2016/2017 Annual Report & Accounts Pensions Regulator Scheme Registration Number 10079121 East Riding Pension Fund Annual Report and Accounts 2016/2017 contents Section Page Foreword 3 The Local Government Pension Scheme 4 Scheme Management and Advisers 7 Risk Management 9 Financial Performance 22 Investment Policy and Performance 38 Scheme Administration Report 52 Report of the Actuary 55 Actuarial Valuation 58 Governance 59 Statement of Responsibilities 66 Accounts 67 Funding Strategy Statement 92 Statement of Investment Principles 120 Investment Strategy Statement 125 Communication 136 Local Pension Board 139 Auditor Report 142 Contacts 143 contents 2 East Riding Pension Fund Annual Report and Accounts 2016/2017 foreword The Fund was created on the reorganisation of local government in 1974 and East Riding of Yorkshire Council became the Administering Authority on 1 April 1996. At 31 March 2017 the Fund was valued at £4,534.6m, having paid out £144.1m during the year for the benefit of Scheme members. This is an increase in the Fund value of £821m from 31 March 2016, due to significant capital appreciation in the majority of equity markets following the outcome of the US Presidential Election, strength in corporate earnings, and a further improvement in investor risk sentiment. In addition, sterling returns from overseas investments received a significant boost due to the depreciation of the currency in the aftermath of the EU referendum. The Fund also benefited from the strong performance of its internal and external investment managers. At 31 March 2017 the number of employers in the Fund was 257 (2016: 238). The increase during the year was due mainly to the continued conversions of schools to academy status. All employees, other than teachers, of the Administering Authority and the majority of the Scheme Employers are entitled to participate in the Scheme. Employees of Scheme Employers classed as designating bodies, such as town and parish councils, and employees of the 39 Admission Bodies may be nominated for membership by their employer. Teachers, police officers and firefighters have separate pension arrangements. Although membership is not compulsory, it is automatic for all employees who have a contract of employment that is for at least 3 months and who are under age 75. Employees have freedom of choice to leave the Scheme and make alternative pension arrangements. At 31 March 2017 the total membership records administered by the East Riding Pension Fund was 109,685, an increase of 6.1% in the year (2016: 103,375). For active members, each separate employment contract is classed as a record where an individual has multiple employments, and the number of active member records has increased by 0.6% to 39,475 (2016: 39,227). For pensioner members each pension entitlement is classed as a record where an individual is in receipt of more than one pension and the number of pensioner member records, including the pensions paid to spouses and dependants of the former scheme members, has increased by 7.2% to 28,625 (2016: 26,698). All the membership figures in the report are based on the up to date position recorded on the pension administration system, with all previous years restated on a consistent basis. The average pension in payment is £4,661.60 per annum, equivalent to a weekly payment of £89.40. The Fund generated a return of 21.1% for the year ended 31 March 2017, compared to the strategic benchmark return of 20.1%. Over the three years to 31 March 2017, the Fund returned 10.5% per annum, compared to the strategic benchmark return of 10.0% per annum, and the long term investment objective of 7.1% per annum. The Pension Fund continues to be managed in a cost effective manner with total pension administration and investment management costs equating to just 0.12% (2016: 0.13%) of funds under management. The key challenges for the Fund in the year ahead are maintaining strong investment performance in a lower return environment and continuing the preparations for the creation of Border to Coast Pensions Partnership, the Fund’s chosen entity to satisfy the Government’s requirement for pooling. The Fund is participating fully in the pooling process and will strive to ensure that any changes will be communicated to both scheme members and employers. I would like to extend my appreciation to everyone involved in the management of the Fund whose efforts have resulted in a continuation of the standard of service that members of the Fund have come to expect. Julian Neilson Head of Finance East Riding of Yorkshire Council 1 September 2017 foreword 3 East Riding Pension Fund Annual Report and Accounts 2016/2017 the local government pension scheme Legal Framework The Local Government Pension