quality audits identifying improvements;
16 Quality management
Shown below are the main performance indicators that are in place for WYPF, the aim being to improve performance over the forthcoming years.
Key Performance Indicator Performance 2006/07 2007/08 2008/09 The percentage of lump sum and first instalment of pension paid within three days from the later of receipt 98.84% 98.90% 95.82% of notification of retirement or date of retirement The number of WYPF communications achieving 5 5 5 Plain English Crystal Mark Employers’ satisfaction with the service we provide 84.70% 84.20% 83.30% Number of Deferred Benefit Statements sent to members each 97.50% 97.57% 97.80% year as a % of deferred members eligible to receive one Number of Annual Benefit Statements sent to current 95.55% 96.28% 96.72% members as a % of members eligible to receive one
Corporate Performance Indicators 2006/07 2007/08 2008/09 All telephone calls will be answered within 6 rings (20 seconds) 98.80% 98.91% 98.49%
Visitors received in reception within 7 minutes 100% 100% 100% (3,252 visitors) (3,469 visitors) (3,245 visitors)
17 7 Policy statements Local authority pension funds have a statutory responsibility to prepare and publish five policy statements in accordance with regulations governing the Local Government Pension Scheme. These five statements are:
1 Communications Policy Statement 2 Funding Strategy Statement 3 Governance Compliance Statement 4 Pension Administration Strategy 5 Statement of Investment Principles
West Yorkshire Pension Fund’s five policy statements can be accessed on the Fund’s website www.wypf.org.uk
18 Policy statements
19 8 Investment report
20 Investment report
Review of the operation of the Investment Advisory Panel 2008/09 Whereas actuarial issues were a major feature of the Panel’s activities in 2007/08, the dominant themes this year were the extreme volatility of and poor returns from virtually all asset markets. This background was exacerbated by a dysfunctional banking system which saw the collapse or near collapse of a number of well known financial and other institutions, both in the UK and globally, on a scale not witnessed before in most people’s lifetimes. If ever there was a need for a cool hand on the tiller this was the occasion. As has been reported in previous years’ annual reviews, the Panel’s broad investment strategy in recent years has been to widen the diversification of the Fund’s portfolio by increasing exposure to assets whose performance is less dependent upon the performance of global stock markets. As a result there has been virtually no additional investment in the major equity markets for several years whereas exposure to government fixed interest stocks and so-called ‘alternative investments’ has been built up. Initially this was in anticipation of a normal cyclical slowdown in the economy and the process continued through the year against the deteriorating global economic background. To put matters in some perspective, during the fiscal year the UK equity market produced a negative total return of 29.3% whereas UK government stocks produced a positive return of 10.3%. Other major overseas equity markets performed worse than the UK but their returns were enhanced to some extent by the fall in sterling. Even hedge funds as a whole performed better than most equity markets and the WYPF’s highly diversified exposure to this area, although producing a negative return, outperformed the average. WYPF is a major investor in the money markets with balances typically around £300m. Each year the Panel reviews its
21 Treasury Policy for dealing with the large • the use of advisers; sums of cash which constantly flow • expert advice; through the fund. A review was carried • the need for clear objectives; out in April 2008 as part of the normal programme of reviews. However, as the • responsible shareholder ownership; problems, and hence the risks, within the • explicit and appropriate investment banking sector continued to deteriorate, benchmarks; and further reviews and revisions were made • regular measurement of investment in October and again in January 2009 as performance and the transparency lower credit ratings and bank mergers of reporting. reduced the number of organisations with whom the Panel was prepared to During the course of the year the Panel has deposit funds. The Panel’s caution and the continued to demonstrate its adherence skill of the internal Treasury Manager are to these principles. reflected in the fact that, unlike some Local All investment managers and external Authorities, no investments were made advisers have annual and longer-term with Icelandic banks. Together with other performance targets that were re‑assessed documents relating to the governance of in July. Investment objectives and the Fund, the Treasury Policy statement is benchmarks were formally reviewed available on the WYPF website. in January and are monitored at least Away from the Away from the noise of the markets on a quarterly basis. As a result, further noise of the the Panel also had to go about its progress was made towards the long- markets the regular business. The annual business term strategy of reducing volatility and Panel also had plan, updated in July, provides for the increasing portfolio diversification, which to go about its formal assessment of their procedures was developed in conjunction with the regular business and decisions. Broadly speaking this consulting actuaries and which will assessment is conducted by reference be continued into the next fiscal year. to a set of recommendations known In addition to input from the actuarial as the ‘Myners Principles’, which have consultants, on the Fund’s liability profile been in place for a number of years and and on the spreading of investment risk which are accepted by HM Treasury. The in the most optimal way, two external principles have recently been reviewed advisers are voting members of the by the National Association of Pension Panel and attend every meeting. As Funds on behalf of HM Treasury who usual an interim actuarial valuation was subsequently produced a consultation obtained during the year. This exercise document to which WYPF has responded. was particularly important during a period The consultation process was concluded when asset prices, interest rates and in June. The Treasury is to establish increasing longevity were all negative an Investment Governance Group to factors on the current basis of calculating enhance best practice amongst both the Fund’s solvency margin and needed to private and public sector pension be kept closely in mind. schemes. The role of the group would be WYPF has the additional advantage of to strengthen the ‘Principles’, keep them employing its own investment specialists under permanent review and monitor whose expertise and day to day proximity both their effectiveness and the quality of has been invaluable. The Pension Fund reporting adherence to them. The Panel also invests in a number of pooled vehicles takes governance issues seriously and is (rather like unit trusts) in order to achieve in agreement with the Treasury proposals. a wide spread on interests in areas such In addition to asset diversification the as commercial property, private equity strengthened ‘Principles’ cover areas and other ‘alternative’ assets such as such as: funds of hedge funds and currencies. In • effective decision making; addition to monitoring the activities of the internal managers the Panel meets
22 Investment report
twice each year in London to question Internet and the formal Annual Report and these pooled fund managers, some of Accounts, the Panel organised two annual whom travel from continental Europe and meetings in October, one for employers from the United States to be present. Such held in Bradford and the other in Wakefield meetings took place in September 2008 for members of the Pension Fund. These and February 2009. Regional private equity meetings predate the ‘Principles’ and have and development capital managers were been held annually for eight years. interviewed at a special Panel meeting in September 2008 in Bradford. The The nature of elected members means Statement of Investment Principles, which that there can at times be some degree of incorporates all these issues together with turnover amongst the Panel membership. the stated investment strategy, is available The Panel began to explore ways of on the WYPF website. The document redressing this situation during the year also provides further detail regarding the with a view to enhancing continuity. At updated ‘Myners Principles’. the same time it continued to place a high emphasis on training, organising a In terms of responsible ownership the bespoke training seminar in September. Panel continued to exercise its shareholder In addition, Panel members are advised voting rights. The Panel adopts the PIRC of and encouraged to attend all relevant Shareholder Voting Guidelines for this conferences provided by organisations purpose and during the year it agreed such as the Local Government Employers to subscribe to their newly available Organisation, The Pensions Committee extended service. In consequence of the LGPS and the LAPFF as well as the Fund is now able to vote on every sessions provided by the Fund’s service company represented in its investment providers. The