Annual Report 2018-2019 © Cover Photos: Main Image, Andy Harris - Weymouth Harbour
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Annual Report 2018-2019 © Cover photos: Main image, Andy Harris - Weymouth Harbour © Shutterstock - Left, Cerne Valley. Right, Bournemouth Gardens Contents 2 Introduction and Overview 3 Actuarial Information 51 Appendices 97 Contents | Chairman’s Statement 4 IAS26 Report - Actuarial Valuation Appendix 1 – Governance Policy and Introduction 6 as at 31 March 2016 52 Compliance Statement 98 Key Financial Information 7 Appendix 2 – Investment Strategy Changes to the Fund in 2018-19 7 Governance 59 Statement 108 The Annual Report 8 Pension Fund Committee 60 Appendix 3 – Pension Administration Responsible Investing 8 Local Pension Board 63 Strategy Report 114 Appendix 4 – Funding Strategy Overall Fund Management 9 Pension Fund Accounts 66 Statement 131 The Fund’s Managers 10 Independent Auditors Report 67 Appendix 5 – Communication Policy Other Organisations/Individuals 11 Fund Account 68 Statement 140 Contact and Further information 13 Net Assets Statement 69 Appendix 6 – UK Stewardship Code Notes to the Accounts 70 Principles 148 Financial Performance 14 Appendix 7 – Voting Issues Policy 150 Asset Pools 88 Appendix 8 – Risk Management 156 Investment Performance 16 Brunel Costs and Savings 89 Scheme Administration 22 Other Material 92 The Local Government Pension Scheme 23 Knowledge and Skills 93 The LGPS at a glance 25 Training 93 Scheme Membership 28 Glossary of Terms 95 Scheme Benefits 29 Participating Employers of the Fund 31 Other Scheme Administration Information 42 Introduction and Overview 4 Chairman’s Statement | This is a period of unprecedented nearly 30% of the Fund’s total assets change for the Local Government of £3.0 billion, in the first year of Brunel Pension Scheme (LGPS) nationally. being fully operational. For Dorset it has again been a year dominated by the Government’s Investment Performance requirement for funds to pool The value of the Fund’s assets achieved a investments, in order to improve significant milestone by closing the year at Introduction and Overview efficiency and to reduce costs, whilst just over £3.0 billion for the first time, up maintaining overall investment returns. from £2.85 billion at the start of the year. The Dorset Fund is one of ten pension funds which formed the Brunel Pension The Fund’s annual return on investments Partnership, which itself is one of eight of 6.0% was above the discount rate of such pools across England and Wales. 5.4% set by the Fund’s actuary, but below the combined benchmark return of 7.4%. Brunel Pension Partnership There were a number of contributing Significant progress has been made for factors for this underperformance, the transition of the Fund’s assets to including the costs of transferring Introduction the management of the Brunel Pension investments to Brunel, and the low returns on cash balances that have As Chairman of the Pension Fund Partnership. Over the course of the year, been purposely built up by the Fund in Committee for a fifth year in 2018-19, I the internally managed passive portfolio response to market uncertainty. am pleased to present the Dorset County for UK equities, the global equities Pension Fund’s Annual Report for the under the management of Allianz, and Over the longer term, the Fund returned year ended 31 March 2019. The aim of the UK active equities managed by an annualised 10.6% over the three the report is to highlight the important AXA Framlington were all successfully years to March 2019, compared to the issues affecting the Fund over the last transferred to portfolios developed and benchmark of 10.8%, and an annualised twelve months, as well as providing managed by Brunel. This equates to 8.7% against the benchmark of 8.8% over general information regarding the approximately £800 million transferred five years. pension scheme and its performance. to the pool’s management, representing In March 2019, the Fund Administrator Strategic Asset Allocation 5 Richard Bates, stepped down from his In order to bring holdings in listed | role after nearly five years in the position. equities back closer to the target I would like to thank Richard for all his allocation of 45% there were a number hard work and devotion to the Fund and of disinvestments throughout the year, wish him all the very best for the future. with further disinvestments in 2019/20. It continues to be a challenge to reach target in the more illiquid private Thank You market asset classes, namely property, The continued success of the Fund infrastructure and private equity. depends on the combined efforts of all However, we are now starting to see those involved with the Fund. I would more opportunities becoming available like to thank the Vice-Chairman, Cllr Introduction and Overview through Brunel, as well as our existing Peter Wharf, my fellow Committee specialist managers. members, local