Scheme (LGPS) has been in existence since 1922 and has developed into a comprehensive scheme providing pensions for all members and their spouses, civil partners or eligible cohabiting partners and eligible children. The current scheme, LGPS 2014, is a Career Average Revalued Earnings (CARE) scheme. The scheme rules for LGPS 2014 are contained within the LGPS Regulations 2013 (Statutory Instrument Number 2013 No. 2356) and subsequent amendments and the Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014 (Statutory Instrument Number 2014 No. 525). Amendments to LGPS 2014 are made under the Public Service Pensions Act 2013. Details of the main provisions of LGPS 2014 can be found at http://lgpsregs.webdigi.co.uk/schemeregs/index.php The Regulations specify the type and amounts of pension and other benefits payable in respect of scheme members who leave, retire or die, and also fix the member contributions rates payable on an ongoing basis. Employees have the freedom to opt-out and make their own pension provision. Employer contribution rates are set by the Fund’s Actuary every three years following the valuation of the Fund, in order to maintain the solvency of the Fund. New rates were set by the Actuary from 1 April 2017 to 31 March 2020 following the 2016 Actuarial Valuation. Whilst the Regulations are fixed on a national basis, the LGPS is managed by a designated Administering Authority, and throughout England and Wales there are 89 such authorities. East Riding of Yorkshire Council is responsible for administering ‘The East Riding Pension Fund’ for the benefit of its own employees and the employees of the scheme employers and admission bodies. Full details of the employers participating within the Fund are shown on pages 5 to 6. Teachers, Police Officers and Firefighters are excluded from the LGPS as they are members of separate statutory pension schemes. HM Revenues and Customs has granted the LGPS ‘exempt approval’ for the purposes of the Income and Corporation Taxes Act 1988. Since April 2006, the LGPS has been classified as a registered public service pension scheme under Part 4 of Chapter 2 of the Finance Act 2004. It complies with the relevant provisions of the Pension Schemes Act 1993, the Pensions Act 1995, and the Pensions Act 2004 and meets the government’s new standards under the automatic enrolment provisions of the Pensions Act 2008. The East Riding Pension Fund Local Pension Board As required under section 5 of the Public Service Pensions Act 2013 and regulation 106 of the LGPS Regulations 2013 (as amended), the East Riding Pension Fund Local Pension Board (ERPFLPB) was established on 25 February 2015 and is made up of three employer representatives and three member representatives. The ERPFLPB is responsible for assisting East Riding of Yorkshire Council (as administering authority) in securing compliance with the LGPS regulations, overriding legislation and guidance from the Pensions Regulator. Details of the activities of the ERPFLPB can be found can be found on the East Riding Pension Fund website at http://www. erpf.org.uk/local-pension-board-information/ the local government pension scheme 4 East Riding Pension Fund Annual Report and Accounts 2016/2017 Fund Membership The 257 employers, including East Riding of Yorkshire Council, with an interest in the Pension Fund in 2016/17 are listed below: ADMINISTERING AUTHORITY East Riding of Yorkshire Council SCHEDULE 2 EMPLOYERS (217) Ainthorpe Primary Academy Francis Askew Primary School Neasden Primary Academy Anlaby Common Parish Council Franklin College New Waltham Academy Appleton Primary Academy Ganton School Newbald Parish Council Archbishop Sentamu Academy Goole High School Newington Academy Ashwell Academy Goole Town Council Newland St John’s CE Academy Aspire Academy Greatcoates Primary Academy North Cave Parish Council Barton upon Humber Town Council Grimsby Institute of Further and Higher North East Lincolnshire Council Beverley and North Holderness Internal Education North Eastern Inshore Fisheries and Drainage Board Hall Road Academy Conservation Authority Bellfield Academy Havelock Academy North Lincolnshire Council Beverley Grammar School Healing Primary School North Lindsey College Beverley Town Council Healing Science Academy Limited Oasis Academy Henderson Avenue Biggin Hill Primary Academy Hedon Town Council Oasis Academy Immingham Bishop Burton College Hessle High School Oasis Academy Nunsthorpe Bottesford Town Council Hessle Penshurst Primary School Oasis Academy Parkwood Bricknell Primary Academy Hessle Town Council Oasis Academy Wintringham Bridgeview School Hibaldstow Academy Old Clee Primary Academy Bridlington Town Council Highlands Primary Academy Ormiston Maritime Academy Brigg Town Council Holy