Panel endeavours to portfolio anywhere in the world. The ensure a broad political representation Fund has also engaged directly with amongst its members and has the a number of company managements power to co-opt if the District Councils where there have been specific issues to fail to provide an appropriate mix. The discuss in terms of good governance and Panel exercised this power during the social responsibility. Such engagement year with the appointment of a Liberal is conducted through the LAPFF where Democrat member. Councillor Greenwood is Chair and Stuart Imeson is Honorary Secretary. This forum The January Panel meeting was attended The January is also active in the field of climate change by Rosie Winterton, Minister for Pensions, Panel meeting and has been conducting research into the and provided members the opportunity to was attended by effectiveness or otherwise of large-scale convey their views directly to Government, Rosie Winterton, corporate mergers. particularly in connection with issues Minister for likely to arise from the triennial actuarial Pensions and The Fund’s own organisation and systems valuations which will be conducted provided have continued to be kept under review. as at 31 March 2010 and which could members the Early in the year a corporate governance have important implications for the opportunity to audit was completed by Bradford Council’s Local Government Pensions Scheme convey their Internal Audit Section as a result of which going forward. views directly to a number of technical changes were Government incorporated into the WYPF Governance Investment performance was again Compliance Statement. Governance measured independently by the WM Reports are also obtained annually Company. Whilst the Panel’s investment from external bodies such as the Audit strategy takes a genuinely long-term view Commission. Following the latter the consistent with the long-term liabilities arrangements regarding the disclosure of of the Fund, the more recent returns are interests were extended. Transparency of also relevant. Despite the severe falls in reporting is one of the ‘Myners Principles’ asset prices mentioned above, the Fund’s and in addition to the full range of investment return for the twelve months to governance documents published on the 31 March 2009 was minus 18.1% compared
23 to its relatively demanding benchmark continues to be managed on a day to day return of minus 17.8%. Nevertheless, the basis in-house supported by the Fund’s Fund outperformed the Local Authority external advisers. Investment strategy pension scheme average whose return and asset allocation is agreed at quarterly was minus 19.2%. The year ahead is likely meetings of the Investment Panel. There to remain buffeted by continuing financial are twelve professional investment uncertainty although it is to be hoped managers and five administration/ that signs of recovery will be emerging settlement staff in the in-house as the year progresses. The Panel and investment team. the Fund are well placed to navigate the storm and provide the required cool hand The in-house investment management on the tiller. costs continue to be amongst the lowest of all local authority pension funds. In 2007/08, the Fund’s in-house investment Voting policy management costs equated to £7.31 per The Fund has a voting policy whereby scheme member compared with the it will vote on all Resolutions put to national average for all local authority the Annual and Extraordinary General pension funds of £73.06. Meetings of all companies in which the The Panel adopted a fund-specific Fund has a shareholding. The basis of benchmark commencing from 1 April 2005, the voting policy is set out in the Fund’s which is reviewed and revised annually, Statement of Investment Principles. Full and details of the benchmark currently details of the voting policy is also available being used are shown in the Statement for viewing on the Fund’s website, as of Investment Principles. The benchmark are details of the Fund’s voting activity represents the optimal investment at companies’ Annual General and portfolio distribution between asset Extraordinary Meetings classes to deliver the WYPF back to 100% funding in accordance with the Custody of financial assets principles outlined in the Funding Strategy Statement. The Panel does, however The Fund is a registered member of CREST make tactical adjustments around the in its own right, and the Fund’s UK fixed benchmark for each asset class within a set interest and equity shareholdings are control range. held on CREST in dematerialised form. Consequently, all custodial responsibilities Investment in fund of hedge funds relating to these financial assets are commenced in April 2005 to implement a undertaken by the in-house Investments strategy of investing up to 5% of the total Section. investment portfolio in fund of hedge funds. An element of the new money A custodian is appointed for the safe during 2008/09 continued therefore to keeping of the Fund’s overseas financial be invested in fund of hedge funds. Other assets, and for the settlement of new money was invested predominantly transactions, income collection, overseas in bonds. An allocation of new money tax reclamation and other administrative to currency funds which commenced in actions in relation to these financial assets. Quarter 1 of 2008, also continued during Following a full tender exercise conducted 2008/09. during the summer of 2002, HSBC is the current custodian for the provision of The cash element of the investment these services. portfolio was maintained during the year and stood at 5.4% as at 31 March 2009. Investment management and strategy Investment performance The Fund’s entire investment portfolio The Fund performed comparatively very well in 2008/09 although the return was
24 Investment report
-18.1% reflecting the effects of the credit The WYPF’s private equity portfolio is crunch and world banking crisis on well diversified across industry sectors, stockmarkets. The return of -18.1% in the geographies, vintage years, financing year was marginally below the return on stages and managers. After adjusting the fund-specific benchmark of -17.8%, but for cashflows and foreign exchange well above the average return for all local movements, the values of the underlying authority pension funds of -19.9%. This portfolio of companies remained flat positioned the Fund 24th out of 89 local during Q2 and Q3 2008. They then fell authority pension funds on a league table in by 8.0% in Q4 2008 and by 13.3% in basis, which is a very good outcome. Q1 2009. These valuation declines were masked, however, by foreign exchange The Fund’s long-term investment gains in Q3 of 5.4%, and Q4 2008 of 20.8% performance compared with other local (94.5 % of WYPF private equity assets are authority pension funds continues to denominated in USD or Euros). be extremely good. The WYPF’s average annualised return over the last three years A number of factors, such as a weakening was -3.8%; over the last five years it was pound, a greater slowdown in realisations 4.9%; and over the last ten years it was compared with draw-downs (net 2.9%. These returns are well above the investment was c.£50 million) and a lag local authority pension fund average of effect in valuation declines versus public -5.9%, 3.1% and 2.0% respectively, and on a markets, have resulted in a 4.8% weighting league table basis place WYPF in the 14th, in private equity as a proportion of WYPF’s 7th and 11th percentile respectively over total investment portfolio, up from 3.1% these periods. last year. The out-performances against the local New commitments made during the year authority average have been achieved were via a mix of direct and fund-of-fund through a combination of positive vehicles: contributions from both asset allocation and stock selection. This demonstrates the excellent work of the Investment WYPF commitment Panel, the external investment advisers Fund £ million on asset allocation, and of the in-house Enterprise Ventures’ investment management team through 3.5 their discretionary work on stock selection. Coalfields Growth Fund HarbourVest International Private 18.5 Private equity Equity Partners VI Partnership Fund The deepening financial crisis has had HarbourVest Dover Street VII L.P. Fund 7.0 a significant impact on the private Total 29.0 equity market. Deal activity on WYPF investments slowed considerably in the twelve months to 31 March 2009. Draw- downs on committed capital were down At 31 March 2009, net un-drawn 25.0%, while realisations fell 47.3% on the commitments amounted to £312.3 million. previous year. Reduced debt availability Cumulative draw-downs to date equal for deals, and rising borrowing costs, £374.7 million, while realisations to date have dampened private equity volume. equal £208.1 million. The valuation of Realisations are expected to be virtually invested capital equates to £286.3 million, non-existent in 2009 as the current exit resulting in a ‘total-value to paid-in ratio’ of markets (mainly Merger & Acquisition and 1.32 times. initial public offering) remain virtually The strategy and approach to this asset closed. Recapitalisations will also be rare class remains unchanged from that given that banking covenants are already outlined in last year’s annual report and stretched.