pension board members, and external advisers for their Annual Employers Meeting commitment and support over the past year. My sincere thanks also extend The Annual Employers’ Conference was to all the staff who support the Fund held at Springfield House, Wareham in the administration of pensions and in January 2019. The event was well investment management for all their hard attended and featured speakers from the work throughout the year. Fund’s Actuary, the Pensions Regulator and Officers representing the Fund. Committee and Staffing Changes The meeting of the Committee in Cllr John Beesley February 2019 was the last for Councillor Chairman John Lofts after many years of distinguished service, including ten years as Chairman. As I did at the meeting, I would like to thank John again on behalf of myself and the Committee, for his long and valued service to the Fund. 6 Introduction | Dorset Council (DC, the Council) is the set every three years by the Fund’s comprehensive document that enables statutory administering authority for Actuary, Barnett Waddingham LLP. both the public and employees to see the Dorset County Pension Fund (DCPF, These contributions are supplemented how the Fund is managed and how well it the Fund), which is part of the Local by earnings on the Fund’s investments in is performing. Government Pension Scheme (LGPS). order to pay retirement benefits. All aspects of the Fund’s management It is in the interest of both employees and and administration, including investment The day to day running of the Fund is the public that the Fund is well managed matters, are overseen by the Pension delegated to the Fund Administrator and continues to provide high returns Introduction and Overview Fund Committee (PFC), which is who is the Executive Director (Corporate and excellent value for money. a committee of the Council. It is a Development S151) of the Council and contributory defined benefit pension is responsible for implementing the scheme established under statute, which decisions made by the PFC. Supporting provides for the payment of benefits to him is a team of staff split into two employees of DC and former employees sections. The Pension Administration of Dorset County Council and the Team administers all aspects of member admitted and scheduled bodies in the records, pension benefits etc. and the Fund. Separate arrangements are made Treasury and Investments team looks for teachers, fire-fighters and police after the accounting and management officers. information requirements of the Fund. All aspects of the day to day management The purpose of the Fund is to provide of investment funds are undertaken by retirement benefits specified by the external fund managers. LGPS regulations for staff working for local authority employers, and other Publication of this report gives the employers admitted by agreement, in Council the opportunity to demonstrate the Dorset area. The regulations also the high standard of governance and specify the member contribution rates financial management applied to the as a percentage of pensionable pay, Fund. It brings together a number of with employer contribution rates being separate reporting strands into one 7 Key Financial Information | • The total value of the Fund rose by was 83%, an increase from 82% as at further 2.0% commitment to the Brunel £161.7 million (5.6%) over the year and 31 March 2013, with the deficit recovery Secured Income Portfolio of which has reached £3.02 billion as at 31 March period reduced from 25 years to 22 years. £2.9M was also invested in January 2019, compared to the previous year end • Income from contributions has been 2019. Drawdowns against commitments valuation of £2.85 billion. Over the last gradually increasing over the past five will be funded from cash balances and/ five years the market value of the Fund years from £105,331,000 in 2014-15 or further disinvestment from equities has increased by £0.70 million (30.0%). and corporate bonds. to £122,212,000 as at 31 March 2019, Introduction and Overview • The Fund achieved a return on a rise of 16.0%. The pension benefit • CBRE, the Fund Property manager made investments for the 2018-19 financial payments have been steadily rising the following investment commitments year of 6.0%, 1.4% below the benchmark over the same period from 100,022 in 2018-19: return of 7.4% but above the discount in 2014-15 to 120,112 as at 31 March • Purchased Astra House in Harlow rate (or target rate of return) used by the 2019, a rise of 20.1%. for £8.9 million in September 2018 actuary at the last valuation of 5.4%. (see photograph below) which was Changes to the Fund in 2018-19 • The Fund underperformed its previously an office block and has benchmarks over three years with • The internally managed passive UK equity been converted into studios, one- and a performance of 10.6% against its portfolio, and the Allianz managed Global two- bedroom flats; benchmark of 10.8%.