25 accounts. That is: the pre-determined investment programme is 3 years, with steering level (a commitment strategy for a weighted allocation of 40% in Year 1, amounts and timings) will continue to be followed by 30% in Years 2 and 3. Since monitored closely, particularly given the the WYPF began investing, four of the six economic changes of the last 12 months, to managers and 77.5% of the allocation, have efficiently achieve the 5% target exposure delivered a positive performance. However to private equity. given subscription timings, only three of the six funds are showing a market value Currency in excess of book cost. In aggregate and weighted accordingly, the six funds have At the beginning of March 2008, the WYPF produced positive performance, which began investing a £200 million allocation compares favourably to nearly all other into six currency funds managed by six asset classes during the tumultuous year different managers: that the financial markets have endured. • Auriel Fund of hedge funds (FOHFs) • BNP Paribas • Credit Agricole Asset Management The credit crisis has proved to be • Berenberg an exceptionally difficult operating environment for hedge funds. Since the • Mesirow beginning of the credit crisis in June 2007, • Oppenheim WYPF’s allocation to FOHFs has produced a negative return of c. 16.5% with the Before investing, correlation analysis of best fund returning plus 2% and the past returns produced individually by worst returning -27%. Hedge funds have the six managers was undertaken. This found it especially difficult to operate was an important consideration in trying with partial and temporary restrictions on to achieve the maximum return per short selling and constrained credit lines. unit of risk. Following various progress Highly levered strategies have suffered meetings since investment, it is clear that most. Managers have also struggled to the styles, models, holding periods and manage cashflows associated with investor currencies employed by the different redemptions. In light of the volatile managers are sufficiently diverse and financial markets, careful consideration endorse the low correlations highlighted was given to the timing of the final tranche prior to investment. The duration of the
FTSE 100 Index December 2000 to March 2009 6500
6000
5500
5000
4500
Last price 3926.14 4000 High on 04/09/00 6798.10 Average 5248.77 3500 Low on 12/03/03 3287.00
3000 Dec 29 Dec 31 Dec 31 Dec 31 Dec 31 Dec 30 Dec 29 Dec 31 Dec 31 2000 2001 2002 2003 2004 2005 2006 2007 2008
26 Investment report
Property – key results for the 12 months to 31 March 2009 ‑ 00.00
-10.00
-20.00 Percentage
-30.00
Rental value Total return Capital return Income return growth
Retail -22.07 -31.64 6.47 -2.64
Office -25.90 -30.60 6.55 -9.88
Industrial -21.44 -26.91 7.27 -2.00 of investment into the Mesirow FOHF 15.6% and 19.9%. Aside from weakening and, following progress meetings with occupational demand recent government managers in early 2009, the Investment legislation could also be a detrimental Panel agreed that WYPF invest further factor for rental values. Landlords are now money with an existing manager. In forced to pay rates on empty properties, aggregate, the six FOHFs held by WYPF increasing the urgency to fill vacant sites. equate to approximately 330 different Clearly, quite how far rental values drop individual funds. will ultimately depend on the severity of the UK recession. Fortunately, however, Property the onset of this recession did not coincide with a building boom! Commercial Property under-performed gilts and marginally out-performed The worst performing sub-sectors during equities over the twelve months to the 12 months to 31 March 2009 were March 2009, delivering returns of -25.53%, shopping centres (-32.2%), City (-30.7%) compared to -29.01% for equities and and West End offices (-28.6%) (total 14.54% for gilts. Much of the negative returns; IPD). Due to the lot size associated performance in 2007 and 2008 for with shopping centres, it is generally commercial property was attributable difficult for most funds to gain exposure, to a sharp reduction in the number of so WYPF is fortunately underweight in willing and able buyers of UK real-estate this sub-sector. WYPF is also underweight assets. This, in turn, was the result of in West End offices but, unfortunately, higher borrowing rates and tighter credit overweight in City offices. conditions. However, during the summer Following a comprehensive report on of 2008, investor sentiment turned to the WYPF’s property investment strategy, vulnerability of occupational markets in the Investment Advisory Panel agreed recessionary times. that over the medium- to long-term, For the twelve months to 31 March 2009 WYPF should seek to move to an (as measured by IPD), all property has 80:20 geographical split between UK seen rental values decline by 4.9%. This and non-UK property on its Property has been most pronounced in the office Unit Trust investments. The current sector, particularly City and West End split is approximately 90:10 in favour offices, where rental values have fallen by of UK property.
27 AVC investments The impact of so many failing institutions, the knock-on effect on the rest of the WYPF has two AVC providers: Equitable business world and the cost of rescue Life and Scottish Widows. In line with plans launched by the governments of Regulation 5(2)(b) of the Local Government developed countries has been severe. The Pension Scheme (Management and result has been increased unemployment, Investment of Funds) Regulations 1998, government deficits and borrowing levels, AVCs are not included in WYPF’s Fund and countries plunging from growth into Account and Net Assets Statement. recession. Worldwide demand for goods The AVC investment values are with‑profits fell, with the possible exception of China investment policies with Equitable Life and India. and Scottish Widows, and the values In the UK the economic situation at 31 March 2009 are £4,748,899 and deteriorated as unemployment rose £11,696,875 respectively, as advised by the to 2.1m (6.7%). This is lower than the two companies. unemployment rate during the recessions As at 31 March 2009 1,211 WYPF scheme of the 1980s and 1990s but is expected to members had an AVC policy with continue rising during 2009. GDP shrank Equitable Life and 2,170 an AVC policy with sharply, falling 1.9% in the quarter to end Scottish Widows. The figures were 1,300 of March 2009, the steepest quarterly fall and 2,266 respectively at 31 March 2008. since 1980. The numbers still contributing are 98 to As tax revenue plunged and social security Equitable Life and 736 to Scottish Widows. spending rose, on top of the cost of bailing Any WYPF scheme members taking out a out the banking system, as will be seen new AVC policy are automatically placed below, the budget deficit rose to 12.4% with Scottish Widows. of GDP. Overall debt levels are expected to continue rising, and net new debt as Commentaries on world a percentage of GDP is not expected to stockmarkets reduce in the medium term. The UK equity market declined steeply The fall in house prices began in 2007 over the year ended 31 March 2009. The and precipitated the global crisis as FTSE100 index started the 12 month institutions lent excessively to sub prime period at 5701 and ended at 3926 (see borrowers and the resulting bad debts chart below). The fall in value was very were packaged and passed around the much in line with that suffered by most global financial system. In the UK house equity markets worldwide over the prices continued to fall throughout 2008. period. However, as sterling also declined March 2009 saw the first month-on-month steeply against most other currencies, rise in house prices; however year‑on‑year in sterling terms the UK equity market this still amounted to a fall of 15.7%. appears to have underperformed global Despite the slight optimism on house equity markets. It is interesting to consider prices, repossessions, bankruptcies and the level of the index over the last full insolvency figures all rose over the year. economic cycle and it may lead to some The Bank of England reduced the base optimism that at March 2009 we may be rate dramatically over the year from somewhere approaching the bottom of 5.25% to finish the period at 0.5%, an the cycle. unprecedented low in the Bank’s 315-year The credit crunch and crisis in the world’s history. This was primarily an attempt banking systems impacted negatively to kick start the housing market and on global equity markets last year. The ease credit strain more generally in the continued fall in markets this year occurred economy. There was less worry than usual as the severe problems in the financial about the upward impact this would sectors crossed over into the real economy. have on inflation, as RPI fell into negative
28 Investment report
territory for the first time since 1960. The deteriorate as unemployment increased figure was down to -0.4% in March 2009 and the knee‑jerk reaction was to following a zero rate in February. The require excessively high deposits from fear of inflation was replaced by fear of a first‑time buyers. deflationary environment which would be unhelpful in encouraging consumer The Government as majority spending. shareholder of the main lenders is now exerting pressure on them to offer The toxic assets held by the banks a more reasonable loan-to-value on worldwide continued to wreak havoc on new mortgages. their own share prices and their ability and willingness to offer a viable banking The Government is also offering direct system. Many financial institutions failed help with deposits to first-time buyers or were near to failure before being by way of a scheme in partnership with taken over by more secure institutions house builders, who have seen a sharp or government intervention. In the UK, recovery in their share prices on the back banks rushed to prop up their balance of recent optimism. sheets by way of rights issues. Government The Bank of England, with little scope intervention was initially in taking up those remaining on interest rates, has now rights not taken up by the institutional and introduced a modified form of monetary private investors. However, it soon became easing called quantitative easing. Simply apparent that further help was necessary. put, this method involves the Bank of The UK government launched an Asset England creating money to purchase Protection Scheme (APS) designed to limit government gilts and corporate bonds the losses of future toxic assets on bank held by the market. It is not dissimilar to balance sheets. In return the Government printing money but is done electronically. took a further tranche of shares in the So far the bank has announced that it will banks. Following the APS the Government inject £125 billion into the economy by way became the majority shareholder in of quantitative easing. This comes on top RBS and Lloyds (which had recently of the direct cost of the APS which was rescued HBOS). initially estimated at £37 billion, but which Despite the fall in house prices and the is expected to exceed that figure. ultra-low base rate, first time buyers The oil price, as was widely reported in still found it virtually impossible to get the media, hit an all time high of $145 onto the housing ladder. The quality on 3 July 2008, following a prolonged of lenders’ loan books continued to period of very high demand and very
%
5.000
4.500
4.000
3.500
10 year UK Gilt Yield 2.953
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 2008 2009
29 strong performance. However, when not quite so dire as initially feared, yet worries of a global credit crisis hit, the it remains to be seen if there will be oil price reacted accordingly, and by further casualties. December had collapsed to $34 – just 24% of its value only five months previously. A The UK equity market returned a loss of slight recovery was made in January, and 29% over the period and the price earnings the oil price ended the financial year at ratio fell from 11 times to 8.8 times. If we $47. Some stability has since been found were to believe that forecast earnings are in the 45 to 55 dollar level. Brokers and a true reflection then that would make analysts forecasts remain at around $70 the UK market appear cheap. Dividend longer term. Should the recession not yield rose from 4% to 5.1%. Whilst the hit as hard globally as was first feared, or economy may not be in recovery phase should recovery be quicker than originally yet, equity markets are forward looking expected, then it is likely that the oil and to some extent earnings forecasts price will pick up sooner rather than later. have already been reduced severely. The initial encouraging signs of a calmer During the coming year we would expect situation in Iraq will serve to make the oil some earnings forecasts and dividend price less volatile overall and may prevent yields to be cut further, but it could be it from reaching as high a price as it did in argued that forecasts in some sectors summer 2008. In the meantime, because are reasonable, and therefore valuations valuations of oil companies have been look cheap. The credit crunch has forced relatively very cheap (including the effect many companies to come to the market of the weak pound), many smaller stocks to strengthen their balance sheets. With are being seen as possible bid targets for less debt going forward those who have larger overseas companies. been successful in launching rights issues should be well placed when the economic On the consumer On the consumer front, cheaper petrol recovery occurs. The equity market rallied front, cheaper and energy prices helped, and worries towards the end of the period and it is not petrol and of a disastrous collapse in consumer certain that the direction of the market energy prices spending proved to be overdone, most will continue to be upwards. But the helped, and notably in the Food Retail sector. Spending downside risk is now probably less than worries of a fell considerably in certain areas such as the upside risk. disastrous electricals, but clothing and food held collapse in up remarkably well. Food in particular The World Equity Index fell 22% in sterling consumer was a very strong performer. Consumers terms. This very poor performance spending proved shunned restaurants in favour of buying would have been worse but for the to be overdone... ingredients to cook at home. There was large depreciation of sterling, which fell an element of trading down, both to by 14% against the Euro and by 28% discount supermarkets such as Aldi, and against both the US dollar and Japanese from premium products and ‘best’ ranges Yen. It was a story of two halves: pre to stores’ own brands, but overall growth Lehman’s on 15th September 2008 and the was good and the future remains positive. credit crisis afterwards. In General (non-food) retail, again some The Index started the year fairly well but element of trading down was noted, and then crashed after Lehman’s collapse in there has been a definite shift to internet September, falling 25% in the next four clothes shopping in the past twelve weeks before recovering to December. months. Retailers such as ASOS have A new-year rally lasted only a few days grown extremely strongly, at a time when before the grim economic downgrades hit high-street retailers have seen minimal home and the market fell 21% to its trough growth. We saw the demise of well known in March, from where it and every other high-street retailers such as Woolworths market bounced 14% to the year end. in the course of the year, and it is possible that other stores may follow suit in the Within this the US fell 16%, Japan fell next twelve months. Prospects are perhaps 10%, Europe fell 34% (due partly to a
30 Investment report
smaller currency benefit) and Asia fell lose their investment. This led to knock-on 26%. Emerging markets were also weak fears of which company would be next, with Latin America down 27% due to its and over the subsequent week the share exposure to falling commodity prices, price of Lehman’s, once seen as a rock‑solid and Eastern Europe fell 53% due to global investment bank, fell from $15 to both political fears over Russia and the under $4 as depositors withdrew their economic impact of a lower oil price, money, causing it to run out of cash. In which had peaked in July. China also fell what came to be seen as a grave error of back, as investors realised that without judgement the US authorities decided growth in spending in the West, not even not to rescue it and on Monday 15th China was immune to the impending September it went bankrupt. It was felt recession. Small and mid-sized companies that as it was not a high street name with generally performed similarly to the large public deposits it would not cause a crisis caps although with some volatility. This of confidence and that its counterparties, was due to the realisation that even a all market professionals and other financial large cap company with too much debt organisations, would be able to cope was also in trouble due to the worsening with the fallout. Unfortunately they were financial crisis. wrong. Lehman’s was closely involved in Lehmans was a huge number of loans and derivative closely involved On overseas markets, in sector terms transactions, often as one link in a long in a huge the traditionally defensive areas such as chain, and its failure broke all those number of loans healthcare, beverages and tobacco, food chains. Everyone in the financial system and derivative retailing, telecom services and other immediately lost faith in everyone else transactions, utilities did well. Pharmaceuticals were and stopped lending money, except to often as one link actually up in both Europe and America, their national governments. Other mergers in a long chain, outperforming the index by over 30%. The were announced immediately to create and its failure worst sectors were anything financial and a smaller number of stronger banks. The broke all those real estate or construction related, closely retail bank, Bank of America, bought the chains. followed by the industrial and capital investment bank Merrill Lynch; this also good manufacturers. The latter were hit allowed the combined group to access by the recession and destocking causing a funding from the Federal Reserve Bank huge fall in orders. Some companies saw which is only available to retail banks. sales in the final three months of 2008 fall to almost zero. The wave rolled through the financial system to insurance companies which The credit crisis went from being the big were large investors in these bonds and story last year to almost the only story some had also insured the asset-backed this year, developing from a credit crunch securities against losses. The largest to a full blown global banking crisis. Bear insurer in this business was AIG of America Sterns had been rescued last March by and it also had to be rescued by the US JP Morgan but as the US housing market Government; a $40 billion share issue continued to collapse – falling another again gave it 80% of the shares. All banks 18% after a 14% drop in 2008 – the values have continued to declare bad debts as the of mortgage-backed securities continued crisis continues. Part of the problem is that to plummet, causing more fund failures as investors are unsure of the quality and and write-offs at banks. This culminated in credit backing of many of these securities September when the two main mortgage there is simply no market in them, which agencies in the US (Fannie Mae and makes them very difficult to price. Hence Freddie Mac) began to fail, with over $3 a small forced sale at a low price can cause trillion of loans. Over the weekend of all holders to value billions of dollars of the 7th the US Government took an 80% securities at that low price even though stake in both, effectively taking them over. the underlying assets may be worth more. While the Government guaranteed the It is this continuing uncertainty and fear mortgage backed securities, it allowed the which is maintaining the credit crunch, ordinary and preference shareholders to
31 as well as the write-offs forcing banks to 0.6%. This was exaggerated even more in reduce lending as their capital falls. Central corporate bonds where yields exploded at Banks are aware of the problem and both the end of 2008 as there was huge forced the US and UK announced programs to selling from banks closing down their buy such assets from the banks or insure dealing desks to reduce risk, and long-term them against further losses. The US is investors were too uncertain to commit also subsidising new lending, especially more money to the market. It was possible for consumer credit and car finance in an to buy bonds of companies such as BATS attempt to restart the economy. or Enel, the Italian electricity company, at yields of over 7%. While major bankruptcies and rescues first appeared in America, the rest of the world After a huge rise in 2007/08, commodity was not immune with a number of bank prices fell back sharply this year. Oil rescues in Europe as well. continued to rise for a few months but then joined all the other commodities All of this clearly had an effect on falling sharply, especially after September. business and consumer confidence. The The obvious reason was the impending desperate search for cash by banks led to recession causing lower demand, all companies reducing their inventory especially for the industrial metals such levels. Some companies simply cancelled as copper and steel. It also transpired their orders for three months. This that a lot of speculative investment caused massive falls in manufacturing money had gone into the sector on the output, short-time working, layoffs and rise, and when these funds had to pay Rising redundancies. Rising unemployment back the banks they sold out quickly, unemployment and falling house prices are not good for driving prices down heavily. The Goldman and falling economic growth so for the first time ever Sachs Industrial Metals Index fell 54%. house prices it is likely that global GDP will fall this year, Agricultural products also fell by 29% after are not good driven by substantial falls of 3–4% in the a 63% rise the year before. Again there was for economic West. The offsetting factor was the speed a reduction of speculative demand and growth so for the with which central banks cut interest rates: as crude oil prices fell back to $40 there first time ever from 4% to 1.5% in Europe, and 2.25% to it is likely that was much less biofuel related buying. 0.25% in the US as they continued to cut The retracement has been generally global GDP will rates. These cuts were unprecedented in fall this year... beneficial in the emerging markets where both scale, speed and global coordination, food poverty had become a serious finishing at all time lows. concern during 2007. It has also reduced The benefit to consumers in lower interest headline inflation numbers allowing payments has helped, as have lower fuel these countries to follow the West in prices. Government bond yields followed cutting interest rates to stimulate their official rates down with 10 year German economies. Oil fell 52% which clearly had yields falling from 4% to 3% and US different impacts depending on whether falling from 3.4% to 2.7%. There was in or not countries were net exporters, such fact a huge fall in November: US yields as Russia or Brazil. The precious metals reached 2% as investors sought the safety were interesting and again revealed the of government‑backed paper. Yields then disparity between economic newsflow and began to rise as investors calmed down financial fears. After sharp rises the year and began to worry about the long-term before, silver fell 27% and platinum fell inflation implications of the enormous 45%, hurt by the collapse in car sales and global stimulus packages being unveiled. hence exhaust catalysts. However while A sign of the dislocation and panic in gold also fell in the first half it became a financial markets was that the extra yield ‘safe haven’ after September, and after the spread from owning Italian or Greek bonds peak in government bonds in November it (seen as slightly riskier than Germany) rose bounced strongly as a traditional protector from 0.4% to 1.4% and from 0.45% to 2.7% against inflation. for Greece. Even France rose from 0.2% to
32 Investment report
33 Analysis of investments held at 31 March 2009
United Kingdom
Book cost Market value £m £m %
Quoted
Fixed interest Public sector bonds 377.6 412.9 7.0 Corporate bonds 121.1 94.3 1.6 Index-linked Public sector 298.4 352.0 6.0 Corporate 22.6 28.0 0.5 Ordinary and convertible shares (equities) 1,562.4 1,869.4 31.8 Unit trusts Property 166.5 209.3 3.6 Other 43.6 56.7 1.0 Fund of Hedge Funds 310.0 292.2 5.0 Currency Funds 89.7 90.0 1.5
Unquoted
Cash deposits 320.3 320.3 5.4 Private equity 51.4 72.3 1.2 Sub-total UK 3,363.6 3,797.4 64.6
Foreign
Quoted
Fixed interest Public sector bonds 67.4 96.0 1.6 Corporate bonds 43.8 39.9 0.7 Index-linked Public sector 76.6 102.9 1.7 Corporate 0.8 0.6 0.1 Ordinary and convertible shares (equities) 1,174.9 1,341.9 22.8 Unit trusts Property 20.5 23.6 0.4 Other 168.2 264.4 4.5
Unquoted
Private equity 155.2 214.0 3.6
Sub-total foreign 1,707.4 2,083.3 35.4
Total 5,071.0 5,880.7 100.0
34 Investment report
Analysis of UK equity investments as at 31 March 2009
Cost Market value Number of £m % £m % companies Oil and gas producers 230.2 14.7 407.4 21.8 9 Oil equipment and services 10.9 0.7 9.0 0.5 7 Chemicals 2.1 0.1 6.0 0.3 3 Forestry and paper 0.9 0.1 0.9 0.1 1 Industrial metals and mining 2.7 0.2 1.3 0.1 1 Mining 109.7 7.0 169.8 9.1 13 Construction and materials 6.7 0.4 7.5 0.1 4 Aerospace and defence 31.8 2.0 44.1 2.3 9 General industrials 13.6 0.9 11.3 0.6 6 Electronic and electrical equipment 9.5 0.6 5.7 0.3 10 Industrial engineering 11.0 0.7 11.2 0.6 14 Industrial transportation 3.3 0.2 2.5 0.1 3 Support services 52.8 3.4 54.2 2.9 24 Automobiles and parts 0.7 0.1 0.4 0.1 1 Beverages 23.6 1.5 53.0 2.8 2 Food producers 13.4 0.9 48.0 2.6 6 Household goods 19.9 1.3 42.5 2.3 7 Personal goods 0.9 0.1 2.2 0.1 1 Tobacco 33.1 2.1 82.8 4.4 2 Healthcare equipment and services 3.4 0.2 9.0 0.5 4 Pharmaceuticals and biotechnology 76.3 4.9 173.0 9.3 4 Food and drug retailers 28.3 1.8 70.4 3.8 4 General retailers 25.7 1.6 31.5 1.7 18 Media 83.4 5.3 50.6 2.7 15 Travel and leisure 55.5 3.5 45.2 2.4 21 Fixed-line telecommunications 52.6 3.4 16.2 0.9 3 Mobile telecommunications 149.1 9.5 124.2 6.6 2 Electricity 14.9 1.0 27.6 1.5 3 Gas, water and multiutilities 32.9 2.1 58.0 3.1 5 Banks 228.0 14.6 138.7 7.4 5 Non life insurance 19.5 1.2 20.1 1.1 8 Life insurance 76.3 4.9 44.1 2.4 7 Real estate Investment Services 3.0 0.2 3.6 0.2 2 Real Estate Investment Trusts 22.9 1.5 17.8 1.0 9 Financial Services 40.0 2.6 27.4 1.5 15 Equity Investment Instruments 35.5 2.3 33.0 1.8 22 Software and computer services 20.4 1.3 13.8 0.7 9 Technology hardware and equipment 17.9 1.1 5.4 0.3 8 Totals 1,562.4 100.0 1,869.4 100.0 287
35 Analysis of overseas equity investments as at 31 March 2009
Country Book cost Market value Number of £m £m companies
Australia 54.1 79.2 57 Austria 4.3 6.0 8 Belgium 1.5 0.4 2 Canada 24.1 22.7 5 Denmark 7.7 9.5 8 Ireland 14.7 11.3 15 Finland 15.3 16.2 13 France 57.4 85.5 29 Germany 45.1 62.5 32 Greece 6.1 3.3 13 Hong Kong 62.0 74.8 59 India 8.2 9.8 4 Indonesia 3.6 4.9 7 Italy 42.8 32.1 32 Japan 253.6 222.1 95 Korea 34.5 52.4 29 Malaysia 12.3 14.5 15 Netherlands 27.2 32.1 17 Norway 15.4 20.0 21 Philippines 9.0 9.6 7 Portugal 5.9 6.4 12 Singapore 21.6 23.4 21 South America 12.2 29.9 15 Spain 50.9 79.7 25 Sweden 30.9 31.4 31 Switzerland 33.7 74.0 16 Taiwan 32.3 27.3 18 Thailand 11.8 17.3 12 United States 221.4 227.0 96 Other International 55.3 56.5 28
Totals 1,174.9 1,341.9 742
36 Investment report
List of twenty largest investment holdings as at 31 March 2009
Company Market value Percentage of total fund
£000 %
BP 197,086 3.35 Royal Dutch Shell 121,380 2.06 Vodafone 120,223 2.04 Glaxo SmithKline 105,258 1.79 HSBC Holdings 77,240 1.31 BHP Billiton (UK) 67,350 1.15 Astra Zeneca 63,575 1.08 BG Group 62,846 1.07 British American Tobacco 53,794 0.91 Tesco 51,944 0.88 Rio Tinto 44,283 0.75 Diageo 35,668 0.61 Reckitts 32,333 0.55 Unilever 30,383 0.52 National Grid 29,946 0.51 Imperial Tobacco 29,010 0.49 Anglo American 25,817 0.43 Telefonica (Spain) 24,731 0.42 Jupiter India Unit Trust (India) 24,207 0.41 Standard Chartered 23,504 0.40
20.73
37 Actuary’s report 9 Accounts for the year ended 31 March 2009
Statement by Consulting Actuary In practice, each individual employer’s position is assessed separately and the An actuarial valuation of the West contributions required are set out in our Yorkshire Pension Fund was carried out report dated 31 March 2008. In addition to as at 31 March 2007 to determine the the contribution rates shown, payments contribution rates with effect from 1 April to cover additional liabilities arising from 2008 to 31 March 2011. The results of the early retirements (other than ill-health valuation are contained in our report dated retirements) will be made to the Fund by 31 March 2008. The valuation allowed for the employers. the new look LGPS benefit structure which was introduced from 1 April 2008. The funding plan adopted in assessing the contributions for each individual employer On the basis of the assumptions adopted, is in accordance with the Funding the valuation revealed that the value of Strategy Statement (FSS). Different the Fund’s assets represented 90% of the approaches adopted in implementing accrued liabilities Funding Target at the contribution increases and deficit recovery valuation date. The valuation also showed periods are as determined through the that a common rate of contribution of FSS consultation process. For certain 13.2% of pensionable pay per annum was employers, in accordance with the FSS, required from employers. The common an increased allowance has been made rate is calculated as being sufficient, for assumed investment returns on together with contributions paid by existing assets and future contributions, members, to meet all liabilities arising in for the duration of the employer’s respect of service after the valuation date. deficit recovery period. Adopting the same method and assumptions as used for assessing the Funding Target the deficit would be The valuation was carried out using the eliminated by an average additional projected unit actuarial method and contribution rate of 2.6% of pensionable the main actuarial assumptions used pay for 22 years. This would imply an for assessing the funding target and the average employer contribution rate of common contribution rate were as follows: 15.8% of pensionable pay in total.
38 Actuary’s report
Main actuarial assumptions For past service For future service liabilities liabilities Rate of return on investments: pre retirement 6.9% per annum 6.5% per annum post retirement 5.4% per annum 6.5% per annum Rate of pay increases 4.85% per annum 4.5% per annum Rate of increases in pensions in payment 3.1% per annum 2.75% per annum (in excess of Guaranteed Minimum Pension)
The assets were assessed at market value. Full details of the assumptions adopted for the valuation are set out in the actuarial valuation report. The valuation results as summarised above are based on the financial position and market levels at the valuation date, 31 March 2007. As such the results do not make allowance for the significant market falls which have occurred subsequent to the valuation date. A Funding Review update of the 2007 valuation has also been prepared as at 31 March 2008. The method and assumptions adopted for this interim review were consistent with those used for the 2007 valuation, and in accordance with the WYPF Funding Strategy Statement. The update showed a deterioration in funding level to 76% at the review date. The next triennial actuarial valuation of the Fund is due as at 31 March 2010. Based on the results of that valuation, the contribution rates payable by the individual employers will be revised with effect from 1 April 2011.
C R Hull Fellow of the Institute of Actuaries Mercer Limited May 2009
39 Audit report
Independent auditor’s report to the members of City 10 of Bradford Metropolitan District Council
I have audited the pension fund accounts regulatory requirements and International for the year ended 31 March 2009. The Standards on Auditing (UK and Ireland). pension fund accounts comprise the Fund Account, the Net Assets Statement and the I report to you my opinion as to whether related notes. The pension fund accounts the pension fund accounts present fairly, have been prepared under the accounting in accordance with relevant legal and policies set out in the Statement of regulatory requirements and the Code of Accounting Policies. Practice on Local Authority Accounting in the United Kingdom 2008, the financial This report is made solely to the members transactions of the pension fund during of City of Bradford Metropolitan District the year and the amount and disposition Council in accordance with Part II of the of the fund’s assets and liabilities, other Audit Commission Act 1998 and for no than liabilities to pay pensions and other other purpose, as set out in paragraph benefits after the end of the scheme year. I 49 of the Statement of Responsibilities of also report to you whether, in my opinion, Auditors and of Audited Bodies prepared the information which comprises the by the Audit Commission. commentary on the financial performance included within the Pension Fund Annual Respective responsibilities of the Report, is consistent with the pension fund Strategic Director of Corporate accounts. That information comprises: Services and the auditor • Section 1 – Foreword The Strategic Director of Corporate • Section 3 – Pension administration Services is responsible for preparing the review pension fund accounts, in accordance • Section 4 – Membership trends with relevant legal and regulatory • Section 8 – Investment report requirements and the Code of Practice on • Section 9 – Actuary’s report Local Authority Accounting in the United • Section 10 – Audit report Kingdom 2008. In preparing this pension fund accounts, the Responsible Financial • Section 11 – Accounts. Officer is responsible for: I review whether the governance • selecting suitable accounting policies compliance statement published and then applying them consistently; in the Pension Fund Annual Report • making judgments and estimating that reflects compliance with the were reasonable and prudent; requirements of Regulation 34(1)(e) of • keeping proper accounting records the Local Government Pension Scheme which were up to date; and (Administration) Regulations 2008 and related guidance. I report if it does not • taking reasonable steps for the meet the requirements specified by prevention and detection of fraud and the Department of Communities and other irregularities. Local Government or if the statement My responsibility is to audit the pension is misleading or inconsistent with other fund accounts and related notes in information I am aware of from my audit accordance with relevant legal and of the financial statements. I am not
40 Audit report
required to consider, nor have I considered, whether caused by fraud or other whether the governance statement irregularity or error. In forming my opinion covers all risks and controls. Neither am I also evaluated the overall adequacy of I required to form an opinion on the the presentation of information in the effectiveness of the Authority’s corporate pension fund accounts and related notes. governance procedures or its risk and control procedures. Opinion I read other information published In my opinion: with the pension fund accounts and related notes and consider whether it • the pension fund accounts and related is consistent with the audited pension notes present fairly, in accordance with fund accounts. This other information the Code of Practice on Local Authority comprises the remaining elements of the Accounting in the United Kingdom Pension Fund Annual Report. I consider 2008, the financial transactions of the the implications for my report if I become Pension Fund during the year ended aware of any apparent misstatements or 31 March 2009, and the amount and material inconsistencies with the pension disposition of the fund’s assets and fund accounts and related notes. My liabilities as at 31 March 2009, other than responsibilities do not extend to any other liabilities to pay pensions and other information. benefits after the end of the scheme year; and Basis of audit opinion • the information given in the commentary on financial performance I conducted my audit in accordance with included within the Pension Fund the Audit Commission Act 1998, the Code Annual Report is consistent with the of Audit Practice issued by the Audit pension fund accounts. Commission and International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes Paul Lundy examination, on a test basis, of evidence District Auditor relevant to the amounts and disclosures Kernel House in the pension fund accounts and related Killingbeck Drive notes. It also includes an assessment of Leeds the significant estimates and judgments LS14 6UF made by the Authority in the preparation September 2009. of the pension fund accounts and related notes, and of whether the accounting policies are appropriate to the Authority’s circumstances, consistently applied and adequately disclosed. I planned and performed my audit so as to obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give reasonable assurance that the pension fund accounts and related notes are free from material misstatement,
41 Accounts 11 The Statement of Accounts
The City of Bradford Metropolitan Statement of Accounting Policies District Council (Bradford Council), as administering authority for West The financial statements have been Yorkshire Pension Fund, is required prepared in accordance with the revised to make arrangements for the proper Code of Practice on Local Authority administration of its financial affairs, and Accounting in the United Kingdom 2006: to secure that one of its officers has the A Statement of Recommended Practice responsibility for the administration of published by the Chartered Institute those affairs. In this authority, that officer is of Public Finance and Accountancy, the Strategic Director (Corporate Services). which requires that the Fund’s accounts should conform with the Statement of Recommended Practice: Financial The Strategic Director (Corporate Services) Reports of Pension Schemes (Revised is responsible for the preparation of the 2007) as approved by the Accounting Statement of Accounts which is required Standards Board. to present fairly the financial position of the Fund at 31 March 2009 and its income The financial statements summarise the and expenditure for the year ended transactions of the scheme and deal with 31 March 2009. the net assets at the disposal of West Yorkshire Pension Fund. They do not take In preparing this Statement of Accounts, account of obligations to pay pensions the Strategic Director (Corporate Services) and benefits that fall due after the end of has issued a Code of Practice for all finance the scheme year. The actuarial position of officers employed by the Council and a the Fund, which does take account of such manual on the practices to be adopted in obligations, is dealt with in the statement the preparation of the year-end accounts. by the Actuary in his report, and these These documents set out arrangements financial statements should be read in for ensuring the accounts are maintained conjunction with it. in a consistent and prudent manner in line with suitable accounting principles. Investments Listed investments are shown at Bid Prices. The Bid Value of the investments is based on the Bid Market quotation of the relevant stock exchange. Property Funds are valued at closing bid price. The values of investments in private equity are based on valuations provided by the general partners to the private equity funds in which WYPF has invested. These valuations accord with guidelines provided by the British Venture Capital Association. The values of investments in Fund of
42 Accounts
Hedge Funds and Currency Funds are Contributions based on the net asset values provided by the fund of hedge fund managers Contributions are accounted for when due. and currency fund managers as at Employers have met the indirect costs 31 March 2009. of early retirement. Some have chosen to do this by paying extra Employers’ Additional Voluntary Contributions. The rest have been Contributions (AVCs) recharged and the income received is made up of both one-off lump sum In line with Regulation 5(2)(b) of the payments and instalments where the Local Government Pension Scheme employer has chosen to spread the cost. (management and Investment of Funds) Regulations 1998, AVCs are not shown AVCs are accounted for when due, in the in the Fund Account and Net Assets same way as other contributions. Statement. Details of AVC investments are, however, included in the commentary in Expenditure the ‘Investment Report’ and in the ‘Notes to the Accounts’ (Note 4). No account is taken of long-term liabilities to pay benefits. AVC investments are valued by the Equitable Life Assurance Society and Accruals have been included for lump Scottish Widows. Those AVC funds that sum benefits arising but not paid until the relate to the with profits fund are valued at following year. contributions. The value of the unit-linked fund element is based on the bid price of the relevant fund at the year-end date.
Currency translation Assets and liabilities in foreign currency are translated into sterling at exchange rates ruling at the financial year-end. Any gains or losses arising are treated as part of the change in market value of investments.
Transfers Transfer Values represent amounts received and paid during the period for individuals and bulk transfers that came into or left the Fund.
Investment income Investment income is accounted for when received except that interest due on fixed‑interest securities, index-linked securities and short-term investments is accounted for on an accruals basis, and income from UK equities is accounted for on the date when stocks are quoted ex‑dividend.
43 44 Accounts
Fund account for the year ended 31 March 2009
2007/8 Note 2008/9 Restated £’000 £’000
Contributions and benefits Contributions receivable 1 327,820 299,581 Transfers in 2 35,292 33,169 Other income 68 156 Non-statutory pensions and pensions increases recharged 3 18,681 18,671 381,861 351,577
Benefits payable 5 302,964 284,471 Non-statutory pensions and pensions increase 3 18,681 18,671 Leavers 6 24,214 18,913 Administrative and other expenses borne by the scheme 7 5,214 5,212 351,073 327,267
Net additions from dealings with members 30,788 24,310
Returns on investments Investment income 8 226,365 219,354 Change in market value of investments 9 (1,535,923) (339,627) (realised and unrealised) Stock lending 10 1,509 1,828 Underwriting commission 1 0 Investment management expenses (1,585) (1,491)
Net return on investments (1,309,633) (119,936) Net (decrease)/increase in the Fund during the year (1,278,845) (95,626) Opening net assets of the Fund 7,210,331 7,305,957 Closing net assets of the Fund 5,931,486 7,210,331
45 Net Assets Statement at 31 March 2009
2007/08 Note 2008/09 Restated £’000 £’000
Investments 9 Fixed Interest securities 643,160 592,645 Equities (including convertible shares) 3,497,591 4,678,827 Index-linked securities 483,530 438,076 Pooled funds 936,180 1,108,516 Other – sterling deposits 320,289 323,050 Other investment balances 23,870 4,290
Investments at market value 31 March 5,904,620 7,145,404
Current assets and liabilities Debtors 11 29,966 73,972 Creditors (8,504) (10,685) Cash in hand 5,404 1,640
Net current assets and liabilities 26,866 64,927 Net assets of the Fund at 31 March 5,931,486 7,210,331
Becky Hellard Strategic Director – Corporate Services City of Bradford Metropolitan District Council
46 Accounts
Notes to the accounts 1. Contributions receivable
2008/09 2007/08 £’000 £’000 Employers’ contributions Normal 163,895 149,939 Deficit funding 35,862 33,814 Augmentation 1,270 1,704 Other 21,995 20,510 223,022 205,967 Employees’ contributions 104,798 93,614 327,820 299,581
Employers are required to pay contributions at a rate set by the Fund’s Actuary at three-yearly intervals. The Employers’ contributions for 2008/09 reflect the Rates set for the three financial years 2008/2009 to 2010/11 arising from the 2007 actuarial valuation. For 2008/09, employees’ contributions are as set out in the new LGPS from 1 April 2008, and there are several tiered employee contribution rates starting with 5.5% payable by employees with salaries up to £12,000 a year, and the highest rate is 7.5% to be paid on salaries over £75,000 a year. The Fund has made provision for employees to make additional voluntary contributions (AVCs) under AVC Schemes with Equitable Life and Scottish Widows. All contributions by employees to the AVC Schemes are made direct to Equitable Life and Scottish Widows, further details of which are shown at Note 4.
2. Transfers in
2008/09 2007/08 £’000 £’000 Individual transfers in from other schemes 27,281 32,209 Bulk transfers in from other schemes 8,011 960 35,292 33,169
47 Notes to the accounts 3. Non-statutory pensions and Pensions Increase recharged
2008/09 2007/08 £’000 £’000 Pensions 18,681 18,414 Lump sums 0 257 18,681 18,671
The costs of added years granted by participating employers for early retirement together with associated inflation-proofing costs are reimbursed to the Fund, by the employer, out of current revenues. Costs of annual inflation proofing for non-participating employers are also recharged.
4. AVC scheme with Equitable Life and Scottish Widows Details of AVC transactions are as follows:
2008/09 2007/08 £’000 £’000 Income Contributions received 896 1,027 Transfer values 239 329 Internal transfers from other policies 0 16 1,135 1,372
Expenditure Life assurance premiums 5 5 Retirement benefits 864 623 Leavers (transfers and withdrawals) 1,147 1,257 Deaths 50 60 Refunds/surrenders 1 3 Contributions received not used to 0 1 purchase benefit 2,067 1,949
48 Accounts
Notes to the accounts 5. Benefits payable
2008/09 2007/08 £’000 £’000 Pensions Funded pensions – retired employees 206,113 188,724 Funded pensions – dependants 19,783 19,047 225,896 207,771 Lump sums Funded lump sums on retirement 70,503 71,766 Funded lump sums on death 6,565 4,934 302,964 284,471
For participating employers all basic pensions plus the costs of annual inflation proofing are met from the assets of the Fund. Details of AVC benefits are shown at Note 4.
49 Notes to the accounts 6. Leavers
2008/09 2007/08 £’000 £’000 Refunds of contributions 78 367 Individual transfers 24,136 18,546 24,214 18,913
All transfer values paid during the year were calculated either in accordance with the provisions of the Local Government Pension Scheme Regulations, or where applicable, in the manner required by Chapter IV of Part IV of the Pension Schemes Act 1993. Where both methods of calculation could be applied, the higher amount was paid in all cases. Details of AVC Refunds and Transfers are shown at Note 4.
7. Administrative expenses
2008/09 2007/08 £’000 £’000 Administration and processing 4,936 4,892 Actuarial fees 209 279 Audit fee 69 41 5,214 5,212
8. Investment income
2008/09 2007/08 £’000 £’000 Income from fixed-interest securities 33,432 32,886 Dividends from equities 158,087 153,744 Income from index-linked securities 9,893 7,279 Income from pooled funds 12,979 11,822 Interest on cash deposits 15,577 16,744 229,968 222,475 Irrecoverable withholding tax (3,603) (3,121) 226,365 219,354
50 Accounts
Notes to the accounts 9. Investments
Opening value at Investments Purchases Sales Change in Closing value 01.04.08 cost proceeds MV at 31.03.09 Restated £’000 £’000 £’000 £’000 £’000 Fixed-interest securities 592,645 126,101 (106,680) 31,094 643,160 Equities 4,678,827 378,736 (256,941) (1,303,013) 3,497,591 Index-linked securities 438,076 97,220 (60,582) 8,816 483,530 Pooled funds 1,108,516 123,325 (22,859) (272,802) 936,180 Cash deposits 323,050 0 (2,761) 0 320,289 Other Investment 4,746 0 28,271 0 33,017 Debtors Other Investment (456) (8,691) 0 0 (9,147) Creditors Totals 7,145,404 716,691 (421,552) (1,535,923) 5,904,620
The change in market value of investments during the year comprises all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments during the year. Due to a revision in the SORP, assets and liabilities arising through dealings with investment balances are now disclosed as Other Investment Balances and not as part of current assets as had previously been the case prior to the SORP revision.
51 Notes to the accounts
2007/08 2008/09 Restated £’000 £’000 Fixed interest securities UK public sector quoted 412,928 383,492 UK Other quoted 94,313 94,905 Overseas public sector quoted 95,985 84,054 Overseas other quoted 39,934 30,194 643,160 592,645 Equities UK quoted 1,869,462 2,727,807 UK unquoted 72,250 87,581 Overseas quoted 1,341,833 1,725,316 Overseas unquoted 214,046 138,123 3,497,591 4,678,827 Index linked securities UK Public sector quoted 352,040 331,793 UK Other quoted 28,001 29,523 Overseas public sector quoted 102,919 76,760 Overseas other quoted 570 – 483,530 438,076 Pooled fund Currency funds 90,031 20,088 Fund of hedge funds 292,198 307,042 Property 232,885 338,178 Other 321,066 443,208 936,180 1,108,516 Cash deposits Sterling 320,289 323,050
AVC investments The Fund provides an AVC Scheme for its contributors, the assets of which are invested separately from the main Fund. The scheme providers are Equitable Life Assurance and Scottish Widows whereby additional benefits are secured on a money purchase basis for those contributors electing to pay additional voluntary contributions. The aggregate amounts of AVC investments are:
2008/09 2007/08 £’000 £’000 Equitable Life 4,749 5,065 Scottish Widows 11,697 13,548 16,446 18,613
52 Accounts
Notes to the accounts 10. Stock lending
2008/09 2007/08 £’000 £’000 Stock lending fixed interest 105 182 Income UK equities 418 609 International equities 1,164 1,213 1,687 2,004 Less – costs 178 176 1,509 1,828
As at 31 March 2009, £680.0 million of stock was on loan to market makers, and this was covered by collateral totalling £719.3 million (which includes an appropriate margin) comprising Bonds (£194.7 million), Government Bonds (£128.1 million), Stocks and Shares (£351.0 million), Certificates of Deposit (£37.9 million) and Cash (7.6million).
11. Debtors
2008/09 2007/08 £’000 £’000 Contributions due from Employers 24,002 21,041 Accrued Income 0 45,330 Other Debtors 5,964 7,601 29,966 73,972
Due to a revision in the SORP, assets and liabilities arising through dealings with investment balances are now disclosed as Other Investment Balances within the Investments Section (Note 9). No adjustment has been made regarding prior years as the amounts concerned are not considered material in the context of that year’s asset balances.
53 Notes to the accounts 12. Funding levels The annual funding level of WYPF was as follows:
As at 31 March 2004 – full actuarial valuation 82% As at 31 March 2005 – interim review 84% As at 31 March 2006 – interim review 91% As at 31 March 2007 – full actuarial valuation 90% As at 31 March 2008 – interim review 76%
13. Prior Period Adjustment A prior period adjustment has been made in the accounts in respect of a change in accounting policy in the year. The SORP Financial Reports of Pension Schemes was revised in May 2007 and the revisions became applicable to WYPF during the year ended 31 March 2009. WYPF has changed its accounting policy regarding the valuation of Investment Balances to incorporate the revised SORP requirements. Where applicable, Investment Assets previously valued at Mid Market Value are now valued at Bid Price. The following table summarises the adjustments made to re-state the 2007–2008 accounts:
2007/08 Effect of 2007/08 adjustment Restated £’000 £’000 £’000 Fund account Change in market value of investments -278,189 -61,438 -339,627 Net return on investments -58,498 -61,438 -119,936 Net decrease in the Fund during the year -34,188 -61,438 -95,626 Opening net assets of the Fund 7,305,957 0 7,305,957 Closing net assets of the Fund 7,271,769 -61,438 7,210,331
Net Asset Statement Equities (including convertible shares) 4,691,699 -12,872 4,678,827 Index-linked securities – UK quoted 443,836 -5,760 438,076 Managed and Unitised funds 1,151,322 -42,806 1,108,516 Investments at market value 31 March 7,206,842 -61,438 7,145,404 Net assets of the Fund at 31 March 7,271,769 -61,438 7,210,331
54 Accounts
55 Resolving complaints 12 Internal Dispute Resolution Procedure Because pensions are such a complicated Further help needed? issue at times it’s inevitable that occasionally disagreements between The Pensions Advisory Service (TPAS) members, employers and WYPF arise. can also help with resolving disputes if both stages of the Internal Dispute When disagreements do happen we do all Resolution Procedure have not provided we can to try to resolve them informally an agreement. and reach an agreement. The Pensions Ombudsman settles disputes But this isn’t always possible and the and investigates complaints that TPAS has scheme provides a formal way for not been able to settle. The Ombudsman’s disagreements to be resolved: the Internal decision is final and binding on all the Dispute Resolution Procedure. parties to a dispute. The Internal Dispute Resolution Procedure is a two-stage process. Policing pension schemes From June 2004, Stage 1 gives scheme The Pensions Regulator was set up members a chance to have a disagreement following the 1995 Pensions Act, replacing reviewed by either the employer or the Occupational Pensions Regulatory WYPF, depending on who the dispute is Authority (OPRA). Its main role is to protect against. The review will be undertaken pension scheme members’ interests and by the person specified by the body it can step in and run schemes when that was responsible for making the employers, professional advisers or original decision being appealed against. trustees or administrators have failed in The member must apply for a review their duties. under Stage 1 within 6 months of the disagreement coming to light. If the scheme member or their employer is not happy with the outcome of the Stage 1 review, they can refer the matter to the Administering Authority for review under the procedure’s second stage.
56 Resolving complaints
57 Further information 13 and contacts
WYPF’s senior management team
Director – West Yorkshire Pension Fund Stuart Imeson Phone: 01274 432317 Fax: 01274 437700 E-mail: [email protected]
WYPF Administration WYPF Investments
Development Manager – Quality Chief Investment Officer (UK) Caroline Blackburn Debra Hopkins/Joanna Wilkinson (job-share) Phone: 01274 434523 Phone: 01274 432318/01274 432038 Fax: 01274 437658 Fax: 01274 308016 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Development Manager – Strategic Yunus Gajra Chief Investment Officer (Overseas) Phone: 01274 432343 Andrew Braid Fax: 01274 437658 Phone: 01274 434219 E-mail: [email protected] Fax: 01274 308016 E-mail: [email protected] Service Centre Group Manager Grace Kitchen Phone: 01274 434266 Fax: 01274 437678 E-mail: [email protected] Operations Group Manager Anne Turley Phone: 01274 437721 Fax: 01274 437624 E-mail: [email protected]
A Minicom text service is available for people with hearing difficulties on 01274 724472 Our offices at Argus Chambers, Britannia House, Hall Ings, Bradford, are open Monday to Friday between 08.45 and 16.30.
58 Further information and contacts
59 West Yorkshire Pension Fund • PO Box 67 • Bradford • BD1 1UP Websites www.wypf.org.uk and www.wypfemployers.org.uk